Dealing with the downturn

13 Oct 2008

It's been a wild ride in the finance markets but the scary part is yet to come. That's when the evaporation in credit starts to impact on the real economy.

How will the tech sector fare in the almost-inevitable economic slump‾

To start with the less bad news, the downturn has been some time coming, and some tech leaders such as Microsoft and Nokia have already trimmed their forecasts.

But others are already making adjustments. German software firm SAP this week attributed its sharp cut in guidance to the financial turmoil. Auction house eBay has cut 1,600 jobs. AMD, who's been struggling with debt, has split itself in two and taken on $6 billion from a Gulf investor.

In telecom, AT&T's reorganization is believed to be a precursor to layoffs at the largest US telco.

Mobile carriers can expect subscriber growth - global wireless penetration will grow from 50% to 80% over the next five years, according to one forecast. But ARPU will slide from $23.20 in 2005 to $15.80 in 2013.

In the VC sector, 2008 has been the leanest year for IPOs since 1977. The outlook is a bit dimmer for startups, too, with the credit squeeze drying up cash from banks and insurance companies, normally one of the biggest sources of funds.

For enterprise IT and comms groups, the looming recession revives not-so-distant memories of the great tech bust.

As ever, CIOs will be expected to become more and more strategic, delivering greater productivity gains while at the same time ruthlessly cutting costs. There will be a heightened debate about the role of IT in the enterprise.

There'll be even stronger interest in IT and business process outsourcing to generate direct cost savings.

Gartner has said we are just midway through a tech refresh cycle, but capital spending will be put on hold or deferred. That may mean a wider opening for SaaS and cloud computing generally - indeed, it's hard to think of a better opportunity for cloud vendors.

Data centers will occupy some time and attention. IDC utilization will have to improve, and server consolidation through virtualization will likely accelerate. CIOs and facilities managers will be pressed to cut rising power and cooling costs.

Some of the environmentally-friendly practices adopted by businesses recently will be pushed harder, like web conferencing and collaboration. IT groups will be asked to enable wider adoption of enterprise mobility solutions using 3.5G and Wimax to improve staff flexibility and productivity.

Last, and most traumatic, headcount will come under even more pressure. IT groups will be forced to become leaner and meaner. It's what happens in recessions. Let's hope this one, if it comes, will be short.

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