Technology Sector

Industry Overview

The technology sector in the US consists of almost 100,000 companies with combined annual revenues of about $800 billion. Although much of the industry revenue is concentrated in large companies like IBM, GE, Microsoft, Motorola, and Intel, the average tech company has annual revenue under $10 million. Industry concentration is high in many subsectors: the largest 50 participants often holding more than 60 percent of the market.

This profile doesn't include pharmaceuticals.

Competitive Landscape

Demand often depends on the income of consumers or the profitability of business customers, because many technology products and services are expensive. The profitability of individual companies is driven by their ability to develop and market new products. Large companies often have advantages in marketing and in access to capital. Small companies can compete successfully if they have expertise in a particular field of knowledge.

Products, Operations & Technology

Of the several distinct fields within the technology sector, most are based on computer technology. Even the fields of biotechnology and aerospace rely heavily on computers. Companies in the technology sector take advantage of scientific discoveries that have been made in the last few decades, turning them into marketable products. The hallmark of technology companies is that the inner workings of their products are basically incomprehensible to the average person (many people understand how a car engine works, but few understand how a telephone works, or what DNA is).

The key scientific discoveries that underlie many of today's technology companies were made about 50 years ago - the transistor, the laser, the computer, the integrated circuit, and the structure of DNA. The technology sector of the US economy was built through large financial investments committed to developing these discoveries once they were sufficiently well understood to promise practical products. Newer scientific discoveries like nanotechnology, superconductivity, and carbon nano-tubes haven't yet received similar levels of investment because the pathways to practical applications are not yet clear.

Tech companies are driven by continuing advances in knowledge, which produce a stream of improved products. The product cycle at technology companies is often short: a new version of their products is often being developed. In addition to developing their own technology, many companies acquire it from other companies, either through licenses or by buying entire companies. The reverse is also common: managers at large companies frequently form new companies to develop a particular technology that their employer isn't interested in. A strong link between industry and academic research institutions exists, including a flow of personnel between them. Although technology products eventually end up in consumer or business products, most technology sales are to other technology companies. Technology companies employ large numbers of engineers and scientists, invest heavily in expensive research equipment, have R&D expenses that often exceed 10 percent of revenues, hold patents that protect their products, are frequently embroiled in patent disputes, and often ally with other companies to produce or market their products.

Computer technology can be separated into computer chips, computer components and assembly, computer software, Internet infrastructure, and Internet business companies. Companies depend on the increasing power and decreasing cost of computing capabilities that have resulted from the miniaturization of computing elements. Lower costs have made computers common, which has allowed the development of information exchange over computer networks, like the Internet.

Telecom technology is a specialized segment of computer technology, since telephone handsets and switches are now computerized. New technologies first applied to telecommunications, like fiber optics and wireless communication, have migrated into the broader computer area. The backbone of the Internet runs on fiber optic long-distance lines. Optical computers are on the horizon because fiber optic telephone lines have been so effective.

Aerospace technology depends almost totally on computer technology, from design to manufacture to control. The most advanced jet fighters can be controlled in flight only by computers, because no human pilot could hold them steady. Spending on traditional aerospace research and manufacture has decreased since the end of the Cold War, but satellite technology for telecommunications is rapidly developing.

Biotech as a commercial industry used genetically engineered bacteria to produce existing drugs (like insulin) cheaper and with greater purity. Alliances with existing drug marketing companies have usually been necessary to bring these new drugs to market. Developing other areas of biotechnology has been less successful, such as artificial limbs, skin and blood, or genetically engineered crops. The most promising areas are the decoding of human genes and greater understanding of the pathways of protein synthesis and immunology, which have already led to new types of drugs, like statins to control cholesterol; rapid developments in this area will produce a flood of new drug therapies during the next few decades.

Other areas of technological development that have so far had only limited commercial success but good future prospects include ceramic materials for car engines, batteries and other power storage devices, solar power, and pollution remediation technology.

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