Posts Tagged ‘tech downturn’

The Coming Tech Recession?

January 22, 2008

Despite today’s 75-point basis point cut by the Fed, it looks like the U.S. economy is headed for a recession. Which raises the question: How bad would the recession be for the tech industry? 

My bet is that such a tech downturn would be short and not that painful–not nearly as long and painful as the last tech downturn from 2001-2003/2004.  Why? Well, this time there is no dot com bust, no telecom meltdown and no Y2K overhang. In other words, this tech recession, if it happens, is all about a general economic slowdown, and has little to do with tech fundamentals. That means when the economy picks up again, probably in second or third quarter, the growth rate of the tech industry will revive again. Currently, tech research firm IDC is forecasting around a 4% growth rate for the US tech industry, down from 6.6% last year.

If a recession took hold, IDC analyst Stephen Minton says we’d end up with no growth “as long as the recession was short and lasted 2 to 3 quarters.” During the dot com and telecom bust, US tech spending declined 6% in 2001 and 5% 2002.  Of course, the slowdown would effect some markets more than others.

What are the bright spots? “Some of the fastest growth came from smart phones, especially outside of Europe,” says Minton. “Software is the fastest growing sector: infrastructure, security, virtualization, applications like business intelligence.”

IDC’s recent survey showed front-end applications could see cutbacks if tech budgets are scaled back. But infrastructure programs like security and virtualization could hold up. “CIOs are very reluctant to scale back spending there,” says Minton. “Infrastructure and data center projects would be least likely to see cutbacks. But the programs that touch end users could see cutbacks.”

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