RealTime IT News

Light at the End of the Tunnel?

The chief executives of the fastest-growing North American technology companies are optimistic about their industry, but they remain wary of a turnaround in the immediate future.

Deloitte & Touche's annual canvassing of the CEOs in its "Fast 500" list of tech companies with the highest rates of revenue growth found CEOs confident the tech sector would rebound from its prolonged shakeout. However, they felt the industry would continue to feel the aftereffects for at least the next year.

Sixty-two percent of respondents characterized themselves as either "extremely" or "very" confident of maintaining their companies' growth rates of the last five years. Meanwhile, the same number also said the benefits of the shakeout would only be seen in 12-18 months, with continued industry-wide sluggishness in the interim.

The recent contradictory signs of economic recovery back up this note of caution. Although the economy is thought to be officially in recovery and consumer confidence is rising, the positive ripples have not been felt in many key areas, particularly business investment. Last week, a Gartner study predicted the information technology (IT) services sector would bottom out in 2002, contracting for the third straight year. Meanwhile, even a formerly untouchable technology company like IBM has decided to cut 8,000 workers and suffered revenue shortfall from wea k demand for some of its services.

"I was a little surprised about the confidence expressed by the CEOs given what the tech sector's gone through the last 18 months," said Mark Evans, managing director of Deloitte & Touche's Technology, Media and Telecommunications group. "What the companies are saying is we're going to stay the course, we're going to grow internally."

With U.S. unemployment still high at 6 percent, the Fast 500 CEOs gave the downsized some reason for cheer: 89 percent reported plans to hire, although half said they would add less than 25 new workers. For the fifth straight year, respondents pointed to their workers as the biggest factor in their companies' successes. However, the chief executives seem less sure that a talented workforce is the No. 1 priority, as the percentage ranking it tops dropped from 49 percent last year to 30 percent.

A sign that, in a tight labor market, the balance of power has shifted from workers to management: 23 percent of CEOs cited free food as a key employee benefit, while none chose last year's No. 1 -- company-wide vacations and bonuses.

Employers remain focused on reining in costs. Twenty-seven percent of CEOs said they are still cutting administrative costs, such as travel, while 19 percent are holding off on capital spending.

While the tech industry has seen a brisk pace of consolidation over the last two years, the survey found the urge to merge is abating. Over the next year, 71 percent of CEOs said they had no merger plans. Only 3 percent saw an IPO in the offing. Last year, 37 percent said they had merger or IPO plans.

And the need to show profits has sunk in with CEOs. In last year's survey, 37 percent said "managing expectations" was their biggest personal challenge. This year, just 10 percent chose that, while 34 percent pointed to profitability.