What’s Holding Back the Tech Rebound?

Even optimists now admit that a full-fledged technology recovery will happen later rather than sooner. Every time the tech sector appears ready to dust itself off and start climbing back up the mountain, another rock slide seems to bury it all over again.

The latest avalanche was set off by IBM’s warning that it will miss revenue and earnings targets for the first quarter. The announcement was Big Blue’s first dour earnings forecast in a decade.

Meanwhile, Forrester Research recently pushed out its timeline for a tech spending comeback to 2003, predicting that the sector will shrink in 2002 before starting to grow again.

Multiple Factors

So, what is holding back technology from a full-fledged rebound, which some analysts previously had thought would take root when spring arrived?

Analysts pointed to a combination of factors. Some of these factors are psychological; others are tied to the fact that companies have invested heavily in technology over the past several years, often buying software and hardware in a frenzy aimed at maintaining a competitive edge.

“Companies are in digesting mode,” Giga Information Group vice president Andrew Bartels told the E-Commerce Times. “Enterprises acquired a lot of technology over the last two or three years. Right now, the appetite for going out and investing in even more just isn’t there.”

Doing the Math

While corporations are still focused on using technology to save and make money, they have begun to realize that software applications and other IT expenses deliver the best bang for the buck when part of significant corporate change, according to Bartels.

“The real value in these technologies is when there is a change of process that goes along with that,” he said. “That doesn’t happen overnight. That’s a slow and painstaking activity. Right now, companies are focused on absorbing what they’ve already purchased.”

Making Do

Bartels and others also acknowledged a lack of so-called killer applications in the IT space. Some sectors will grow, such as portal software and business analytics programs, but those are niche specialties. And while new technologies drove spending for some time, companies tend to err on the side of caution in a slow economy.

Forrester analyst Tom Pohlmann told the E-Commerce Times that a wait-and-see attitude nowprevails, in sharp contrast to the late 1990s, when corporations were buying technology to keep up with the competition.

Forrester has predicted a drop in enterprise applications spending during 2002, as well as a decrease in reliance on outside technology consulting.

“Companies are much more risk-averse when considering new technologies, opting to make do with what they have before buying more,” Pohlmann said.

Signs of Life

Jim Gray, associate dean at the Fuqua School of Business at Duke University, told the E-Commerce Times that executives are upbeat about a return to growing earnings in 2002, but that they simultaneously are restrained in their tech spending plans.

A recent Duke survey found 79 percent of companies plan to increase technology spending in 2002, but their spending will increase just 2.3 percent on average.

“Corporations are upbeat about things turning around,” Gray said. “But they’re also realistic about the kind of cost-conscious environment we’re operating in today.”

Killer Idea

Is there anything companies can do to jump-start the tech industry? Yes, according to analysts: By developing must-have technologies, high-tech firms can compel corporations to loosen their purse strings and finally launch the long-awaited recovery.

“If a killer application comes along, companies will go out and buy it,” Bartels said.