Gap Widens Between Tech Richest and the Rest

A handful of cash-rich companies are consolidating power in the technology industry, using their wealth to expand into new businesses and making it harder for small and midsize competitors to break through.

Why the industry is evolving this way is rooted in balance sheets. Over the past two years, Apple Inc., Oracle Corp., Google Inc., Microsoft Corp. and six other large tech companies have generated $68.5 billion in new cash, compared with just $13.5 billion for the other 65 tech companies in the S&P 500 Index combined, according to a Wall Street Journal analysis of data provided by Capital IQ. The rich few are funding investments at a time when many others have retrenched.

Over the past year, Oracle paid $7.4 billion to get into the hardware business by acquiring Sun Microsystems, and Dell Inc. bought Perot Systems to add technology services. Cisco Systems Inc. spent more than $7 billion to acquire six companies. Google, meanwhile, has tapped its savings to fund moves into computer operating systems and mobile phones. Microsoft has financed its money-losing quest to take on Google in search with its cash. And Apple has used its reserves to develop the iPad and take aim at Google recently by acquiring a mobile-advertising company.

Because of their massive cash accumulation, these companies can afford to take risks that smaller companies can't at a time when the economy remains fragile. The result is a bifurcated tech landscape, says Erik Brynjolfsson, a professor at the Massachusetts Institute of Technology's Sloan School of Management.