Goldman Sachs' latest information technology investment intentions survey makes grim reading.
more alarming for the technology industry is the forecast that IT budgets' long-term growth is likely to be limited to just 5 per cent a year, a far cry from the double-digit expansion of the late 1990s.
IT spending
Published: May 11 2003 19:24 | Last Updated: May 11 2003 19:24
Goldman Sachs' latest information technology investment intentions survey makes grim reading. The survey, undertaken in mid-April, indicates there will be no Baghdad bounce in corporate technology spending. Only 4 per cent of the 100 IT professionals at the global 1000 companies that were interviewed now expect spending to accelerate during the second half. That compares with 23 per cent in February. While revenues at the world's biggest corporations continue to stagnate, the only way to improve earnings is through cost cutting, and IT remains near the top of the list for savings. Chief information officers continue to be rewarded for reducing, rather than raising, investment.
Even more alarming for the technology industry is the forecast that IT budgets' long-term growth is likely to be limited to just 5 per cent a year, a far cry from the double-digit expansion of the late 1990s. Clearly, the climate of the IT world's ecosystem has been fundamentally altered, a transformation that is set to wring swingeing changes in the sector's topography. Investors need to remember that once-great technology companies can implode with astonishing speed. The great names of the late 1980s, such as Wang, Digital Equipment and Unisys, either no longer exist or are shadows of their former selves. A similar process is at work today.
In this new environment, the winners will include IT companies that can successfully ride the wave of low-price industry-standard computing, groups such as Microsoft, Intel and Dell. Companies that can demonstrate their technologies can generate a compelling return on investment, will also prosper, although smaller groups whose viability is in doubt may struggle. But those with proprietary systems, such as Sun Microsystems, face monumental challenges. For investors who must remain with the sector because its volatility can generate unusually high returns, the importance of picking the right stocks has never been greater. |
