NEW YORK — Socrates is credited with saying that the unexamined life is not
worth living. Technology vendors might add that the undifferentiated company
is not worth investing in.
And then there is Yogi Berra who said: “If you don’t know where you’re going, you might wind up someplace else.”
Good point.
For presenters at Cowen and Company’s 34th annual
technology conference here, the best way for a technology company to
add value to investors is by doing what they do best.
And knowing when to say “no.”
Indeed, while the costs (and prices) of commoditized technologies are
falling (think in terms of cost per chip or the price of laptops), companies
that succeed in specializing are seeing unusually strong margin growth.
Margie Backaus, chief business officer at Equinix, a carrier-neutral data
center, told members of the investing community that demand for value-added
network access services is allowing her company to raise prices this year by
as much as 10 percent.
Pricing conditions are so favorable that Backaus flouted conventional wisdom
where customer churn is concerned, saying her company welcomes it. She
urged investors to do the same.
“I hope none of our customers are out here,” she said. “But we like churn
because we’re replacing that [current] revenue with higher services and
higher margins. Investors should be rejoicing when churn numbers rise.”
Equinix, said Backaus, is raising its prices by about 10 percent for new
customers, and renewing existing customers with rate hikes of between 3 percent and 5 percent.
And Backaus isn’t fazed by Microsoft’s and Google’s plans
to build their own data centers in order to contain costs.
“That’s business we don’t want,” she said. “The business we want is
connectivity.”
Rick Wallace, CEO of KLA Telcor, a process diagnostic and inspection
equipment provider to the semiconductor industry, likewise explained that
his company is focused on what it does best.
“Our vision is to extend our leadership as the world’s best inspection and
metrology company with differentiated solutions,” he said. “Our strategy is
to lead or exit. Either we see a path to get to the No. 1 position or
we get out of the business.”
Wallace noted that even within inspection and metrology, there were niches
where low-cost providers could undercut his company’s share of the market,
and that KLA Telcor would get out of those businesses.
As a result of these strategic choices, he said, KLA Telcor will go from $2
billion in annual revenues to $3 billion over the next four years, while
simultaneously doubling profitability.
Raj Seth, an analyst with SG Cowen and Company, credits KLA’s “dominant
position” with “driving industry-leading margins.”
