Hope springs eternal for industry leaders
Wed Dec 10, 7:15 AM ET
By FT-IT writers worldwide
Leaders of the IT and telecoms industry expect a better year in 2004, and are looking back on 2003 with more satisfaction than they have been able to show since the end of the dotcom boom.
That is the conclusion of FT-IT's annual survey of the company chiefs we have interviewed over the course of the year.
In the past two weeks, we have gone back to these business leaders and asked: Has 2003 turned out to a better or worse year for your company than you expected? Are you happier about prospects for your company and sector in 2004 than you were a year ago? What do you see as the chief priorities for your company in 2004? Do you see any "next big thing" over the horizon?
Here is a selection of their responses, written by Martin Arnold, Andrew Baxter, Christopher Brown-Humes, Michael Dempsey, Fiona Harvey, Jonathan Moules, and Paul Taylor.
Bernard Bourigeaud, chief executive, Atos Origin
"Our big event in the past year has been the acquisition of SchlumbergerSema, which will double the size of our company, basically. And our main activity will be integrating the two operations, which is well under way.
At present, I'm spending most of my time going round all the operations in the group to explain to people in both companies how it will happen, and what is the strategy going forward. The kinds of things that you have to do in a merger situation.
After that, we will continue with organic growth, perhaps with some acquisitions. For example, our German size is not what it should be. Our clear objective is to be the European leader in our space. And we will also have a strong emphasis on Asia Pacific. In the US, we are looking more for strong partnerships.
We will see more happening in China and India. For example, we're involved in the IT for the Olympics in China in 2008. All IT companies are having to consider China and India more and more in their strategies.
Also, I think we will see more consolidation in 2004. When I look at the market, on the one hand you have very strong US players looking to Europe for growth, and a US market that is mature, so there is no doubt that you will see US companies coming into Europe, and on the other hand, within Europe you will also see consolidation because there are a lot of smaller companies which on their own are too small to compete with the US companies.
I said at the beginning of 2003 that it would be a difficult year for our industry, and that has been confirmed. But we are seeing now some positive signs of recovery in the IT sector. I don't expect 2004 to be a strong year in terms of growth in the market, but I do expect overall conditions to be better in 2004 than they were in 2003. I believe we are coming out of the crisis."
Don Peterson,chief executive of Avaya
"This year has turned out to be challenging, but nonetheless one of progress for a variety of reasons: We've announced significant customer wins around the globe and across business segments and sectors, from small to large, both public and private. We've reached leadership positions in our key markets - Enterprise (news - web sites) Telephony and IP Telephony - as cited by several analysts groups, including Gartner, Synergy and Infotech.
Avaya has had two quarters of positive earnings for the first time in its history, increased our cash position at the end of our Fiscal Year to $1.2bn and decreased our net debt. We continue to carefully manage our business so that we are well-positioned for growth while maintaining a careful approach to costs. We've launched several new products that promise to set the industry standard for reliable, secure, converged communications. We also built our portfolio on world-class, enterprise communications solutions that enable the customer to choose the path, pace and choice of their evolution to IP telephony.
We believe 2004 is shaping up as a recovery year for the economy overall. For our key product area of IP telephony, the market may have reached an inflection point in 2003 where sales of new, IP telephony products are offsetting slowing sales of traditional telephony products.
However, Avaya is giving customers the choice of how, when and where to evolve to IP telephony. Enterprise customers are considering upgrades and replacements and, if enterprise spending is beginning to pick up as some signs are indicating, I think we can be cautiously optimistic about our prospects for the New Year.
We'll continue to focus on customer needs in product development as well as improving in our sales and support processes. Managing costs appropriately is an ongoing priority as well as continuing to build the Avaya brand around the globe. We'll also continue to expand our applications and "modularising" our software solutions, building on our strengths in network communications applications, contact centers, unified communication and services. We'll enhance Avaya Global Services' delivery of end-to-end design, implementation and management services for converged, multi-vendor networks. We will seize opportunities for growth in small and mid-size businesses and help customers deal with issues of network security and business continuity. And, we will move forward in building strategic relationships.
