The IT industry’s economic slide is showing signs of slowing down, with analysts predicting that high-tech will continue to hobble along toward the start of a slow recovery next year.
Several industry and economic indicators have come in this week, giving some analysts hope that economic tensions are easing their stranglehold on the IT sector, which has taken some tough blows from the economic downturn. And while few are eager to predict an exact timeframe on an economic turnaround — especially in the face of terrorism and a potential war with Iraq — some are braving predictions of a brighter year ahead.
But economic indicators have been a fickle bunch lately, one report conflicting with another that came out just the day before it. However, a few reports this week seem to be pointing in the same direction.
Bruce Temkin, an analyst at Forrester Research Inc., says IT spending is stabilizing.
“Led by consumer services and retail industries, large firms expect IT spending to rise by an average of 2.3% this year,” says Temkin in a report released this week. “Less than one-fourth of firms plan to cut back on technology in 2002, and only 12% of companies expect to cut their current IT budgets during the second half of the year.”
GDP Must Lead Way
These numbers are boosted by Temkin’s predictions that consumer spending in the high-tech area will stay strong in 2002, with 8.3 million households using broadband and 4.9 million starting online banking this year.
But for the tech sector to really pick up, the GDP must go first, according to Temkin, who adds that tech’s revival depends on an overall economic recovery. And that may come in 2003, when, as Temkin predicts, healthy growth will return.
“While it won’t be the wild and crazy ’90s, we forecast that the tech sector will expand 5.6% in 2003, ending the year slightly below its level in 2001,” he says. “The big driver: GDP growth.”
Double-digit expansion will have to wait for 2004, on Temkin’s timeline. He expects high-tech revenues will grow by 10.7% that year.
That kind of healthy growth seems a long way off — especially to American consumers who have been deluged with news of a bad economy, global tensions and a financial tumble in the tech sector. A new report by BigResearch.com, an online market follower, shows that consumer confidence is dropping sharply.
Their study, which was released this week, shows that this month 3.4% of respondents said they were “very confident” about the chance for a strong economy, compared to 10.9% in December. The confidence numbers have dropped nearly every month this year.
Some good corporate revenue news this week may boost some of those expectations.
Microsoft Corp., offering a ray of hope to the battered IT sector, reported its net income doubled and revenue rose 26% during its fiscal first quarter this year. The software giant showed a net income of $2.73 billion, compared to $1.28 billion in the same period last year. The increase is largely based on the company’s new licensing agreements that pushed corporate customers to sign up for multiyear upgrades.
Microsoft’s good news, however, was accompanied by some tougher news from other industry players, tempering any consumer and industry enthusiasm.
IBM, last week, reported a steep drop in its third-quarter net income. Intel Corp., the world’s largest chip maker, also reported a quarterly loss, and Apple Computer Inc., which turned a profit last year, has fallen back into the red in the past three months.
But there is one sector, once a key to the overall health of the IT arena, that is getting back on its feet — dot-coms.
Dot-com failures are down 73% in the first half of this year, compared to the same period in 2001. So far this year, 93 Internet companies have shut down, about a quarter of the number that shut down in the first half of last year, according to a new study from WebMergers.com.
Analysts from WebMergers.com say the numbers show that the “worst of the Internet shakeout is behind us.”
