RealTime IT News

Hardware Vendors Face a Storm of Uncertainty

For the first half of 2008, we kept hearing rumors of recession, but quarterly sales figures constantly belied that threat. Then in the final three months of 2008 those fears came true, and then some. Month after month, IT spending projections were revised down, from double digits to single digits to flatline.

The timing is most unfortunate for the hardware makers, as they are in the process of introducing some fantastic new technologies: Core i7, "Shanghai" Opteron, the fastest GPUs ever, large capacity solid state drives (SSD), Blu-ray drives, energy efficient hardware.

The challenge for the Silicon Valley is to sell new products when the main instinct at IT shops is to hold fast, cease all new deployments and just maintain what they currently have. Therefore, all predictions for this year have to be viewed through the prism of the economy.

1: As they say in the Royal Navy, hold fast!

With IT budgets shrinking, some segments are being given priority over others. For instance, IT training is one of the first to be hit, but security spending isn't being touched. For hardware companies, that means a tougher sell as firms make do with what they have and keep their laptops, desktops and servers a little longer than they may have planned.

On the bright side, travel is also being cut severely, so no more intolerable air travel experiences.

What this means is that at some point, there will be a pop in sales. The question is when. The lack of credit is a major impediment, and the banks are not helping. Despite being given the massive government bailout, banks are not using the money to extend credit. With no credit, people aren't in a buying mood.

This will also affect the application development side of the house. Firms won't be engaging in ambitious new projects. They won't be too quick to deploy those enterprise Java apps so quickly now if that means they have to hire people, get them training, etc. Existing apps will be maintained and new projects delayed.

The one possible winner in all this: on-demand software firms like Salesforce.com and NetSuite. Companies may decide that it's safer, cheaper, faster and easier to use their on-demand products rather than an expensive SAP or PeopleSoft deployment.

2: Heads in the clouds

"Cloud computing" was the buzzword of the year for 2008, and it will likely continue into 2009 for the reason listed above, the economy. Firms ranging from Amazon (don't they sell books?) to Microsoft are gearing up to offer cloud services. Microsoft Azure will offer Windows server services, while Amazon's EC2 service will have Server 2003 functions.

Microsoft will be launching its own cloud infrastructure in 2009, Google is expected to continue expanding its services, especially now that it has its own custom GUI in the form of the Chrome browser, and RackSpace will likely get more aggressive in 2009 thanks to its acquisitions of SliceHost and Jungle Disk.

Expect venture capitalists to start looking to invest in this category now that it's breaking out as a clear growth opportunity. In 2007-08, firms stopped going public due to the excessive burden of Sarbanes-Oxley, so the strategy was get funding, build a product, and get bought by Google. In 2009, the final step will be get bought by Google, Microsoft, Amazon, Salesforce, or someone else.

Hardware vendors will try to latch onto this mania with branded cloud computing products, but people have already seen through that for what it is. The difference between a database server and a cloud server? A sticker.

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