Tech Giants Spend $80 Billion To Make Sure No One Else Can Compete (bloomberg.com)

An anonymous reader quotes a report from Bloomberg: Google parent Alphabet and the other four dominant U.S. technology companies -- Apple, Amazon, Microsoft, and Facebook -- are fast becoming industrial giants. They spent a combined $80 billion in the last year on big-ticket physical assets, including manufacturing equipment and specialized tools for assembling iPhones and the powerful computers and undersea internet cables Facebook needs to fire up Instagram videos in a flash. Thanks to this surge in spending -- up from $40 billion in 2015 -- they've joined the ranks of automakers, telephone companies, and oil drillers as the country's biggest spenders on capital goods, items including factories, heavy equipment, and real estate that are considered long-term investments. Their combined outlay is about 10 times what GM spends annually on its plants, vehicle-assembly robots, and other materials. The splurge by tech companies is behind an upswing in capital-goods spending among big U.S. companies, which is seeing its fastest growth in years, according to a Credit Suisse analysis. The $80 billion tab also is a snapshot of why it's tough to unseat the tech giants. How can a company hope to compete with Google's driverless cars when it spends $20 billion a year to ensure it has the best laser-guided sensors and computer chips? There are a lot of physical assets behind all those internet clouds.

Comments

Stop trying to invent AI drivers and build cars!!!

[Anonymous Coward]

"How can a company hope to compete with Google's driverless cars" - Easy, hire any competent driver. Google's AI will never match that in my lifetime. Any company trying to accomplish this impossible feat on a budget is business-grade retarded.

Top 4 largest tech companies vs. 1 auto?

[misnohmer]

What is the point of stating that top 4 companies of a very large sector spend more combined than one company of some other sector? Why not turn it around, do top 4 auto manufactures combined spend more on long-term investments than just Google?

Re:Top 4 largest tech companies vs. 1 auto?

[Actually, I do RTFA]

Okay: On average, they each spend 2.5x what GM (an iconic heavy-capital company) spends on cap-ex.

Re:Top 4 largest tech companies vs. 1 auto?

[_Sharp'r_]

Tech Giants Spend $80 Billion To Make Sure No One Else Can Compete

The title could just as easily have been "Tech Giants Spend $80 Billion To Make Sure They Can Continue To Compete", but that wouldn't give the same spin, now would it?

They have money to spend, so they're figuring out things to spend it on, some stupid, but some to be able to offer better products, increase efficiency, do more for customers and make more money in the future.

What else are they going to do with their cash? Give it to shareholders and suggest they find a company better able to earn a return on it? Stick it in the bank in case they someday start losing money so they have it?

The whole premise of the title is stupid. If theses companies didn't ever have to compete with anyone else, then they would have no need to make big capital expenditures in order to stay or become more competitive with others...

Re:Top 4 largest tech companies vs. 1 auto?

[dcw3]

There's a big difference between competing and monopolistic behavior. One is good, the other not so much because it stifle's innovation and harms consumers.

Re: Top 4 largest tech companies vs. 1 auto?

[_Sharp'r_]

Marketing is primarily about discoverability. Ensuring that customers realize you are selling a solution to their problems. PR is about trying to convince people to like you more than they otherwise would.

So while they certainly aren't perfect (what is?), they're literally the opposite of keeping customers uninformed.

That's small potatoes

[rsilvergun]

compared to what they're spending on Mergers & Acquisitions. That's where the real non-compete comes from. I don't remember the last big tech company that didn't just get bought out. That's the trouble with letting these companies hold onto so much cash. They don't have anything to spend it on except buying out competitors. Not since Bell Labs have they felt the need to put real money into basic research...

Re: That's small potatoes

[registrations_suck]

How much do they spend on lobbying in all its forms?

Re:That's small potatoes

[Actually, I do RTFA]

. I don't remember the last big tech company that didn't just get bought out.

Snapchat and Twitter come to mind. More Snapchat than Twitter.

Re:That's small potatoes

[youngone]

Exactly. The company I work for is not a tech company, and you have definitely heard of it.
Last year our CEO used exactly that pitch to the shareholders of our biggest competitor.
"If we buy you out, just think how much we will be able to jack our prices up!"
That's not exactly what he said, but that's what he meant, and everybody knew it.

Re: That's small potatoes

[Beeftopia]

The answers are here.

Also worth reading about Dark Money.

Re: That's small potatoes

[viperidaenz]

If they're not spending it, it should be going back to the shareholders.

