No slowdown for US tech industry

Can the US tech industry continue to defy the overall economic downturn?

That's the multibillion-dollar question that analysts, academics and other IT industry watchers are asking -- and answering in a generally optimistic manner -- as strong financial results pile up from bellwether companies and other key indicators such as IT employment and capital investments in Internet start-ups remain solid.

In the past two weeks, eight of the top 20 IT vendors have reported better-than-expected earnings. These include Intel, IBM, Google, AT&T, Apple, EMC, EDS and Microsoft, which all beat Wall Street estimates of how they would fare in terms of revenue and profits during the first quarter.

So far, only Motorola has missed out on the US tech industry boom, posting a 21 per cent decline in first-quarter revenue as the company plans to split into two publicly traded firms. Motorola posted declining sales for 2007, too.

Leading IT companies say the weak economy hasn't dragged down their global sales of everything from chips, software and storage devices to cell phones and online ads. Indeed, the CEOs of all of these tech companies said they remain optimistic about the rest of 2008.

The IT industry has received other good news in recent weeks. Global PC shipments continued to rise during the first quarter. Venture capital investments in Internet-related start-ups were at the same level as they were a year ago. And other measures such as IT labor statistics, CIO spending and even IT trade-show attendance appear to be holding steady for the first quarter.

"Tech seems to be holding up, but it's really hard to generalize with so many of these companies because you're talking about company-specific issues,'' says Rick Hanna, an equity analyst with Morningstar who covers hardware vendors, including IBM, Apple, Dell and HP. "The longer a recession might continue, the more pressure it will put on tech. Right now, it's very solid."

Of course, all bets are off, experts say, if the economy sinks into a full-fledged recession, the housing crisis broadens or another natural disaster wreaks havoc. It's also possible that companies due to announce their latest financial results this week -- including Verizon, Comcast and Sun -- could put an end to the IT industry's winning streak.

"The IT industry is seeing surprisingly good results, and people are looking around and trying to explain it in terms of international markets and currency fluctuations,'' says J.P. Allen, associate professor of information technology at the University of San Francisco's School of Business and Management. "But if you look at these numbers, they are based on real revenue growth. It's the result of the great migration of business activity online.''

"Tech is showing resilience for a couple of reasons,'' says Mark McDonald, group vice president and head of research for Gartner Executive Programs. "The nature of IT budgets has changed dramatically since 2001 and 2002. They are much more business based and business rationalized than in the past. . . . IT is not the target-rich environment for cost-cutting that it was before.

Consumers, companies still buying

The US economy has been headed south for six months, and American consumers have been hit hard by the one-two punch of spiraling gas prices and plummeting housing values. But so far it appears that cash-strapped consumers aren't cutting back on cell phones, text messages or broadband services.

Even PC sales continue to grow. IDC announced on April 16 that PC shipments rose 14.6 per cent in the first quarter of 2008. While US PC sales rose only 3.5 per cent, sales in developing countries more than offset that weakness, and demand remained strong for notebooks.

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