In the near future I believe we'll see convergence in enterprise communications extending into multi-modal devices - eliminating the need to carry separate devices with different numbers and addresses such as laptop, cellphone, deskphone, PDAs, etc. Session Initiation Protocol, which has been waiting in the wings for a couple of years, will begin taking on more relevance as applications are extended to these multi-modal devices."
Bernard Charlès, chief executive of Dassault Systemes (manufacturing automation software)
"I would not put it at the top of my list for this year, but the successful sale by the French government of its 15.7 per cent stake in Dassault Systemes for EU580m was great news for everyone.
It was good news for the government in view of the return it made on its half of the initial FFr10m (EU2m) investment made to launch Dassault Systemes 22 years ago. It was also a success for remaining shareholders as it removed an overhang that lasted two years.
But Dassault Systemes' main achievement in 2003 was to establish extraordinarily strong customer references for our product lifecycle management (PLM) software three years after it was launched. It is great to hear companies such as BMW or Sony saying they could not innovate new products as they do without PLM. To have end-users that love the software is very important - it is a good argument for them to give their purchasing managers.
This year has been tough for IT spending, but we have continued to grow at about 6 per cent, gaining about 2 to 3 points of market share. We also demonstrated that even in tough times we could improve our operating margin by one point from the 27.7 per cent achieved in 2002.
Next year will be better across all regions, with overall growth of about 7 per cent. But it will still be a transition year on the road back to double-digit growth, so I do not want to be overoptimistic.
Customers are no longer just talking about stripping out costs, instead there is an amazing focus on innovation to develop their products and generate revenues, which is good for us as we are at the heart of innovation.
The critical thing for us in 2004 is to replicate the PLM success we had this year and make it more pervasive by showcasing it as the best in class for the different domains of manufacturing - design, innovation, digital manufacturing and lifecycle management."
Michael Dell, chairman and chief executive of Dell
"It's been a good year for the industry. The momentum seems stronger than you would have expected a year ago. We've had several quarters of positive growth. We've seen the continued evolution towards open standards. We've seen the successful adoption of high-performance computing clusters.
I think we at Dell have a lot to be proud of as we look back over the year. The last three quarters have been a period of economic turmoil, but we've been able to continue to grow our market share and profitability.
Look at where the industry was three years ago. The growth rate was zero. But we have grown our market share by 50 per cent.
And the outlook is good. There is a tremendous amount of build-out still in the internet space, and in high-performance computing. We expect to see growth in services, in our international business. We'll become number one in a few more countries.
In terms of what's coming up for the industry, we've seen a lot of talk about web services, that's something people have been talking about for a while. But we don't try to focus on the next big technology thing. Rather, we focus on what our customers are telling us that they're looking for.
Customers don't, in the main, focus on specific ingredients of technology. What customers are looking for is value and productivity. They want to consolidate their operations and lower their support costs. They're worried about their business falling behind, and their productivity falling behind. So we're trying to reintroduce technology cycles, while thinking carefully about the allocation of capital. People want to understand the return on investment. They want to invest in current technology, without going totally overboard like they did in the dotcom era.
By the end of 2004, people will continue to be amazed at the pace of change to open standards. Look how fast this has moved, from proprietary Unix (news - web sites) to Windows and Linux (news - web sites). That will be even more striking by the end of next year."
Kevin Ryan, chief executive of DoubleClick (online advertising and marketing)
"This year has been a good time compared to two years ago, when everyone, including ourselves, was cutting people. We are going to add 250 people, or about another 25 per cent of the workforce, between the end of the first quarter this year and the end of the first quarter next year. We are just seeing a lot of opportunities out there.
This is not about the state of the general economy, but the technology and advertising markets are improving. Starting at the end of the first quarter we could sense the mood at the corporate level was improving. Europe has been OK, but it is really the US and Japan that have recovered. In China, the market is exploding.
