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IDC Sees Tech Sector Rebound Early In 2003

The high-tech sector is expected to rebound out of its economic slump at the beginning of next year, ushering in the return of the IT worker shortage, according to a new report from International Data Corp.

The study, which IDC conducted in June and July, reports good news and the return of a common problem for the industry. An expected upturn in the economy and American companies' renewed spending on IT are predicted to be the main catalysts in the industry's renewal. But that renewal is expected to feed the same IT skills shortage that plagued the industry for several years before the economic downturn.

"We'll return to rapid growth once we get past the current downturn that has paralyzed the industry in the past 12 months," says Stephen Minton, program director for Worldwide IT Markets at IDC. "Once we get into 2003, we'll get back on track for hiring. But we'll also quickly be back in a skills shortage situation."

Minton is predicting an 8% increase in worldwide IT spending next year. That's compared to 2.5% growth this year and a 1% decrease in the market last year. As job growth, Minton says he's expecting the creation of 4.5 million new IT jobs next year. This year saw 1.6 million new jobs, which was significantly up from last year, which saw the loss of 300,000 IT jobs in the U.S. alone.

"We don't think we'll get back up to the IT growth rates of 12% or 14% that we saw at the end of the '90s, but we'll see a healthy industry that is growing faster than other segments of the economy," says Minton. "Once we get into 2003, IT will be one of the leading drivers of the overall economy, as it was before the downturn. We're getting back to the IT industry being, if not the fastest, than one of the fastest growing sectors of the economy."

Minton says companies that have been holding off on IT spending will bite the bullet at the beginning of next year and buy the technologies -- wireless, networking, software upgrades -- that they had been putting off since the economy turned.

But not everyone has IDC's economic optimism. Other analysts say they don't see the economic rebound in sight or they at least don't think it will come so soon.

"Companies will keep their IT budgets flat, and if the economy turns around they'll up their budgets then," says Judith Hurwitz, principal at CycleBridge Technologies LLC, an analyst firm in Newton, Mass. "They're not making any assumptions that the economy will dramatically turnaround. When it does turn around, I think it will happen very, very slowly -- so slowly we won't even realize it's happening."

And industry statistics reflect the differing opinions.

The dot-com sector took another hit last month, registering the second month in a row of more than 1,000 layoffs.

Dot-com firms in August cut 1,193 jobs. That's just 557 fewer layoffs than the 1,750 job cuts the sector suffered in July. The layoff cycle has been on a roller coaster ride all year, according to John Challenger, CEO of the Chicago-based outplacement firm, Challenger, Gray & Christmas, which has been tracking layoffs in the high-tech industry. August was a little surprising in that the job loss numbers didn't drop as much as expected -- or hoped for.

But dot-com failures are down 73% from levels in the first half of 2001, according to Webmergers.com. In the first half of this year, 93 companies shut down, about a quarter of the 345 that shut down in the same span last year. Analysts at Webmergers.com say it signals that the worst of the dot-come shake out is behind us.

Gordon Haff, an analyst at Nashua, N.H.-based Illuminata, says he's not quite so optimistic.

"I think there's a lot of hopeful thinking going on out there," says Haff. "There have been a lot of predictions in the last couple of years that the end of the downturn is right around the corner...Anybody who is predicting a specific time for things to turn around is just crystal balling it. They may have some valid tea leaves but it's not based on anything that resembles unmistakable evidence at this point."