the speed of technology - are tech companies disposable?

[grapejelly]

Remember the old phone instruments in the US, when "Ma Bell" controlled everything having to do with phone? They were built to last decades. You could drop those old phones repeatedly and they wouldn't break. Some people still use them today, undoubtedly.

Why were they built to last? Because the phone company owned them and rented them out (you couldn't buy them in theory), and because they expected them to be in service for decades.

As the pace of technology accelerates, this "built to last" isn't workable anymore.

Take cellphones, for instance. Why build one to last when its average life will be two years?

The disposability of tech assets has been moving up the value chain to more expensive things. We don't find it pays to fix refrigerators anymore. Just throw them away when they quit. And more and more "durables" are built for shorter service lifetimes. Even for things like washers and dryers, new technology is obsolescing the old ones to an increasing degree.

So it is with large tech assets. Take cellular. The cellular companies built extensive networks and they count these as assets with expected lifetimes over decades.

But wifi and wimax and ultra broad band wireless and other technologies are rapidly making these networks obsolete.

I contend that many tech assets have a shorter and shorter service life, and that this isn't discounted in the value of tech stocks. Capital is deployed based upon expected returns over a span that is much longer than is realistic.

The only reason is that capital is so cheap these days and investors don't care.

At some point, they will care. It will become evident that almost nothing tech can be expected to be valuable for more than perhaps 5 years or so. As payoff horizons shrink to realistic spans of time, tech and communication stocks will find their valuations clipped and billions of dollars of invested capital will be written off.

[Finster]

Re: the speed of technology - are tech companies disposable?

Remember the old phone instruments in the US, when "Ma Bell" controlled everything having to do with phone? They were built to last decades. You could drop those old phones repeatedly and they wouldn't break. Some people still use them today, undoubtedly.

Why were they built to last? Because the phone company owned them and rented them out (you couldn't buy them in theory), and because they expected them to be in service for decades.

As the pace of technology accelerates, this "built to last" isn't workable anymore.

Take cellphones, for instance. Why build one to last when its average life will be two years?

The disposability of tech assets has been moving up the value chain to more expensive things. We don't find it pays to fix refrigerators anymore. Just throw them away when they quit. And more and more "durables" are built for shorter service lifetimes. Even for things like washers and dryers, new technology is obsolescing the old ones to an increasing degree.

So it is with large tech assets. Take cellular. The cellular companies built extensive networks and they count these as assets with expected lifetimes over decades.

But wifi and wimax and ultra broad band wireless and other technologies are rapidly making these networks obsolete.

I contend that many tech assets have a shorter and shorter service life, and that this isn't discounted in the value of tech stocks. Capital is deployed based upon expected returns over a span that is much longer than is realistic.

The only reason is that capital is so cheap these days and investors don't care.

At some point, they will care. It will become evident that almost nothing tech can be expected to be valuable for more than perhaps 5 years or so. As payoff horizons shrink to realistic spans of time, tech and communication stocks will find their valuations clipped and billions of dollars of invested capital will be written off.

Another way to look at it is that technology is far more expensive than advertised. That phone, computer, or whatever you bought might seem cheaper than before, but you just can't buy one any more. What you pay effectively winds up being the cost of renting it for a couple of years. Tote up all the cost, and technology prices are going out of sight just like the prices of other things.

And should you be so unfortunate as to be a shareholder in these companies, don't forget this is the sector whose managements fought tooth and nail to keep their stock option costs off the earnings statement. What they do with shares is not unlike what governments do with currency - they print them up, pay themselves with them, and thereby transfer value from all holders of the paper to themselves. In this way, they have grossly understated costs and conversely overstated profits. If they're reporting positive earnings but you're not getting dividend payments and/or seeing your per-share equity grow, you're getting ripped off.

[jk]

Re: the speed of technology - are tech companies disposable?

in general tech is a bad business because there are few or no barriers to entry, and every [hardware] product is soon obsolete. who here remembers data general, or wang, or the various other highfliers of decades past? the winners have defensible markets and monopolies [like microsoft] or positive network effects [like google]. running a successful tech company requires repeatedly reinventing the company- a hard act to pull off.