<<... think business investment is improving right now. I'm getting a bunch of calls about projects, anyway. Thats my personal pipeline for large infrastructure IT projects. There is a 6mos window for actual deployments so no dollars coming through yet. Still it is much better than last year when there was no activity at all. For me to get a call on December 19 at 8pm means somebody is staffing something. That is usually a dead period even in good times.
I think the best bang for the buck if capex comes back are the really beaten down companies in software, storage and networking- the enterprise stuff because thats where the recovery is. The consumer may well be tapped out but that won't matter if we get corporate recovery...>>
Lizzie: Interesting comments...I'm also getting better feedback from contacts and friends in large Enterprise IT departments and in some startups around the country. I've also received some new proposals and will be locking into something in early '03.
Here are some promising excerpts from the the latest issue of Crain's Business Chicago...
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Biz starting to lift the lid on spending
December 23, 2002
By Sandra Jones
Crain's Business Chicago
<<...Dana Corp. can't wait any longer. The factory computer systems at the auto parts maker's sealing products plant in Lisle need to be updated.
The manufacturer — which makes gaskets and seals for General Motors Corp., Ford Motor Co. and Caterpillar Inc. — is boosting its information technology (IT) budget in the range of 2% to 3% in 2003, the first increase in two years. Much of that money will be spent on installing software that has been sitting on the shelf since the economy turned down.
"I'm seeing a lot of solid, meat-and-potatoes projects coming to life next year, projects that help with the basic business needs," says Warren Smith, IT director at Toledo, Ohio-based Dana's Lisle operation. "Managers are looking for projects with low risk and quick payback."
The same can be said across the economy. After cutting capital investment for the past two years, businesses are starting to spend again, albeit in measured doses. Corporate investment is forecast to increase 3.6% in 2003 after two years of declines, according to one economic survey.
While such steps are far from dramatic, economists point to a swath of mild increases in technology spending as a sign that businesses are finally loosening their purse strings and taking the burden off consumers, whose spending on homes and cars kept the economy chugging along in 2002.
The Chicago economy is forecast to grow 2.37% in 2003, up from an expected 1.51% gain in 2002, according to data compiled for Crain's by the Regional Economics Applications Laboratory (REAL) at the University of Illinois at Urbana-Champaign.
That's slow and steady improvement from the anemic 0.81% increase in 2001 — the year the recession began — but it still trails the national trend. The gross domestic product is expected to show an increase of 2.4% for 2002 and climb 3.0% in 2003, according to Standard & Poor's in New York.
To be sure, many industries, including telecommunications and the airlines, are still mired in problems. But the rest of the economy is beginning to come out of its shell, led by consumer product companies, pharmaceutical firms, health care and financial services.
Still, corporate managers — burned by the Internet boom when they rushed to build factories and hire workers ahead of demand — are being extra careful not to squander their money. And corporate scandals have turned up the heat on companies' finances, leaving CEOs with little room for error.
Adding to the wary atmosphere: The aftershocks of the Sept. 11 attacks appear to have seeped into the American business psyche. The possibility of a war with Iraq, which could send oil prices soaring and spark a double-dip recession, and the prospect of further terrorist attacks continue to impede business spending as the economy tries to make a comeback.
At this point, the economy remains fragile. Corporate profits have risen in the past two quarters, although that gain has largely been attributed to cost-cutting. Demand is erratic and companies have yet to restore jobs.
"Over the last year, consumers spent whether they felt good or not," says Vincent Boberski, managing director and chief economist at investment firm RBC Dain Rauscher Inc. in Chicago. "But business confidence has been real low, and that has hampered managers from going out and hiring and investing."
'A sick industry'
The Chicago economy lags the nation in part because of the region's heavy reliance on manufacturing — in particular, telecom.
The slump in manufacturing, which accounts for one-quarter of the local economy, is expected to continue next year, albeit at a slower pace, according to REAL. Electronics and electrical equipment makers, which include telecom manufacturers, constitute the largest se ctor in manufacturing and remain its biggest drag, REAL says.
Motorola Inc., Lucent Technologies Inc. and Tellabs Inc., for example, face stark reminders every day of the dangers of exuberant spending. Each has a sparkling new showcase office park, conceived before the telecom crash, that now is sparsely occupied.
Motorola's massive, $100-million office park and factory in Harvard stands virtually empty and is on the selling block. Tellabs moved out of modest headquarters in Lisle and into an $82-million, gleaming glass building in Naperville. And New Jersey-based Lucent sank $120 million into an ultramodern research and office park that spans the Lisle-Naperville border.
Pundits have stopped trying to predict when telecom will rebound.
