Study: Software Industry Shrugs Off U.S. Economic Woes

A new report from the Software and Information Industry Association (SIIA) suggests that despite the numerous maladies plaguing the U.S. economy, software companies are doing just fine, thank you — and may play an integral in a broad recovery down the road.

In its new study, the SIIA found that software companies continue to outperform the U.S. gross domestic product, growing at 10.8 percent in 2005 (the most recent figures available) compared to a paltry 3.2 percent for the overall GDP.

Moreover, software and information companies employ more than 2.7 million Americans, total employment in the sector has surged more than 17 percent in the past 10 years.

“We do believe this is good timing to get this report out,” David Deluc, SIIA’s director of public policy, told “Everyone is focused on the economy right now, so it’s important to get the word out so people will heed the message: This industry is still growing strong and can be looked to as a source of strength to help pull the U.S. out of its current slowdown.”

The SIIA, which represents more than 800 software and digital information companies, commissioned the report in summer.

The data was culled from a variety of public and private sector sources, including PricewaterhouseCoopers’ Global Entertainment and Media Outlook, the U.S. Bureau of Labor Statistics’ Census of Employment and Wages, the OECD’s Information Technology Outlook and various reports generated by the U.S. Bureau of Economic Analysis.

“It’s a global economy,” Deluc said. “All this talk about outsourcing is only part of the story. There’s outsourcing, certainly, but there’s also ‘insourcing.’ A lot of these companies with strong growth have a presence in the U.S. even though they’re not U.S.-based companies.

“They provide tons of jobs and it’s important for government and regulatory agencies to take steps to ensure this source of economic growth and innovation continues,” he said.

While many manufacturing, retail and financial services companies are shuttering plants, laying off employees and eating billions of dollars in losses from ill-advised subprime mortgages, software companies have largely outperformed expectations in this dreary economic climate.

In December, Oracle zipped past analyst estimates in its second quarter, raking in $1.3 billion on sales of $5.04 billion. In recent weeks, Microsoft, IBM and SAP have all delivered strong quarterly results thanks to the proliferation of corporate data and blistering sales of application-dependent handheld devices such as Apple’s iPhone.

IBM’s blowout fourth-quarter results, in which it topped consensus profit estimates by more than 20 cents a share, were a direct result of strong sales and profits in its software unit.

CFO Mark Loughridge told analysts the company would continue to “aggressively” invest in high-growth software markets despite the generally bleak economic conditions impacting the North American and select international markets.

“We have an uncertain economic environment that we’re working through along with the rest of the business world,” he said. “But we have a strong tailwind behind us heading into 2008. We have a strong geographical mix, including a good 50 countries where we had double-digit growth for the quarter.”

Along with strong sales and earnings, the SIIA report also made a case for relaxing quotas on H-1B visas and green cards for software developers from outside the U.S.

For instance, the average 2066 annual salary for employees working in software and information companies checked in at $75,400 — compared to $42,400 for all other private-sector employees.

It also pushed for limiting barriers to international trade, reporting that American software companies recorded more than $60.4 billion in 2006 sales and contributed another $19 billion in international exports.

Overall, information and communications technology vendors accounted for more than $3 trillion in sales in 2006, a figure that’s expected to grow to more than $4 trillion in 2008, according to the report.

“Software and information are really at the core of innovation and all industries — in good times and bad — are using this technology to grow their business,” Deluc said. “It’s a flat-world economy. Even small companies can now have equal access to information through software. It’s a just a greater opportunity for everyone.”

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