• Information technology is an increasingly important source of productiv
ity In advanced economies. In 2OO2, IT accounted for nearly JO percent
of total U.S. investment in capital equipment, up from 20 percent three
decades ago.
• Technology innovation means that hardware firms can offer more com
puting power at an increasingly cheap price; thus, IT can be applied to
more and more tasks.
• Because of rapid innovation, technology hardware companies tend to
generate rapid revenue and earnings growth.
• At the same time, competitive rivalry is often strong in tech hardware.
Moreover, demand for technology hardware is very cyclical.
• Technology, by itself, does not constitute a sustainable competitive ad
vantage. Hardware companies that develop economic moats are more
likely to succeed over the long term than companies that rely on a lead in
technology.
Examples of moats among technology hardware firms include low-cost
producer (Dell), intangible assets (Linear and Maxim), switching costs
(Nortel and Lucent), and network effect (Cisco).
A company with a sustainable competitive advantage should be able to
effectively fend off its rivals and maintain significant market share and/or
sustain above-average margins over an extended period of time.
