Down To Business: The Tech Economy Data Tells Us Only So Much

It's the question on everyone's mind: Has the economy finally turned the corner? Closer to home, are tech employment and investment poised to pick up again? Consider some of the data points.

• Goldman Sachs was one of the first analyst firms out of the gate with a positive revision of its global IT spending forecast when on Sept. 21 it raised its forecast for 2010 to 4% growth from 2%, citing improvements in gross domestic product and corporate profits. Earlier in the year, the three largest IT advisory firms, Gartner, Forrester, and IDC, revised their IT spending forecasts downward--but that was months ago. We'll wait to see if the big three follow Goldman's lead.

• IT vendors and customers remain relatively bearish. CompTIA reports that its business confidence index, based on a survey of 200 tech vendors and resellers, inched up 3.3 points in August, to a modest 52.3 on a 100-point scale. Some 48% of survey respondents said they expect to increase investments in R&D and other revenue-generating initiatives over the next six months, while nearly one-third expect to increase spending on their own IT. Some 53% said they expect to hold staffing levels constant, while 29% plan to increase hiring over the next six months.

In a separate report, TechAmerica Foundation cites Bureau of Labor Statistics data that shows the U.S. high-tech industry--which it defines as high-tech manufacturing, communications services, software services, and engineering and tech services--shed 115,000 jobs between January and June, a 1.9% decline. During the same period, overall private-sector employment grew slightly (0.2%), though direct comparisons are difficult because of the need for seasonal adjustments. At any rate, U.S. tech-sector employment is still being squeezed.

Likewise, confidence appears fragile among IT buyers. In a recent survey of 350 IT execs and network administrators, conducted for security vendor VanDyke Software by Amplitude Research, 73% of respondents said they're concerned or extremely concerned about the country's current economic condition--though smaller percentages are just as concerned with their own economic condition (62%), the condition of their employer (58%), or the condition of the overall tech industry (48%).

• The latest financial results of the blue chip tech vendors are mostly flat. Dell, Hewlett-Packard, Oracle, and SAP fall into that category, while Cisco and Microsoft reported substantially lower quarterly earnings and revenue. An exception is IBM, which reported in July record earnings on double-digit revenue growth for its second quarter, and it raised its full-year earnings forecast.

• Tech industry megadeals are back. Dell plunked down $3.9 billion for IT services provider Perot Systems a couple of weeks ago, representing a 68% premium over Perot's share price at the time. Xerox agreed to acquire IT and business process outsourcing vendor Affiliated Computer Services in a deal valued at $6.4 billion, a 34% premium. And Cisco just bid almost $3 billion for Norwegian videoconferencing vendor Tandberg.

Wallets are starting to open, but it's too early to draw definitive conclusions. Still unclear is whether this U.S. tech slowdown is mostly cyclical or systemic--to what extent are tech jobs and output lost for good, and to what extent will emerging technologies and tech-based industries take their place? If history is any guide, we'll see growth and innovation in places we wouldn't have imagined just a year or two ago. But such transitions are always painful.

Rob Preston,
VP and Editor in Chief, InformationWeek
[email protected]

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