The online market is doing particularly well because the fundamentals have just continued to get better. More people are online, more people are buying products online and more people are being influenced about which products to buy by going online.
The growth of online shopping isn't the only reason for people to advertise. If people walk into a store or car dealer and have already decided before they walk in what they want to buy, companies have missed their chance. Therefore, more companies are realising that they need to reach their customers online first.
In the next three to five years, we are going to see a nice steady growth, not the unsustainable growth we saw in the dotcom boom. At the moment it is more that people underinvested for a few years so they need to replace systems.
There is a fundamental trend underlying this - the role of data and technology in marketing is increasing so our offline marketing business has also grown. Advertising is becoming more sophisticated with people using online campaigns, telemarketing or just tracking who is coming to their website. The database then becomes very important.
In the last couple of years there has also been a decrease in the cost of data storage and bandwidth. It might not be revolutionary change or sexy, like downloadable music, but some of the things in online advertising that cost a lot to do just a few years ago are now within the budgets of many companies."
Irving Wladawsky-Berger, head of on-demand computing at IBM
"The main concern in IT is that it is becoming commoditised, and is no longer the strategic weapon that it used to be in the past. Following the bursting of the bubble and the slowdown in the economy, people have been wondering what happens next. And what happens next is on-demand computing.
This has crystallised over the past year. IT has become so powerful, so ubiquitous, and it's no longer expensive or unreliable. The critical message now is applying IT to business processes. IT has to be properly integrated into the business, for instance to guarantee your supply chain is as efficient as possible, or that the systems supporting your employees are providing a platform for collaboration, and so on.
Next year, we're going to see continuing advancements in technology that will help to apply technology to business processes. We will continue to see incredibly powerful supercomputers being build up, we're going to see that more and more. Now, you can aggregate computing power using grid technology, and use it in a much wider range of applications. Look at life sciences, where problems that would have been impossible to contemplate a few years ago are now being attacked.
We expect supercomputing and its related disciplines to continue to advance. And that will enable things like real time analysis for financial institutions. They'll be able to do much better risk management, portfolio optimisation, and so on. In other fields, too, we'll be seeing the benefits,as businesses get access to more computing power. Storage will also continue to become less expensive.
With web services, we're going to see a whole new level of flexibility in software. Companies will be able to build up their own applications from components. And this will provide a better fit to their business processes, and will be cheaper for them."
Gerry Cohen, co-founder and chief executive of Information Builders (business intelligence)
"Perhaps the most difficult thing about this year has been the air travel necessary to meet our customers in Europe. That means getting flights in and out of London's crowded Heathrow Airport and that is a tiring and time-consuming experience.
As a software company that concludes almost all of its business in the final week of the last quarter of the year I don't want to say exactly how 2003 compares with 2002, but I will say that it will definitely be better. In IT you see economic trends happening very rapidly. So if the cutbacks we all witnessed in 2001 were immediate, then today we are seeing the beginning of business springing back. I believe this will only become obvious by the end of 2004.
Remember there is a Presidential election next year, and [George W] Bush will have to beat the drum over the economy. But that may push the whole issue of outsourcing up the political agenda, as companies face pressure over shifting work, and jobs, overseas. I had quite a shock visiting Germany recently and seeing how very well-known companies there are outsourcing projects to Russia. But then I think the whole point of being an executive is to determine whether some new thing is an advert or a trend.
Among the latter I recognise grid computing as something that is here to stay. We will hear a lot about Oracle's grid product, 10G, next year. And Oracle's bid for PeopleSoft has kicked off a lot of mergers and acquisitions activity. In my sector, business intelligence, it is as if someone had opened a tap and M&A news flows out. I do think that web services has got over the hype curve and is bedding down, with deployments of real applications ready for the coming year.
While Enron is pretty much yesterday's news, the corporate governance issue is still running on. But much of the time that just means consultants making a ton of dough."
