... from the Financial Times ...
No tech reboot
Published: September 16 2002 5:00 | Last Updated: September 16 2002 5:00
Two years after the decline set in, there is still no sign of a recovery in demand for computing and telecommunications equipment. Indeed, another leg of the technology downturn now looks likely. Predictions of stabilisation and a rebound in demand have been founded on little more than wishful thinking.
The signs in recent weeks are that a normal seasonal pick-up in sales is not coming. Chronically sick sectors such as telecoms equipment are worsening. The price war in the enterprise computing market, selling equipment to companies, has turned vicious. The back-to-school uptick in demand for personal computers has failed to materialise.
The broader economic picture offers no hint of respite. This is the time of year when chief financial officers turn their thoughts to next year's budgets. In the current climate few seem likely to open their corporate pocket books for big information technology projects.
A downturn the industry had hoped was cyclical is turning out to be structural. Federal Reserve statistics show that more than a third of manufacturing capacity in the computer, semiconductor and communications equipment sectors is lying idle. Just two years ago, those factories were running at nearly 90 per cent of capacity. These stark figures are echoed in the headcounts of some of the big tech companies in Silicon Valley and elsewhere.
Hewlett-Packard's acquisition of Compaq Computer, announced more than a year ago, was a rare admission that the world needs fewer big tech companies. In this instance, however, the battle to win over employees, customers and shareholders during the merger was botched. HP has yet to prove the deal will pay off.
Until this becomes clearer, other large tech mergers are unlikely - few managers are willing to risk a big deal at a time of such uncertainty. Industry restructuring is more likely to come through the grind of cost- cutting and attrition than a wave of mergers and acquisitions.
After the go-go years of the 1990s, this is a difficult message to accept. The entrepreneurs who thrived on the dizzy prospect of limitless growth have yet to prove they can buckle down to making money in difficult markets and reshaping what are now vast global companies.
There are still any number of cool technologies that could revolutionise the way we work, live and play. Bill Joy, an industry visionary, spoke recently about new trillion-dollar markets when people connect to the internet from their cars or when computer chips are implanted in nearly everything. The tech industry may indeed ride some of these new technologies to bigger and better things. But the job of clearing up after the last party is still half-done. The next one cannot begin until it is finished.
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