Re:That's small potatoes

[alvinrod]

I don't think it really matters. If you look at the track record for most of these big mergers or acquisitions, they hardly ever work out as well as anyone hopes. The AOL Time Warner deal is probably the biggest example, and the HP Compaq merger comes to mind as well. Even more recently we had Google buy Motorola, only to sell them off a few years later, presumably taking an overall loss on their investment. You'd think that all of those previous giants would have made it impossible for new companies to arise, yet here we are with Apple and Microsoft (though they're hardly the young upstarts they once were) being at the top of the pile, but other new companies like Amazon, Google (both only some 20 years old), and more recently Facebook (15 years old) also rising. Sometime in the next decade, we'll see another company that doesn't even exist yet make a similar rise to power and companies formed within the last 10 years like Xiaomi which is the 4th largest smartphone manufacturer in the world despite only being 8 years old.

If a board can convince shareholders that it's better to spend the company's money on an acquisition instead of returning it to the shareholders, that's their own business. Also, very few companies pay for these mergers with cash, and instead use the purchasing company's stock to finance the deal. Most companies don't have anywhere near the amount of cash that would be necessary to buy even a moderately successful startup company. And if you want to know why companies like Apple or Microsoft do have big piles of cash overseas, it's due to the idiotic U.S. laws that make it financially unfeasible for them to bring it back to the U.S. where they'd no doubt be happy to reinvest a sizable portion of it.

Re:That's small potatoes

[monkeyxpress]

trouble with letting these companies hold onto so much cash

Why do you think other people's resources somehow belong to you and you should have a say in what they do with it?

Well, in principle I agree with you, until enough of those people come for your stuff with pitch-forks, and don't seem to be particularly interested in your protestations that they are breaking a sacred moral code.

Re: That's small potatoes

[Anonymous Coward]

I'm going to pretend the notion isn't socialism but rather originalist thinking.

One bit of forbidden knowledge that nobody teaches in the US is how the founders handled corporations. They were quite familiar with multinational megacorps, having dealt with and been abused by the British East India Company, which was basically the Wal-Mart of its time period.

So they knew all about companies buying laws and using wealth to block competition because they'd had it done to them.

This is the big reason the founders were protectionists, believed strongly in tariffs, and used that belief to build a thriving economy until corrupt politicians created the income tax and the IRS, and later Reagan and every president after him until Trump tore down tariffs and let internationalists run amok with their alleged free trade policies.

The founders regulated corporations heavily. A corporation could only exist for a defined period of time, and only for one purpose. It could not own other corporations. It could be shut down and liquidated if it was found to not be operating in the public interest. Profits had to be returned to shareholders.

That last part is the key, because you don't want corporations hoarding cash. No good ever comes of that.

This is why when someone needed to build a bridge or something big they'd literally find investors, make a company, do it, and return the profits and, if they wanted, go on to find something else to do.

So tightly regulating corporations and preventing massive growth is actually a conservative position to have--but nobody wants you to know that.

Re:That's small potatoes

[drinkypoo]

trouble with letting these companies hold onto so much cash

Why do you think other people's resources somehow belong to you and you should have a say in what they do with it?

Corporations are legal fictions created by the government which supposedly belongs to The People. If the people involved in the venture owned that property personally, then a) it would get taxed, unlike when corporations do it and b) they would be liable if it was misused, unlike when corporations do it.

Re:That's small potatoes

[HockeyPuck]

It makes more sense to spend the money on a M&A than do the research yourself. Let's say you want to offer a new widget/service, you could invest $10m yourself to develop it, or you could let the VC community invest $10m per startup and then you pick the best one. Sure it may cost you most than $10m, but from a financial reporting standpoint, the millions more you spend on the acquisition is better than the $10m you'd spend on R&D. Plus, you're picking the winner out of all the startups out there. It's very likely, that the internally developed product/service you invested in isn't as good as what the startup companies have developed.

Re:That's small potatoes

[DCFusor]

Lobbying is more cost-effective. Patent IP "reform", Mickey Mouse Copyright, most regulations that cost little guys more as a proportion, healthcare laws written by insurance and big pharma, the list is long - and that money is VERY effective at preventing competition.
How about the single biggest customer (.gov) can't by law negotiate drug prices - how'd that happen? It's not like they don't charge us in taxes, the government itself pays for nothing, nada, zero. We're always holding every single bag.

Re: That's small potatoes

[DCFusor]

I didn't know CA, where San Francisco is located, was a red state. It's certainly a shit pool. With IV drug needle garnish.