Sari Baldauf, president of Nokia (news - web sites) Networks (mobile telecoms infrastructure)
"2003 was the third consecutive year when the mobile infrastructure market shrank. At Nokia Networks, the first half of the year was marked by restructuring: reviewing our R&D projects and costs, laying off several hundred employees, and aligning the organisation around our key businesses. This was not an easy process - downsizing is probably the hardest thing a manager has to do. We have now returned to profitability, and there are clearly positive signs out there going forward.
We see the mobile infrastructure markets stabilising now. Our customers are in a better shape financially, and have begun reconfirming their commitment to 3G W-DCMA, by renewing supply agreements and accelerating their network rollouts.
Several of our customers have launched their W-CDMA (news - web sites) and Edge networks commercially, including 3 in the UK, and AWS in the US, which now operates the world's largest Edge network. Judging by what the operators are saying, there will be more than 50 W-CDMA networks in commercial use by the end of 2004.
At the same time, we are working to speed up global mobile subscriber penetration by bringing wireless (news - web sites) voice to markets where telephony penetration is low but populations are large. Markets like India, Russia and Brazil will play a pivotal role in increasing global mobile subscriptions from the current 1.2bn to 2bn in 2008. Making mobile phone ownership affordable will be the key to success in these markets.
We expect the market in 2004 to be around the level of 2003, but we plan to increase our market share. There will be pockets of growth in some areas. Having said that, I don't expect 2004 to be an easy ride - there are plenty of challenges ahead. But I believe we are in good shape to address the business opportunities out there."
Richard Seibt, chief executive of SuSE Linux
"This year the whole IT market continued to suffer from a global market recession.
This led customers to be more cautious when investing in their IT infrastructure. However, in times of economic strain, we have found an increased customer interest in professional IT solutions that reduce the total cost of ownership, such as Linux-based solutions.
Linux has proven its enterprise-readiness in the last fewyears. Enterprises do not only utilise Linux as file, print, e-mail and web server; they have also been using Linux for mission-critical applications for quite some time. Several banks protect their infrastructures with Linux-based security solutions, stockbrokers use Linux for handling millions of transactions every day, and some of the world's largest super computers process gigantic amounts of data with Linux.
In 2003 it really surprised me in a positive way that we've also seen great interest in the desktop in corporate environments. Munich, Germany's third-largest city, decided to implement Linux on some 14,000 workstations and laptops of the municipality, is a great example, but we are also working with companies that are looking to replace up to 100,000+ desktops.
Next year will definitly be the most successful year in the 12 years of SuSE Linux history. With the merger of SuSE Linux and Novell, which is expected to be closed at the end of January, we dramatically improved the gobal position of SuSE Linux. With the open source expertise of SuSE Linux and Novell's world-class networking and identity solutions and support, training and consulting services, SuSE and Novell will be able to deliver Linux and all its components - from the server to the desktop - and give organisations a secure, reliable and mature Linux foundation.
The combined company will help promote a thriving, global open source ecosystem that creates innovation and choice for developers, users and organisations alike.
Priorities for next year will be to make sure that customers and partners benefit as soon as possible from the joint SuSE Novell power. We will provide customers with secure cross-platform open source solutions and services tuned to the IT requirements of large corporations.
In 2004 we expect continuous strong growth in the Linux market, caused by companies' need to lower IT costs and to benefit from the technical advantages of Linux. The bigger demand will continue to come from the server market, where Linux has fully demonstrated its enterprise-readiness. But also the desktop sector will grow: Linux has become a mature, attractive alternative for desktops, and more and more users are turning away from proprietary solutions for cost reasons."
Jon Moynihan, chairman of UbiNetics (telecoms testing equipment and chipsets) and executive chairman of PA Consulting Group
"This year was very painful - the orders we have been getting in the past month were those we should have had a year ago. But the logjam in 3G is breaking and it's all coming together now. In the past month UbiNetics has signed three major technology deals to put its technology on to chips for 3G phones.
