Fast Growing Tech Companies Slow Down

The fastest-growing technology companies in North America are still growing at a rapid rate, but a maturation of tech sub-industries and health of the bigger players has apparently slowed the growth rate, according to the latest Fast 500 Ranking from Deloitte & Touche.

Naming mostly software and semiconductor companies in the top slots, Deloitte crowned San Diego-based medical equipment maker NuVasive as the fastest growing of all. Although the top five winners managed to average more than an impressive 45,000 percent growth, it is one of the slowest rates since the Fast 500 list began in 1995.

“The biggest trend, and it surprised me a little, is the continual decline in the growth rate of the fastest growing companies in the United States,” said Deloitte’s Deputy National Managing Principal of the Technology, Media and Telecommunications Practice, Tony Kern. He told TechNewsWorld that, after the overall Fast 500 growth rate peaked at 6,700 percent in 2002, it was down to 2,400 percent overall growth in the latest ranking.

Cause of Decline

Pointing out that the growth of the fastest ascending companies is still strong, Kern blamed the slowdown on rising interest rates and a maturation of technology companies, which slow as they grow up.

While Kern said a commitment to innovation was evident in the growth of the companies, he noted that the growth of revenues also highlighted a focus on sustainable business models.

The top five companies, led by NuVasive, were rounded out by: No. 2, software company NetSuite of San Mateo, Calif.; No. 3, Acacia Research, a Newport Beach, Calif.-based semiconductor company; No. 4, CaseStack, another software company based in Santa Monica, Calif.; and No. 5, Rutter Inc., a Canadian software company.

Spreading the Growth

Kern also reported that this year’s fastest movers represent a wider range of technology, from biotech to software to communications and other technologies.

“It seems to be spread out a little more than it used to,” he said, adding that biotech, communications, medical and software tech companies all earned top spots in the ranking.

While past Fast 500 lists have been dominated by software companies, they accounted for just more than one-third of the Fast 500 in this year’s group.

In line with previous rankings, semiconductors maintained its position as the fastest-growing industry segment, according to Deloitte. Other “fastest of the fast” included the Internet category, medical equipment companies, and communications and networking businesses.

Big Player Days

Gartner research Vice President Martin Reynolds told TechNewsWorld that the cyclical nature of the tech industry means that smaller, more innovative and fast-moving companies do well in a downturn, and have less opportunity when the large players and overall industry are doing well.

“When we’re in a downturn, there are new ideas coming to market and being tested,” Reynolds said. “When the tech industry is booming along, it’s tough for smaller companies to grow. There’s less opportunity.”

Indicating that the bigger companies can take employees, customers and developers from the smaller players, Reynolds predicted good times for the large players in the coming years.

Areas where Reynolds did see more opportunity for growth were: “anything to do with notebooks;” flash memory; and high-definition television, which is beginning to engage consumers, according to the analyst.

Bracing for a Boom?

Deloitte’s Kern agreed the larger players may be contributing to the slower growth rate of tech companies.

However, he highlighted maturity as the main factor, explaining that the slower, steadier growth bodes well for long-term manageability in the industry.

“They are maturing,” he said of the latest Fast 500. “Most of the companies have been around five years. You don’t see that meteor-like growth. It should continue to slow in the next couple of years, but that leads me to believe we may see another boom cycle in five years.”

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