Technology innovation means that hardware firms can offer more computing power at an increasingly cheap price; thus, IT can be applied to more and more task.
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 advantage. 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.
Ref: The Five Rules for Successful Stock Investing by Pat Dorsey
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