Next year will be much busier, but not so much on the retail side of 3G, where 2005 will be the big year. Christmas 2004 will be an important time for sales of 3G handsets in Europe. There are quite a few handsets around already, but they aren't great, and the Japanese market is at present more interesting for the handset suppliers.
For next year, we are seeing major levels of interest from Asia. Equipment suppliers and operators are always looking a couple of years ahead, and everyone is scrambling to get into HSDPA [high-speed downlink packet access, a 3.5G technology that allows data to be transmitted at nearly 14 megabits per second]. Virtually every major operator seems to accept that this will come in fairly quickly after 3G, possibly by 2006, and we are now selling large quantities of HSDPA test equipment worldwide.
Beyond mobile telecoms, RFID [radio frequency identification] technology is really coming into its own. The tags are still a little expensive, but their price is coming down fast. A lot of companies will start using them next year, especially in logistics. Containers will have RFID tags so that can be tracked better, improving security.
On the consulting side, things are busier now - confidence among customers is gradually coming back and PA will have a very good 2004, because of the backlog of business from this year. Companies are realising that they need to invest to avoid losing jobs to India, Asia and Eastern Europe - they need to ensure they don't stay in a funk forever."
Larry Weinbach, chief executive, Unisys
"In all, 2003 turned out to be pretty much what we anticipated. At the beginning of the year, we had forecast that we would see revenue growth in the mid-single digits. We anticipated that there would be a very slight pick-up in the US, but not in continental Europe. All of that was fairly accurate.
Business process outsourcing has been a big driver, and will continue to be strong into 2004. Companies are building this into their plans. They are examining BPO, looking at how they can transform their business, by saving costs and driving efficiencies and increasing productivity. BPO is a big undertaking, but more and more companies are looking at it.
We look on the US as being in an upturn. Not a severe upturn, but an upturn. Some of the news from continental Europe suggests they should be picking up soon. We see the Japanese environment picking up too, which should also help other Asian centres. Pretty much around the world, people are talking with more optimism. I don't think we'd be forecasting double digit growth, but really we will see growth in companies' IT spend. Things are certainly looking more positive than they did a year ago.
Security will continue to be a key concern for companies in the next year. Companies need to improve their defences, and they are realising that.
At this point in time, there doesn't seem to be a single next big thing on the horizon in the technology industry, but there are some developments that will aid productivity, and that will be interesting to watch. Take RFID tags. They have a lot of implications for the supply chain, and we're seeing companies take them up, which could have enormous consequences. And Wi-Fi technology also has tremendous implications for the industry, which we're also beginning to see."
Tom Alexander, chief executive, Virgin Mobile
"This year has been beyond our expectations. It's been a fabulous year.
We've had phenomenal growth, smashed all our targets. Lots of people were predicting that the industry was slowing down, but we've had a great year. The market segment we aim at is quite youth-orientated, with trendy consumers. That's an area of the market that has barely had its surface scratched in the past. Everyone has to have a mobile now, and everyone is using it a lot. Texting traffic has been huge.
People are also keener to update their phones to trendy models now. Mobile companies have been very successful in stimulating increased awareness and usage of phones.
And I expect lots more of the same for 2004. There is still a lot more growth and opportunity in this market. Colour is one of the absolute key things - everyone must have a colour phone now. Having a black and white phone will be like having a black and white TV. People want sexy, small phones. They want cameras in their phones, too. People like cameras. Maybe they will want to send picture messages in the future.
The size of mobile devices is really important. Unfortunately for 3 [Hutchison's 3G business in the UK and Italy], I don't think 3G is taking off. Partly, that's down to the handsets, which look big and ugly and cumbersome. They look like a retrograde step. They might take off in the future, but they have to find a way round that. Also, people are not tolerant of problems. You have to make things really easy for them, make things easy to use, make the connection easy to set up, and so on. Customers can't be bothered to do things they perceive as difficult. So 3G will happen, but it will be a slow burn."
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