The Bounce Beckons

Three long years! In some respects, it felt like this period of crashing dot-coms,

followed by plunging markets and economic lethargy, was going to last forever. I

have flown the world, met presidents, prime ministers and chief executives, and

they all have had the same question: "When is the global slump in the IT

industry going to end?"

An article under the title ‘IT Doesn’t Matter’ was published in the

Harvard Business Review in late April. The thrust of author Nicholas Carr was

that technology had become a commodity. Anyone who spent thousands or even

millions of dollars implementing IT in the hope of gaining competitive advantage

over a competitor was fooling himself and misleading his management and

shareholders.

“Economic and industry figures are now showing that a sustainable recovery is under way for both the global economy and the IT industry” BOB HAYWARD

But the passion of those who create IT technology, build it, sell it and even

write about it, is undying. A global recession, and arguably an industry

depression, has been nowhere near enough to kill the belief and vision that

information technology is an instrumental force in growing better economies,

stronger nations and improving the quality of life for everyone.

Economic and industry figures are now showing that a sustainable recovery is

under way for both the global economy and the IT industry. The economic pictures

in the US and Japan are improving slowly and only a few retain the fear that it’s

a shallow revival. The US economy has just returned a third-quarter growth rate

of 7.3%, which is staggering. New figures show that the US has generated three

consecutive months of employment growth.

Southeast Asia is making a healthy return in pockets like South Korea and

Thailand, while Australia and New Zealand have remained comparatively robust

through the tumultuous years. The global ailments of the IT industry must have

been quite a show for those in India, which has seen consistent and sustainable

progress for its domestic sector.

Forecasts of sales of the PCs and semiconductors have long been seen as a

bellwether for the future. New Gartner figures show that chip sales are jumping

up and down by the month, whereas PC unit sales are improving and will grow

consistently through 2004. Global IT spending for 2003 is projected to finish at

4.7% growth as compared to a mere 0.5% in 2002. For the next four years, we

should see annual compound growth in the vicinity of 5.2%, signifying a

sustainable recovery for the IT sector.

PC unit growth is forecast at 11.3% next year. Until 2007, we see compound

annual growth rates in shipments of 10.9 points, while spending over that period

will increase 3.8% annually. The disparity between the sales and revenue growth

figures underlines the commoditization of the PC market as prices continue to

fall. In the consumer market, Gartner expects that spending on IT products will

leap more than 20% in 2004 after a tough couple of years.

But it is business spending that drives the economic fortune of the IT

industry. A recent survey of 271 CIOs in India suggests the local market will

continue to grow at a healthy clip.

IT budgets for companies with more than 100 employees will grow another 6% in

2004, following an increase of 4% this year. However, spending on IT will be

significantly lower than by companies of similar size in other parts of the

region.

The Gartner survey found that the average spend of India’s medium and large

companies would be around $800,000, which compares poorly against Australia’s

($6 million) or South Korea’s ($11 million). For these two countries, the IT

budget hikes for 2004 will be 22% and 9% respectively.

These figures present a significant challenge to India’s economic managers.

As other countries emerge from the global downturn and begin investing in

technology, India cannot afford to ignore the new investments of its economic

competitors. There is more opportunity for India so long as it ensures other

economic sectors at least keep pace with the technology investments of global

competitors.

Bob Hayward



The author is senior V-P and chief of research for Gartner in Asia-Pacific.