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

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

[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

[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

[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.

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...

[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: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.

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: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.

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:Why pay drivers a living wage?

[dcw3]

Know imagine the dumbest person THEY know.

Okay, I have a target in mind know.

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.