Not too long ago, information technology companies were assuring their investors that they would not be as affected by current economic conditions as others have been, citing large cash reserves, relatively infrequent borrowing and a strong, consistent customer base. Businesses rely on IT companies for innovative hardware and software packages that drive productivity, more than making up for the initial investment. Take a look at this quote from this quote in the Wall Street Journal on July 10th:
In a survey conducted last month in cooperation with the Securities Industry and Financial Markets Association, IBM found that 21% of those questioned were planning to increase IT spending by up to 10% this year, and 18% saw increases of more than 10%...The responses cover computer, software and services buying. Managers were asked to exclude staffing costs.
The article goes on to cite market researchers seeing a reduction in tech spending, but not a contraction (down to 4% from 7% previously). Now, another WSJ article posted on October 7th states that the trouble facing these IT companies may be more serious than what was accounted for; SAP stated that their third-quarter revenue would fall short of what they initially expected and had told investors.
The problem is coming from their revenue source: their customers. The financial giants on Wall Street--who were, at one point, some of their best customers--are imploding and strongly affecting the rest of the economy. Businesses large and small are no longer able to the finance integration of new hardware and software. The CIOs of large companies are facing budget cuts while small companies can't get a loan to make their business more competitive through tech solutions that companies like SAP offer.
Each job within the banking and finance industry supported between two and three other jobs, as said by Ken Goldstein, economist at the Conference Board in this WSJ article. These are the same industries that are suffering right now as the businesses within either collapse or swallow each other in desperation. Jim Jarman, President and Chief Operating Officer of computer-supply company E-Mediaplus has cited hundreds of thousands of dollars in losses since this began. Integra Software Systems has seen several of its customers disappear; they provided lending software solutions for the banking industry. The future is still uncertain for IT companies, but particularly troublesome for those that specialize in assisting the financial and banking institutions of America.
The problem is coming from their revenue source: their customers. The financial giants on Wall Street--who were, at one point, some of their best customers--are imploding and strongly affecting the rest of the economy. Businesses large and small are no longer able to the finance integration of new hardware and software. The CIOs of large companies are facing budget cuts while small companies can't get a loan to make their business more competitive through tech solutions that companies like SAP offer.
Each job within the banking and finance industry supported between two and three other jobs, as said by Ken Goldstein, economist at the Conference Board in this WSJ article. These are the same industries that are suffering right now as the businesses within either collapse or swallow each other in desperation. Jim Jarman, President and Chief Operating Officer of computer-supply company E-Mediaplus has cited hundreds of thousands of dollars in losses since this began. Integra Software Systems has seen several of its customers disappear; they provided lending software solutions for the banking industry. The future is still uncertain for IT companies, but particularly troublesome for those that specialize in assisting the financial and banking institutions of America.
3 comments:
The main reason why they had originally said that the crisis would not have an effect on them is because they didn't know how big of a financial collapse there would be. Companies are going to look everywhere possible to cut cost and many may look to IT departments. However, this might not be beneficial to them. It might be better for them to simply maintain the IT they have now. This will definitely hurt the IT companies because there won't be many companies buying from them. Businesses don't have the money to buy the continuously developing IT systems. If IT companies keep developments moving, after the "recession" is over, they will see large profits from the businesses trying to catch their technology up to current standards.
Your article seems to contradict with Brad’s article. He claims companies are still increasing their IT budgets. As you said, IT would be devastating if IT companies are forced to go out of business if companies having difficulties to spend towards IT. Although IT may seem like an unwanted expense during a time like this, I do believe companies may want to consider maintaining their IT standards without jeopardizing them. The worst thing that can happen is our economy lacking the strategic IT achievements which can decrease the innovation in our products. This can allow other countries to bypass the American technology and flood the American market with their products.
Alex-
I think this is a very realistic article choice which highlights that IT will in fact be affected by the current financial situation. Ultimately the IT industry provides so much IT support to the financial world that without the financial world growing IT will slow as well. I find your article to be more realistic while some others which highlight success of IT even now are a bit idealistic!
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