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Top 250 Electronics Companies, 1999

-July 01, 1999

This year, Electronic Business took the Top Electronics Companies Ranking global to better reflect how connected the world has become

Go to Top 250 Chart >>


Many of today's high-tech companies are loathe to consider themselves headquartered in any one place. Instead, they like to think of themselves as being global, with base camps in numerous strategic markets around the world. While some companies are decidedly more global than others--the shift is inexorable and the pace accelerating. Starting this year, Electronic Business is reflecting this trend by combining both U.S. and foreign companies to create one single list of the Top 250 Electronics Companies (see p. 110).

THE MOVERS AND SHAKERS

The effects of this change have been profound. Compared to last year's list, only two U.S.-based corporations--IBM Corp., Armonk, NY, and Hewlett-Packard Co., Palo Alto--remain in the top five. That's only 40%. Expand that to the top 20 and you find four European, one Canadian, seven Japanese and just eight U.S. companies. Again just 40%. A bit further down the list, you run into a Finnish company (Nokia at No. 24). It is indeed a global industry.


Japan's big five saw their net income drop between 43% and 96% in 1998

Not only are the top-ranked companies more international, but they account for a much larger share of the world's electronics market. For instance, the top 25 companies on this year's global list had aggregate electronics revenue of $740.3 billion in 1998. By comparison, the top 25 on last year's U.S.-only list had a meager $415.3 billion, 44% less than the global list.

Connectivity is the thing

Not only does the combination of U.S. and foreign companies more accurately reflect who is leading the way in technology, it signifies the dawn of a new era in high-tech business: connectivity. The relatively recent introduction of the Internet as a strategic business tool is a catalyst for accelerating the exchange of information, goods and services--within companies, between suppliers and customers and even further up and down the food chain. Indeed, the 'Net allows companies to communicate with their customers' customers and their suppliers' suppliers, sharing information--the theory goes--that will ultimately compress the supply chain, cut costs and improve efficiency.

METHODOLOGY

Many of the companies that performed well in 1998 are companies that recognized the strategic advantage of connectivity early on, while those slow to the draw suffered measurably. For example, with their inventory-efficient build-to-order selling model on the Internet, PC companies like Dell Computer Corp., Round Rock, TX, (No. 19), and Gateway Inc., North Sioux City, SD, (No. 43), once again out-dazzled their competitors in terms of net profit. Even though Compaq Computer Corp., Houston, (No. 9), grew its revenue from 1997 to 1999, a resistance to revamping its traditional distribution channels resulted in sinking profits and the eventual ouster of CEO Eckhard Pfeiffer.

Another personal computer company that can tie this year's good fortune to the Internet is Apple Computer Inc., Cupertino. Appearing on this year's list at a respectable ranking of No. 57, the company turned its first profits since 1995. Steve Jobs, back on board as interim CEO, not only stream-lined the company by ditching the MessagePad and eMate products, he took a cue from Dell Computer and began selling build-to-order systems on-line. Also recognizing the strong desire from consumers to "get connected," Apple enjoyed healthy sales of its fruit-colored low-end PC, the iMac--the "i" refers to the Internet--with a plug-and-play design that allows owners to log-on to the 'Net within 15 minutes of removing the computer from the box.

Perhaps the market's favorite Internet success story for a hardware company is Cisco Systems Inc., San Jose. Coming in at No. 34, the manufacturer of Internet routers enjoyed a 36% increase in annual revenue while maintaining solid profit margins. It placed seventh on the list for net income per employee (See table, p.104).

36 NEW ADDITIONS

In addition to new acquisitions, much of Cisco's success can be attributed to its effective use of selling its products through the Internet. Cisco sells nearly 70% of its products online, averaging $600 million per month in sales online.

Another of this year's Top 250 stars, Network Associates Inc., Santa Clara, (No. 174), was literally born out of the Internet. Originally named McAfee and Associates, it got its start in the market by distributing anti-viral software for free over the Internet. In 1998, the company continued to expand its suite of products for the Internet into firewalls and intrusion-detection software. It also acquired CyberMedia of Santa Monica, CA, for $160.9 million to enhance the company's system analysis software offerings. (See the five-year annual revenue growth table on p.102.)

