No slowdown for US tech industry

No slowdown for US tech industry

AT&T, Apple, Microsoft and others report strong demand, remain optimistic

Analysts say that PC sales -- along with sales of cell phones, iPods and other devices -- continue to rise in part because prices continue to fall.

"A consumer may not buy a house or a new car, but that doesn't seem [affected] when it comes to getting a new PDA,'' says Tracy Lefteroff, global managing partner for the venture capital practice at PricewaterhouseCoopers (PWC). "iPod sales have not been hit that hard. iPhones are still flying out of stores. I don't see that much change in consumer buying habits.''

Pradeep Chintagunta, the Robert Law Professor of Marketing at the University of Chicago's Graduate School of Business, says consumers continue to buy wireless devices because most of them -- except the iPhone -- are subsidized by service providers.

"The fact that cell phone devices in most cases are heavily subsidized by service providers actually in some sense shields this industry from a big downturn right away because the service provider provides the phones for almost free,'' he says.

Chintagunta doubts American consumers will cancel cell phone subscriptions because of the economic downturn, but they might speed up their transition from landlines to wireless. He says consumers may delay PC upgrades or buy fewer bells and whistles.

"A sustained economic downturn will delay the replacement cycle of PCs. There's no doubt about that,'' Chintagunta says. "People will be more willing to buy a 1.6GHz machine versus upgrading to the 2.5 GHz machine. That will certainly happen. . . . But if manufacturers react by further lowering prices, it could be that shipments continue to be high but profit margins for the manufacturers are declining.''

Apple had record-breaking results based on strong sales of its Mac business, which grew 51 per cent in units and 54 per cent in revenues due to rising consumer demand for the machine's unique look-and-feel.

"Apple is growing 3.5 times the market rate, which is not an indicator in general but a sign of Apple's strength,'' Hanna says.

Corporate IT buying isn't plummeting either. In fact, corporate IT budgets worldwide will rise 3.3 per cent in 2008, according to a survey of more than 1,000 CIOs that Gartner released in April.

Gartner's survey gauged the potential impact of macroeconomic concerns on corporate IT budgets. Gartner found some softness in the US market, where IT budgets are growing at a slightly lower rate than last year, but this softness is overshadowed by larger increases in Asia and Europe.

"Globally, IT budgets for 2008 remain stable. The growth rates are slowing in the US, while there is accelerating growth in Europe and Asia Pacific,'' McDonald explains.

In the United States, corporate IT budgets will grow 2.3 per cent this year, instead of the 3.1 per cent rise predicted by Gartner in the fall of 2007.

McDonald points out that the average annual increase for US IT budgets from 2004 to 2008 was 2.8 per cent, so that the projected US increase of 2.3 per cent isn't that big of a drop.

"IT budgets have become more like other business budgets, which is another factor why IT won't go through the significant boom and bust cycle like it did in the last economic downturn,'' McDonald predicts.

McDonald says that 65 per cent of US CIOs said their IT budgets hadn't changed from their original commitments, and 10 per cent said their IT budgets had increased in the first quarter.

"One in four companies in the US said they had cut their IT budgets for 2008. The average reduction was 9.6 per cent,'' McDonald says. "CIOs are taking a conservative approach going into the start of the year. . . . This is caution, versus cost-cutting.''

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