IT Industry May Slump Until 2010

In the last few days we conducted an informal outlook poll of business executives from several leading financial services companies. The results of the poll provided us with some insight into what the business people at those companies are thinking about the time horizon for recovery from the current financial crisis, and what it means to IT spending and expectations.

A majority of those with whom we spoke expressed a view that 2008 and 2009 will largely be write-offs for their core businesses, and at best a chance to pick up some good assets amid the current carnage. The prevalent point of view was that a sustainable recovery in the financial services sector should not be expected till 2010. Some also voiced concerns that consolidations and government intervention in the financial services sector while ultimately helpful, will not significantly alter the current downward trajectory for the economy as a whole.

None of those we interviewed could offer any definitive view on what the direct immediate impact of the financial sector crisis is on tech spending, but did admit a great deal of uncertainty, mentioning that all spending, especially discretionary, is being put under review. Our analysis of this rather limited set of data points forces us to think that one should not expect a broad turnaround for business momentum for IT vendors till 2010 or even 2011, especially as it pertains to IT vendors focused uniquely on the financial services industry. It should be noted that the financial services sector represents over 20% of all enterprise IT spend.

In our research published in the July 2008 MGI benchmark of 75 applications software vendors, we highlighted a trend of stronger companies improving their MGI Index efficiency scores while the average application software companies saw their efficiency scores decline.

We expect this trend to continue broadly amongst tech companies, as the companies with stronger management teams and business models "batten down the hatches" early to survive the current storm, while the companies with less efficient MGI Index scores tend to suffer from "deer in the headlights" over-optimism in their business planning. With Q3 now closed, we look forward to the quarterly confessional calls.

Comments

[jcrash:]

Gotta figure there will be a lot of used routers and servers hitting the streets for pretty cheap prices.

2008 Oct 01 03:49 PM

[Mexx:]

Oh goodie, it looks like I have two more years of buying great companies.

Eventhough we are melting down.... this is a great period for the long term investor to continue accumulating steadily.

2008 Oct 02 03:00 PM