The chip uptick

Recovery in the semiconductor business began in mid-1998, but not soon enough. Financial results for many chip makers, especially Japanese and Korean dynamic random access memory (DRAM) makers, were dismal. (See "The Best (and worst) from overseas," p.106.)

Even powerful Intel Corp. (No. 14), known for its double-digit revenue growth, actually dropped six places in its ranking of top performers on the net-income-as-a-percent-of-revenue chart. From third place on last year's list with 27.7%, Intel fell to ninth place with 23.1%. (See chart, p.104).

A number of major U.S. chip vendors saw revenue reversals in 1998. These include Motorola (No. 12), down 1.3%, Texas Instruments (No. 37), down 13.2%, National Semiconductor (No. 115), down 17.5%, Cirrus Logic (No. 201), down 10.3%, and VLSI Technology (No. 244), down 23.1%.

At the other end of the performance spectrum is ATI Technologies Inc., Ontario, Canada, making its debut at No. 182. A leading maker of graphics-accelerator chips, this hot property's customers include Apple, Dell, Gateway and Sun Microsystems. The popularity for high-quality graphics in games and presentations has allowed this company to more than double annual revenue and more than triple net income in just a year. ATI is also in the top 10 for return on assets (see below) and return on equity (see p. 104).

Always lagging a few months behind the chip market in recovery, of course, is the semiconductor capital equipment market. Nikon (No. 124), Applied Materials (No. 86) and Tokyo Electron (No. 87), among others, all took serious dips in revenue and net income last year as they waited in eager anticipation for chip prices to firm and demand for equipment to improve. Also, the failure of the 300-millimeter wafer processing equipment to find a market saw the sacrifice of major R&D investments within this sector.


In April, Korean President Kim Dae Jong warned that the chaebols could soon face lending restrictions and forced restructuring if they fail to change voluntarily

R&D pays off

In general, R&D investment among the Top 250 held steady from 1997. Top-ranked IBM, for example, was unchanged at a rate of 6.2% of total revenue. No. 3-ranked Hewlett-Packard was down 0.1% to 7.1% last year. Percentage wise, the largest companies spent in the high single digits and low double digits.

The exceptional R&D spenders tend to be companies further down the list. Sterling Commerce, No. 248 on this year's ranking, topped the R&D list by spending close to 30% of revenue on research and development. Netscape Communications Corp. of Mountain View, which was acquired by America Online Inc., Dulles, VA, was second. Indeed, of the top 10 R&D spenders, six are software companies, including electronic design automation maker Synopsys Inc. of Mountain View, which ranked third.

COMPOSITE PERFORMANCE OF THE ELECTRONIC BUSINESS TOP 250
Calendar year 1998
Fiscal year 1998

Does heavy R&D spending pay off? For many companies, the answer is yes. But for some, such as No. 250 Integrated Device Technology Inc., Santa Clara, the answer is a resounding no. The chip maker was at the bottom of the list in 1998 in terms of net income as a percent of revenue.

Though the disk-drive industry grew slightly more than 11% in 1998, according to Disk/Trend, a market research firm in Mountain View, disk-drive companies Seagate Technology (No. 51), Quantum (No. 66) and Western Digital (No. 98) all saw major declines in 1998 due to increased competition. "1998 was all about time-to-market," stresses James Porter, president of Disk/Trend. The disk-drive division of IBM kept pace with industry growth thanks to a completely revamped management model that has helped it get products out the door much faster, says Porter. Another clear winner was Tokyo-based Fujitsu Ltd. (No. 4). Its disk-drive division sold 6.4 million more units this year over the previous year, he says.

Communications was the one exception to the general industry malaise--in part because of globalization and the need for connectivity. Though dismal profits dominated this year's list for several different segments, the communications industry remained buoyant, and is promising to do even better in 1999 and 2000.

Case in point: Lucent Technologies Inc., Murray Hill, NJ, (No. 10), saw its annual revenue increase a healthy 12.8% from the previous year and net income increase by a multiple of six. In 1998, Lucent's market value surpassed that of AT&T Corp., New York, the very company that spun it out in 1996.

Stanley H. Brown is a business writer and formerly an editor at BusinessWeek, Fortune and Forbes. He can be reached at stanbro@pipeline.com.

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