Is the Tech Recession Over?

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Corporate America is spending more on IT equipment and services for the first time since late 2000, indicating an end to the recession that has cast a shadow over the entire tech landscape, according to a new report.

The report, released by the U.S. Department of Commerce (DOC) Wednesday, doesn’t give the whole picture in IT spending, but is
encouraging news for an industry that’s seen lagging software and
equipment sales the past year-and-a-half. According to the report by the
DOC’s Bureau of Economic Analysis, equipment and software sales should top
out with a modest 2.9 percent gain in the second quarter of 2002.

The sector, according to the report, had previously been dropping since the
fourth quarter of 2000, when sales dropped 5.4 percent. Since then, sales
have dropped by as much as 16.7 percent per quarter.

For the first time since 2000, IT spending wasn’t one of the biggest losers
in gross domestic product figures released Wednesday, which show America’s
output grew overall by only 1.1 percent in the second quarter of 2002.

Barb Gomolski, a research director at the Gartner Group, said these numbers
reflect a minor return in confidence with IT spending after the dot com
shakedown and subsequent recession.

“There is a feeling that, possibly, among companies that the recession is
over with and they recognize they can’t under-invest in IT — IT’s too
important,” she said. “They don’t want to run the risk of their
competitors coming up with a better business model.”

She points out the stats breakdown likely doesn’t take into account
continuing maintenance costs with existing software and equipment, which
make the figures incomplete.

The report also doesn’t take into account the recent scandals that have
rocked the high-tech industry on the heels of one of the biggest recessions
in years. Companies like WorldCom , Global Crossing and
even AOL Time Warner have all come under the media and
Congressional spotlight for accounting “improprieties” that hid dismal
revenue numbers.

While those companies involved in the scandal are geared mainly in the
service sector, Gomolski said, the ripple effect has incorporated every
business in the industry with a sense of unease when trying to determine
whether to buy new equipment or software.

“Right after the beginning of 2002, there was a sense that maybe we had
seen the worst of (the recession),” Gomolski said. “In the last month or
so, when talking to a lot of my clients, they’re kind of disturbed by the
recent development of accounting scandals. Even though people don’t
necessarily purchase equipment based on that stuff, it does affect their
confidence level.”

A report back in May by Deloitte & Touche, which surveyed
500 technology company chief executive officers, paints a similar
picture in regards to IT spending.Most were optimistic about an
industry turnaround, but didn’t expect it to happen for another 12-18 months.

According to a spokesperson for Microsoft Corp. ,
executives haven’t seen much of an increase in IT spending related to its
products, though the company did note PC shipments in the U.S. are on the
rise, and companies continued to spend money in its enterprise server
division, to the tune of $1.35 billion in the fourth quarter of fiscal 2002.