The technology market is moving into recession according to research group IDC. However, some vendors will fare better than others depending on what service they provide with consumer electronics set to do better than mainstream IT.
Set to help is claims that interest rates are tipped to fall to the lowest level since the aftermath of the September 11, 2001, terror attacks as the central bank worries about a recession.
One Sydney academic is even forecasting an unprecedented zero per cent interest rate by 2010 on the premise that debt-laden consumers will close their wallets and threaten to push the economy into a deep economic contraction.Macquarie Group interest rate strategist Rory Robertson said the Reserve Bank of Australia would cut the cash rate, now at 6 per cent, to 4.25 per cent over the next few months.
In their latest report IDC say that “The Australian economy is facing its biggest challenge in recent history. In line with other world exchanges, the Australian share market is experiencing extreme fluctuations. Governments around the world are taking unprecedented measures to support a world financial system on the brink of meltdown. The resulting recession will probably be milder in Australia than in the US and in Europe but the level of economic activity will certainly slow down across most sectors of the economy. Unemployment will increase, domestic demand will lower, burden on social security will increase, defaults on mortgage repayments will increase, amongst other negative effects of a recession” says Jean-Marc Annonier, IDC’s Research Manager for IT Spending.
“The long period of strong economic growth that we have known is well and truly over and businesses are going to carefully assess when and where to spend their money. The impact on IT vendors will be important. The reduced business demand for IT goods, exacerbated by a lower Australian dollar, will impact heavily on the revenue of the IT industry” adds Annonier.
The IDC study also finds that:
· Hardware will be the main casualty of the recession. Slower sales will adversely impact hardware vendors. Refresh cycles will get longer and there will be pressure on CIOs to continue to operate ageing fleets of PCs. Servers and storage will be less subject to cost compression but there will definitely be heavy scrutiny to ensure that costs are kept to a minimum.
· The impact on software spending will be mixed. Projects designed to cut cost by boosting productivity or enhancing business operations are still likely to go ahead, at least in the short term. Spending on software such as database, ERM and CRM is expected to continue, albeit with a slower growth rate. Similarly, investment in virtualisation will continue as buyers will be looking at minimising hardware purchase. However spending on general purpose software such as office application suites and operating systems is likely to be significantly reduced.
· IT Services will benefit of the crisis. Spending on outsourcing services is expected to increase in the short term, specially in the mid-market. The recession will also further boost demand for offshore outsourcing to low cost countries like India and China, specifically for infrastructure management and applications services.
· Telecommunications will be mostly immune to the recession. Businesses will revert to more telecommunications to reduce travel costs. More meetings will be conducted via conference call or by video conferencing. The transition from traditional data to IP data will accelerate due to obvious cost benefits and this will also drive the adoption of voice over broadband to reduce the cost of fixed voice. Spending on mobile voice will continue to grow slowly as mobile phones have tangible business benefits and competition on the Australian market has maintained prices to levels that warrant extensive business usage.