Re: That's small potatoes

[dcw3]

If they're not spending it, it should be going back to the shareholders.

Well, that's a cute opinion that's not based upon anything legally compelling. How, as a shareholder, would you know if they don't have future plans to spend that money? You do realize that getting the cash back would also lower the value of your shares by a similar amount, right?

Re:That's small potatoes

[smoot123]

It makes more sense to spend the money on a M&A than do the research yourself.

Could be, could be. That was definitely the Cisco approach in the '90s. Many companies seem to do that now and many pre-IPO investors have that as their exit strategy (to be acquired instead of going public).

OTOH, if I'm a VC and invest $10 million in 10 companies, and one does well, I'm going to want a lot more than $100 million for my stake in the winner. The acquiring company will need to pay a premium for the reduced risk. Neither strategy seems fundamentally wrong to me, it's all how one wants to run your business.

Re:That's small potatoes

[_Sharp'r_]

Profit from corporations is currently double taxed, once when it's made by the corporation, then again when the corporation gives any of it back to it's investors as a return on their investment.

There are some shenanigans someone can play short term with a small corporation, essentially a handful of people at most, to avoid taxes which would otherwise get paid by changing some tax treatments, but for large public corporations and their investors (who eventually have to get the actual profit out of the corporation in some form, even if just selling their right to part of it to someone else), it's not somehow less taxed because the people involved do it via a corporate form vs. an individual one. Larger corporations are generally about liabilities for shareholders, not about tax savings.

Also, just because a corporation is chartered by a government organization doesn't legally nor morally transfer full ownership and control of that corporation to that government organization anytime that government organization wants to seize it.

Three's a crowd

[Arzaboa]

You have 50 states that need a system to keep the voting even among them called the electoral college, but any 3 large corporations in an industry, are called competition.

--
Four score and seven years ago - Abraham Lincoln

I'm failing to see the problem

[GerryGilmore]

Considering this from TFS: " The splurge by tech companies is behind an upswing in capital-goods spending among big U.S. companies, which is seeing its fastest growth in years...", since the rest of American industry continues to outsource every damn thing, this is one bright spot.

Re:Stop trying to invent AI drivers and build cars

[Tablizer]

Any company trying to accomplish this impossible feat on a budget

Who says they are doing this on a budget? Google has deep R&D pockets.

I can see it gradually expanding: limit it to carefully mapped roads at first, and gradually expand the driving network. The trucking industry is salivating over this because drivers are a big cost of theirs.

Microsoft, IBM, Union Pacific, US Steel, Sears, GM

[Anonymous Coward]

Nobody thought they could fall. They were too big, too powerful, too important.

Someone came along with a business model that pulled the rug out from under them.

It's only a matter of time.

Why pay drivers a living wage?

[aberglas]

When you can now outsource the driving to Mexico.

The AI does not need to be perfect. Not nearly. We already have tech to remotely control trucks. So the AI just needs to do the easy bit, keep them in a lane, stop if things go wrong and they lose contact with their remote driver.

One remote driver in Mexico can then easily monitor several trucks driving down the interstate.

Re:Why pay drivers a living wage?

[YouGotTobeKidding]

Exactly. Imagine the dumbest person you know. Know imagine the dumbest person THEY know. You now have a good idea on what the average driver is like on a 'bad day'.

Comp controlled cars dont have to be perfect as they are not replacing perfect drivers. They are replacing idiots. Cell phone taking, texting, drunk, sleep-deprived, angry idiots.

As long as they are good enough to reduce accidents they ARE an improvement.

Re: Why pay drivers a living wage?

[astrofurter]

The maximal failure mode - simultaneous, catastrophic loss of control - on remote-driven vehicles is really bad. The lesser failure modes - hijacking, sitting idle due to loss of connectivity , crashes due to sensor failure, etc etc - aren't too fun either.

Presumably the cost of insurance will reflect the insured risk and therefore be quite steep.

Re:Why pay drivers a living wage?

[dcw3]

Know imagine the dumbest person THEY know.

Okay, I have a target in mind know.

Re:Why pay drivers a living wage?

[terrycarlino]

Real life is that if liability is less than present liability it will happen. More so if liability can be externalized.

An autonomous driving AI doesn't need to be as good as the best drivers, it only needs to be as good as the average driver. One just needs to actually drive on the road to see that being better than the average driver is a low bar.

