When will the IT sector recover? This is the question that has been on the lips of most IT executives for the past six months. The downturn has proved to be longer and deeper than many had predicted, but some optimism is beginning to return…
The global economic slowdown, the fallout from the bursting of the dot-com bubble, and the backlash against the IT industry following the year 2000 debacle, have only increased the sense of despair for IT companies over the past couple of years.
Yet towards the end of 2003, and the start of 2004, there have been promising signs of a recovery, with a renewed sense of optimism starting to be felt. Around August last year, several IT companies started to reveal they were seeing a recovery in the US economy. This was backed up later when the US government revealed that the US economy had been growing at a record 8%. Despite the war in Iraq, the US government had managed to successfully kick-start the world’s largest economy, thanks in part to massive tax cuts for US companies and individuals.
The chip sector often acts as the IT industry’s bellwether, with its fortunes closely monitored as a foretaste of what is to come. Over the past two years, the sector has been depressed, as sales of new PCs stalled as a result of the reluctance of companies to upgrade or replace existing equipment.
Figures are improving
However, according to figures from the Semiconductor Industry Association, worldwide chip sales were $16.13 billion in November 2003. This was up 4.5% on the previous month, and up 25.7% on the year. While figures for December have yet to be compiled, the SIA said the indications were that 2003’s second-half performance would be one of the industry’s best ever.
IT companies are also reporting positive developments. Electronic design software firm Mentor Graphics has said it expects fourth-quarter revenue to be above the $190 million that it previously forecast. It said the upturn was driven by demand for its Calibre product line, which offers verification of chip designs.
Siebel Systems also expects to comfortably beat forecasts for its fourth quarter to December 31, which is raising hopes for the entire enterprise software sector in 2004. However, CEO Tom Siebel said he was circumspect about whether the improved figures indicated a long-term upturn, insisting that he would need three or four quarter’s figures before reaching a conclusion. But the stock market had no such inhibitions, and the Nasdaq index has moved to a 52-week high recently, powered by growing confidence in all IT sectors.
Is it a recovery?
So is this renewed optimism misguided? Or is it just because companies, having delayed IT spending plans whilst they concentrated on riding out the recession, are now starting to open the purse strings again? While spending rates like those in the late 1990s and early 2000 are not going to happen, it is reasonable to speculate that a recovery is now under way. There will be some companies that are still finding life pretty tough, but on the whole, the majority should see an improvement in their fortunes in 2004.
The earnings reporting season, when a large portion of US-based companies report their quarterly results, starts in earnest towards the end of this month. In a few weeks then, we should have a clearer picture of the health of the IT sector, and the initial signs are promising.
This article is based on material originally published by ComputerWire