• IT architecture shifts (e.g. "thin" client, peer-to-peer, virtualized resources, "cloud"-based models)
• Emergence of new computing and communication platforms (e.g. smartphones)
• Pure technical innovation (e.g. public key encryption, page rank algorithms, ATM switching)
• New business models (e.g. software as a service, ad-sponsored search)
• Emergence of new ways to communicate (e.g. IM, SMS, VoIP)
• "Accessory" opportunities created in the wake of platform success, such as platform specific utilities
• New applications generated by business processes

In the semiconductor industry, for example, a confluence of cost, technology and demand trends is creating a shakeout in manufacturing. Indeed, the fixed costs and minimum scale associated with building a new chip fabrication plant have risen almost as precipitously as unit costs (under Moore's Law) have fallen. As a result, few companies can still make the next leap to fabs costing $4 billion apiece. This has created a new set of "fabless" semiconductor companies, along with the "foundries," which focus on manufacturing chips designed by others. Semiconductor companies will need to carefully weigh their strategy.

In the application software segment, activity in mergers and acquisitions has grown apace with the slowing of growth in the various segments. Today, roughly 40% of all of the $250 million-plus ISVs of 2001 are part of different companies. Adding to the turmoil are the emerging technologies in so-called virtualization and cloud computing. These will eventually disconnect applications from specific servers, likely creating new "confederations" among business users. These developments will also fuel the rise of software as a service (Saas) players, and profoundly affect the outsourcing and services industries.

The intensifying battle to equip and serve powerful new data centers are further blurring the lines among software, hardware, networking equipment, storage and service offerings.

On the other hand, while change is constant, the themes in technology are perennial. In general, the new supplements rather than supplants the old, resulting in an increasingly complex landscape.

In parallel to this continued innovation, many "older" swaths of the high-tech industry are maturing, following the same classic patterns seen in other industries:

• Increasing competitor concentration
• More incremental product innovation
• Increasing customer segment specialization
• Globalization
• Migration to lower-cost channels
• (De)regulation
• Architectural, platform, format and business model shifts
• Growing role of private equity firms in restructuring industry segments facing growth challenges

Bain's Technology experience

We have worked with clients in computer software and hardware, semiconductor, IT services, storage, components and peripherals segments. Our clients include five of the eight largest PC manufacturers, three of the five leading software manufacturers and many key participants in the semiconductor industry. Our experience extends across the globe.

Bain helps companies in all stages of industry and life cycles. We help:

Market leaders think through how acquisitions, adjacency moves, refined customer segmentation, improved salesforce effectiveness, strategic sourcing and cost reduction efforts can help them maintain, or even increase, their advantage.

Companies that have hit a speed bump find defensible niches, overhaul their cost structure, think through and execute potential changes in capital structure.

Emerging players continue their trajectory by helping them to scale their organizations and processes to the increased complexity of their market participation.

Private equity portfolio companies align strategic imperatives with their new owners, develop and implement plans to improve operational performance.

To find out more about our work in this industry, please contact Bain's Technology practice.