AI's will obey traffic and speed laws. They will not drive on the roads when conditions are too bad for them to be on the roads. Moreover for the purposes of transport companies they can legally drive a truck 24/7, something no human driver can do. In other words they can replace 3 human drivers. That alone will allow quite a bit of extra liability cost to be absorbed without negatively effecting the bottom line.

I expect to see a time when if you want to get on an interstate your vehicle will have to be using an AI or paying a huge fee only the super rich will be able to afford.

Trucks will be the first users of autonomous vehicles. There's just too much money laying on the table for them not to bankroll its development. They'll probably have to pay a teamster to be sleeping in the cab initially, just to get the unions on board, but they;ll be doing that, not driving and not "prepared to take over on seconds notice" either. They'll be a sop to the union and the truck will run 24/7.

I find myself wondering...

[CrimsonAvenger]

...just what spending on capital equipment has to do with "making sure noone else can compete".

Have we actually reached the point of thinking buying machine tools is anti-competition? And if so, does that mean that when a small company buys machine tools, they are also "making sure no one else can compete"?

When I saw the headline, I assumed that "make sure no one else can compete" meant they'd spent the $80B in Washington buying legislation. Because it never occurred to me that buying the machinery required to make your product could be seen as anti-competitive. By anyone

Re:I find myself wondering...

[lgw]

I made the same assumption, but the number seemed too high. Washington is full of cheap whores.

Re:I find myself wondering...

[RhettLivingston]

I had similar thoughts from a different angle. The headline represents a twisted view.

Would we rather they just continue to remove massive piles of cash from the economy? Even as an investor, I'd much rather see money being invested in research, development, and production growth than to have it sit doing nothing.

The fact that the cash reserves are still growing reflects a crisis of innovation in my mind. Please, innovate, grow, take risks. Don't just remove money from the economy and sit on it.

Re:I find myself wondering...

[sabbede]

Same here, but it turned out just to be tons of great news about the economy!

I'm left with the impression that the author was trying to make good news look bad.

Re:I find myself wondering...

[dcw3]

I made the same assumption, but the number seemed too high. Washington is full of cheap whores.

Having lived in the DC burbs since '82, I've yet to find the cheap ones. Could you please send directions?

Re:I find myself wondering...

[The Snazster]

When they were underdog startups, everybody was cheering for them. Now that they are successful, anything they do is dastardly by definition. People are weird.

Re:I find myself wondering...

[smoot123]

Having lived in the DC burbs since '82, I've yet to find the cheap ones. Could you please send directions?

Point taken. They're pricey whores and totally worth every small, unmarked bill.

Re:I find myself wondering...

[ole_timer]

+1 if I had it...great point

Re:Stop trying to invent AI drivers and build cars

[viperidaenz]

I have an idea to remove the need to complex AI for long haul.
You build a network of rails, and put the trucks on the rails, no steering required!
You could connect a hundred of the trucks together and then you'd only need one driver for the whole lot!
You could also power the rail-trucks through a wire above them and the steel rails they ride on, no more diesel!

Monopoly laws

[Sebby]

Although I realize the current monopoly laws wouldn't make either Apple or Google/Alphabet (or similar competitors) a monopoly, they both effectively have a single 'monopoly' of the entire market, but because the current laws would allow them to claim the other's marketshare doesn't make them a monopoly, they both get to enjoy their duopoly. We know how duopolies have totally worked out for the consumers' interest in the telecom space (/sarcasm).

I think the laws need to be changed, either better inline with the EU's (where competition is the primary thing they protect, instead of only protecting consumers from harm), or consider any duopoly the same as a single monopoly.

(No, I'm not going to work out the specifics of dealing with that - it's not my job, since I'm the one paying through my taxes for the government to do it).

Re:Monopoly laws

[mentil]

In the US, it's not illegal to be a monopoly (or part of an oligopoly, the word you're apparently looking for), but it IS illegal to abuse that position in certain ways (e.g. leveraging control over unrelated markets). Oligopolies generally abuse their position via colluding with one another to keep supply from rising or prices from dropping (price fixing), which violates anti-trust laws. Patent cross-licensing agreements (e.g. between Intel and AMD) are a grey-area that could be a problem, if used by an oligopoly to lock out newcomers. Anti-competitive behavior is illegal in the USA, and given most of these tech companies are global by nature, they're beholden to every country's anti-trust legislation in practice.

Which market am I

[raymorris]

You stated that Apple and all of the various Android-using companies and / or Google don't compete, right? They each have completely separate markets and each has a monopoly, correct?