"As a participant in a sick industry, I would like to see it return to a level of health," says Tellabs Chairman and CEO Michael Birck. "But I don't see any evidence of that happening. I just don't think we can go through another year like this. The industry won't tolerate it."
Mr. Birck sees more bankruptcies and consolidation in the year ahead for both equipment makers and service providers. As for Tellabs — which had a net loss of $228.6 million in the first nine months of this year as sales fell 42% to $1 billion — "holding the fort" is the phone equipment maker's mantra for 2003, he says. His top priority is to preserve its $1 billion in cash and marketable securities while keeping capital spending in 2003 at a minimum.
Longer-than-expected slump
However, there are signs of life at Schaumburg-based Motorola, the world's No. 2 maker of cell phones and the region's second-largest manufacturing employer. After cutting capital spending roughly in half in 2002, to an estimated $688 million, the company is expected to boost spending to about $1 billion next year.
Peoria-based Caterpillar, the world's largest maker of earth-moving equipment and the region's largest manufacturing employer, said last month that its capital expenditures for 2002 will have dropped to about $800 million from the $1.1 billion it had budgeted when the year began. Analysts expect spending to hold steady in 2003.
"Profits have remained poorer for longer than anybody anticipated," says Carl Tannenbaum, chief economist at Chicago's LaSalle Bank N.A. "In an environment where the focus is just on making the next quarter's number, there isn't a lot of room for long-term thinking or investment in new resources."
In the trucking industry, where a pickup in economic activity often shows up first, business is "status quo," says Samuel Skinner, chairman and CEO of USFreightways Corp. in Chicago. He isn't planning for any significant increase in 2003 and says 2004 is the earliest he expects a rebound.
"I don't see people building inventory or making investments in new capital," says Mr. Skinner. "If people aren't manufacturing it and people aren't buying it, we're not going to be transporting it."
That means other sectors — including the pharmaceutical industry (the only growing manufacturing sector), health services and financial services — will have to lead Chicago out of the doldrums. And, indeed, all three sectors are projected to expand in 2003, REAL says.
Local hopefuls
Fortune Brands Inc., the Lincolnshire-based maker of Titleist golf clubs and Jim Beam bourbon, expects capital spending to increase "slightly" next year from this year's $200 million, a spokesman says. In the health care field, Deerfield-based Baxter International Inc. plans to boost spending to about $1 billion next year, from $817 million this year, analysts say.
Another bright spot: Mitsubishi Motor Manufacturing of America Inc. in Downstate Normal expects to increase its production 20% in 2003 and is adding 180 workers as it launches the new Endeavor.
But it's investments in new computers and software, more than anything, that will jump-start spending. The proje cted 3.6% increase in corporate investment in 2003 follows an estimated decline of 5.6% in 2002 and a 5.2% drop in 2001, according to the Blue Chip Economic Indicators, a monthly survey of 50 leading economists. Spending on software and equipment is a key ingredient in the gain, the survey says.
BorgWarner Inc., the biggest maker of auto transmission parts in the world, is also ratcheting up its IT budget 5% after holding back in 2002.
The Chicago-based company has been expanding overseas, particularly in the Far East and Europe, and needs to invest in its global telecommunications network and software applications so data moves more efficiently as the business grows, says Chief Financial Officer George Strickler.
BorgWarner's capital spending is slated to increase 7% in 2003, a pace mindfully below the company's anticipated 2003 sales growth of 8% to 10%.
Likewise, Cabot Microelectronics Corp. in Aurora is investing more than $5 million on new computer systems to connect its disparate systems in Europe, Asia and the U.S. The maker of chemicals used in semiconductor manufacturing, dominant in its specialty market niche, has spent millions over the past three years building plants and research centers in the U.S. and Asia.
"Everybody's cautious right now," says CEO Matthew Neville. "The mindset needs to be changed. We need to be doing things to instill confidence at this point."
Economists say businesses should take a tip from consumers and take advantage of the lower prices that result from excess supply.
Bargain-basement prices for computer equipment, software and hourly service rates are too good for companies to pass up, especially after years of making do with existing equipment, says John Karnatz, a partner at Market-Path, a Bartlett-based consultant to IT service companies.
Stricter financial reporting, required by the Sarbanes-Oxley Act that President George W. Bush signed into law in July, is also prompting companies to bring old financial computer systems up to date.
"A lot of firms have had a hold on expenses and now the business side is telling the IT side, 'We can't wait on these projects any longer,' " says Gregory David, president of the Chicago office of Homewood-based recruiter Gregory Laka & Co.
Staffing requests for permanent, full-time IT positions have surged in the past few months, especially for applications development, says Mr. David. Banks and finance firms have the biggest demand, but manufacturing firms are beginning to look for technology workers as well, he says...>> |
