"Can Tech Lead Asia On Road To Recovery?"
Date: 10/20/98
Author: Matt Krantz
The rotten Asian economy has soured growth for many industries. Not
even the technology sector has been spared.
But technology companies - especially those that sell networking gear and
personal computers - will be the first to start growing again in Asia, says
Patrick McGovern, chairman of International Data Group.
Why? Their products are the only things able to help Asia get back on
track, says McGovern, whose company owns market research firm
International Data Corp. and scores of computer trade magazines.
McGovern told IBD why technology companies will benefit from a
rebuilding Asia in '99 and '00.
IBD:
How badly have U.S.-based technology companies been hurt by the raging
Asian economic crisis?
McGovern:
We've seen IT (information technology) spending (growth) in the Asian
countries drop down to single-digit levels, at around 4% to 5% (in '97).
That is down from the 18% to 20% that existed earlier.
IBD:
When will these countries ramp up their IT spending again?
McGovern:
It will take time for these companies (in Asia) to rebuild and get IT
spending back to what it was. But by the first quarter of 2000, we will
begin to see increases in IT spending. They're already preparing to invest
more in IT infrastructure, including desktop and laptop products. They
want to be able to rebuild without adding new staff. They want to build
future margins by spending more on IT.
IBD:
Is this already happening?
McGovern:
There's an indication that in the last calendar quarter of '98, IT spending (of
Asian countries) is picking up 9% to 10%. In '99, we expect IT spending
to go up to 15% in southeast Asia.
IBD:
Why do Asian companies see IT spending as the answer to their economic
woes?
McGovern:
They've seen the U.S. have its eight years of continuous economic growth,
largely due to the productivity increase of IT that lets companies keep
growing revenue and profits with minimal increases in staff. They seem to
be planning the same pattern.
IBD:
What types of technology will the recovering Asian companies invest in
first?
McGovern:
Initial spending will be to improve networking technology and software.
(They may buy) Cisco (products) for the network plumbing and Novell or
Microsoft network management software. Next, they'll add more powerful
PCs to the desktops and add laptops for mobile workers. I don't think big
enterprise investments (back-office software that handles tasks like
accounting and manufacturing) will be a priority at first.
IBD:
What should the networking hardware and software makers be doing
now?
McGovern:
China is the largest ongoing opportunity. It has maintained 7.5% to 8%
(gross national product) growth rates. Its spending for products (will be)
up 35% this year. It's an area each of the major IT companies should be
preparing to be participating in as fully as possible.
These companies shouldn't try to sell customers on speed, bits and bytes.
They should sell economic benefits to the companies.
IBD:
Some say Asia can't recover until Japan recovers. What does Japan's IT
investing look like?
McGovern:
Japan's problem is overvalued assets. It has to find a way to allow the
banks, insurance and real estate companies to absorb their overvalued
properties. That will make IT spending by (Japanese companies)
somewhat cautious.
Japan has gone through three years where PC growth was in the
50%-to-70% range. But last year it dropped down to 10%. This year it is
only 4% to 5%. Depending on the time it takes to adjust asset values, this
year and next year will be years of single-digit IT spending. But in the year
2000, if it successfully deals with problems, IT spending could move up to
the 14%-to-15% spending increase range.
IBD:
Weak Asian currencies make imported U.S. computer products even
more expensive. Has this opened the door to Asian computer makers
selling to Asian companies?
McGovern:
All the U.S. technology companies, including Microsoft and Cisco, are in
China. But some of the China-headquartered companies are starting to
make some headway. Legend has passed IBM (Corp.), Compaq
(Computer Corp.) and Hewlett-Packard (Co.) to be the No. 1 producer
of PCs in China.
IBD:
Do Asian countries have a Year 2000 problem, where computers confuse
the year 2000 with 1900?
McGovern:
They're facing the same type of problem we have in the U.S. But they don't
seem to be as terrified (as U.S. companies are). (Asian companies) seem
to think they're doing a good job checking their legacy (older systems,
usually mainframes) and current programs. They aren't spending as much
investment money to fix the Year 2000 problem as we're seeing in the U.S.
and Europe. I don't know if (Asian companies) are more ready, but they
are less frightened.
investors.com
Mang |