My house has an iPhone, an Android phone, an iPad, and Android tablet, MacBook Pro, a Chromebook, and a Linux computer. Which market am I? Which company am I forced to buy from?

I had no choice, there was no competition when I bought the iPhone, and no competition when I bought the Android, phone, right? Wife wants to replace her iPhone and she's thinking she'll go back to Android, but she's not sure which manufacturer yet. Is that not allowed? Or she must switch back. Please let us know because it looks like competition to us, like we're choosing.

Twitter is from 2006

[rsilvergun]

Snapchat is from 2011. So we're looking at 7 years in what's supposed to be the fastest moving industry in human history.

Re:Stop trying to invent AI drivers and build cars

[novakyu]

That's so stupid. You would never get enough resources together to get such a network to cross a state, let alone the entire continent!

This is one of those stupid ideas that sound good on paper when implemented in small scale, like in New York City, but it will never work on a trans-continental scale in practice.

OR: "Tech giants spend $80B to reduce their costs"

[whoever57]

That's what I was thinking. It appears to be money invested in reducing costs, increasing capacity.

It may have the effect of making it difficult for younger companies to compete, but, if you are a small company trying to compete with a large company, you have already failed if you plan to offer a small cost reduction to your potential customers.

only city-scale ?

[DrYak]

the public rail system of several European countries (Switzerland, Germany, etc.) seem to disagree with your statement.

Re:only city-scale ?

[CrimsonAvenger]

Did not get the joke, I see....

how

[sad_]

"How can a company hope to compete with Google's driverless cars when it spends $20 billion a year to ensure it has the best laser-guided sensors and computer chips?"

by developing laser-guided sensors and chips that don't cost $20 billion/year?

The red queen's race

[davecb]

They're running as fast as they can to do tasks that require centralized, warehouse-scale computers before the technology advances make my phone and laptop capable of joining a distributed cloud of machines that can do the same tasks. If they don't hurry and make a lot of money, they won't get to buy into the next big thing.

"Quick! Use the money to buy into something else amazing!"

Re:Stop trying to invent AI drivers and build cars

[sonamchauhan]

Now remove the rails. And make the trucks run asynchronously, with embedded driving software. With little onboard gensets exchanging power with the transmission. That's what Gooberla and friends are doing.

But I still like your idea better and think trains are the most natural fit for autonomous driving. I don't know why lidar and computer vision are not used to augment train drivers. Figure out if that train is on a collision course, whether the track is flooded, whether a boulder is across the tracks on a foggy morning, whether a person or vehicle is on the track.

just a little bit of history...

[jbmartin6]

How can a company hope to compete with Google's driverless cars when it spends $20 billion a year to ensure it has the best ..

How has this happened in the past? In some cases, the big competitor becomes a dead weight bureaucracy and smaller competitors gain the advantage. Or a new technology removes the advantage. Or, for instance, where does Uber get all its money?

Re:Stop trying to invent AI drivers and build cars

[thomn8r]

Automate away most of the long-haul tasks and use drivers for last-mile delivery

Maybe we need a set of specialized "long-haul" roads just for carrying stuff long-distance. Instead of one motorized unit pulling one or two trailers (3 trailers in the flyover states) we could use bigger motorized unit with a couple hundred trailers. We could make these long-haul roads out of specialized materials so they're more impervious to weather conditions. I wonder if that would work...

An unfortunate headline

[The Snazster]

If building these things prevented anyone else from building them (which in some cases it might) and they had no plans to actually make money using these things, that would be different. That would be to make sure no one else could compete. Yep, yep, sure would be. Let me read that headline again . . . .

And why do those resources belong to them?

[rsilvergun]

Why does a gold mine or an oil field, a natural resource that was there centuries before the decedents of anyone claiming ownership was on that land mass much less born, get to claim ownership? Usually because they're they most ruthless or they got lucky and held onto enough cash during one of the economy's cyclic downturns to buy up property being sold for cheap by the desperate... Funny how nobody every seems to question that.

The trouble with that

[rsilvergun]

is you lose a ton of flexibility from having trucks deliver goods. That flexibility let's companies like Walmart stock the bare minimum of what they need at any given point in time. It means never getting stuck with over supply and having to slash prices, leading to much higher profits thanks to tight control on supply. Sure, you've got to heavily subsidize oil, but that's what the United States Armed Forces is for.

Re:Stop trying to invent AI drivers and build cars

[novakyu]

China being a great example.

You know, you have something there. Getting help from the Chinamen is possibly the only chance to get this infeasible idea done.