Tech Hot Growth 50

It's no surprise to find Apple and Google at the top of our list, but smaller outfits saw some of the biggest growth

by Arik Hesseldahl

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In recent years, with few exceptions, technology companies have appeared to be in a rut from which they couldn't extricate themselves. Still recovering from the bubble-bursting years of 2000 and 2001, longtime tech sector bellwethers such as Intel (INTC), Dell (DELL), IBM (IBM), and Microsoft (MSFT) all found their growth restrained by an economy in which tech spending has been growing at a much slower rate than in the past and selling prices are being relentlessly tamped downward. The growth in tech spending has dropped from the double-digit rates of the late 1990s to single-digit rates of 5% to 7%.

But there was faster growth to be found in the tech sector in 2006—hot, even heyday-like growth in certain places. You just had to know where to find it and how to grab it, as the 50 companies that made our ranking of the Tech Hot Growth firms show. Measured by sales growth, total return to shareholders, return on equity, and overall sales, the companies on the list make for an enlightening study of the new technology economy, circa 2006.

Innovation Scores Big

Apple Computer (AAPL), No. 2 on the Tech Hot Growth ranking, is the prime example of a company that has created its own opportunities. Its breakthrough innovation in digital music has made it an international icon and propelled sales up 39% over the past 12 months, to $19.3 billion. The company sold 39 million iPods in the 2006 fiscal year, as well as 5 million Macintosh computers.

Google (GOOG), meanwhile, has claimed billions in advertising dollars by devising the technology to put information from around the Web at anyone's disposal in a matter of seconds. Its growth has been nothing short of phenomenal. A mere eight years old, Google is approaching $10 billion in revenues, with growth over the past 12 months still at a torrid 77%. That helped it place No. 4 on BusinessWeek.com's ranking.

Gobbling for Growth

Most tech companies, even powerful ones, have had to fight much harder for growth. AT&T (T) and Oracle (ORCL), No. 3 and No. 8 respectively, have had to spend billions on acquisitions to keep boosting their top lines. AT&T has been buying its way through the troubled telecom companies, scooping up assets to gain the scale to compete against cable players such as Comcast (CMCSA) and Cablevision (CVC). The combination of AT&T and SBC Communications helped lift revenues 46%, to $60 billion over the past 12 months. The company is now seeking regulatory approval for an $86 billion acquisition of BellSouth (BLS).

Oracle, under the relentlessly aggressive Larry Ellison, has been on an acquisition tear. Having started 2004 with the $10 billion deal for PeopleSoft, Oracle started 2006 with the $5.85 billion deal to acquire Siebel. The acquisitions have continued at the rate of about one per month. So far, the company has spent $20 billion on 22 companies, half of them in 2006. Acquisitions in tech, and particularly software, have always been tricky. But so far, Ellison's bet appears to be paying off. Revenues are up 23% over the past 12 months, to $15.2 billion, and Oracle's stock has surged by 50%.

Of course, it's easier for companies to produce strong growth when they're small. And many of the companies on the Tech Hot Growth ranking are relative unknowns, working their way up in size and scope.