NEW YORK (CNN/Money) - When it comes to the pronouncements of Larry Ellison, the volatile head of Oracle, a healthy dose of skepticism is usually in order. But on one count he is absolutely spot on: There are too many players in the tech industry chasing after too few customers and a period of consolidation is badly needed.

Now, thanks to Oracle's hostile bid for rival database-software vendor PeopleSoft, it appears the consolidation has begun. Already, investors are wondering how things will shake out. Will PeopleSoft find a white knight? Will Siebel Systems seek a partner to avoid being the sector's second sister? How soon will merger activity stretch to other areas of the tech economy?

Lost in the fray, however, is a more basic question: Is any of this going to be good for investors?

For the long haul, almost certainly. The investment boom of the late 1990s created huge excesses in the tech industry. According to the Federal Reserve, tech companies are operating at 62.4 percent of capacity. Historically, they have operated at around 80 percent of capacity, and in 2000 they briefly shot up above 90 percent.

It's the sort of environment that engenders heavy competition for market share, prompting companies to cut prices to the bone and making it difficult for anyone to generate profit growth. If thanks to a flurry of merger and acquisition activity much of the industry's excess capacity is put out to pasture, tech could be a nice place to invest.

"It's a good way of rationalizing the marketplace, so it's good in the long run," said Jeff Matthews, president of the hedge fund Ram Partners. "It puts weak companies in the hands of stronger managements, so that's good in the long run, too."

But in the short run, the investment implications of a wave of consolidation are not so clear. Who is to say which companies will be left standing at the end of the day, or whether having put money in them turns out to have been a good idea?

Figuring out where to invest would actually be much easier if the possibility for mergers were not there. Then you could just stuff money into the industry leaders, knowing that in the long run they'll be able to smother their competition.

But the potential for mergers and takeouts changes the dynamic. Through acquisitions of smaller players, runner-up companies can move into pole position. Perceiving such threats to survival, leadership companies can move first, buying assets not so much because they need them, but because they want to keep competitors from buying them. In fact, by many lights it seems that Oracle's bid for PeopleSoft is more about scuttling PeopleSoft's just-announced plan to acquire J.D. Edwards than anything else.

A company that buys assets it doesn't need, or worse, already has, may have increased its odds of survival, but it's hardly using its money in an ideal fashion. And it may not be a good investment. In fact, it may not be the companies left standing at the end of a merger wave that investors want to own, but the companies that get taken out.

This was the case in the early 1980s with the energy sector when, after a period of overinvestment (remember "Dallas"?), it went through a rapid consolidation phase. The stocks of companies that got taken over -- outfits like Enstar, Marathon, Conoco, Cities Service, Midcon and Getty -- went up big.

Meanwhile, shares of the big companies languished.

"And there was nothing happening in Texaco, Exxon, Mobil, Royal Dutch and Shell," said Matthews. "If you owned those so-called great companies, you weren't too happy."

Investors should be cautious, however, about taking the analogy too far. The oil companies had hard assets that were worth, in some cases, more than what they were trading at.

The assets of tech companies are harder to quantify -- things like brand recognition, customer relationships, intellectual property and intellect -- and there may be a tendency among the still-swaggering CEOs of Silicon Valley to put too high a value on themselves. Such company heads may resist takeover attempts only to find later on that their companies are the odd men out.

"Sometime managements are the ones that make the mistake and think they're the ones that are going to survive," said First Albany chief investment officer Hugh Johnson. "They have no perspective and don't understand that sooner or later they're going to go away."