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Published on January 22nd, 2009 | by Saurabh Pandey

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Will ‘Technology’ Survive the Recession?

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USD 250b technology giant in 2008 reduced to USD150m nobody in2009! Is this the beginning of the end of technology giants?

 

NORTEL at one point in time commanded almost 33% of Canadian stock market value and boasted of a stock market value of over USD250b before filing for bankruptcy as we entered the year 2009.

Motorola, Microsoft, Intel and even Google announce layoffs and office closures. Circuit City declares bankruptcy!

Is 2009 worse than 2001?

If you go by recent reports by Forrester, it may not be that bad! While in dollar terms the growth will dip by about 3%, but in local currencies weighed for each regions’ share in the global IT market, we should expect an increase of 3%!

Looking back at 2001, IT spending declined by over 6% after a previous year increase of 16%, that was really a bad hit, and if we compare the same to 2009, we are much better off so far!

A report in Economist, Jan 17-23, 2009, maintains that technology companies in 2009 are better managed than the ones in 2001 and in fact companies like HP, Oracle and IBM are well equipped to tread through the recession due to their broad product portfolios and global spread.

That’s some good news!

 In fact if you look at NORTEL, while it has filed for bankruptcy, it also has over USD2b in cash right now. Owing to a lower valuation it also seems that NORTEL will be bought in pieces by several companies like Huwavi. Hence collectively, the USD2b in cash, the money from sell-off and assets and infrastructure should suffice for the investors to recover a large part of their investments if not all.

Hence at this point in time, the NORTEL saga doesn’t look all that gloomy.

India and China will keep the Telecom afloat for a long time to come. Collectively they add almost 20m subscribers every month and already have 1 billion subscribers collectively!

By 2012, India alone will have over 650m subscribers and 60% of these would come from rural areas.

3G roll out in both China and India will help telcos increase their ARPU, and also help create revenue opportunities for various allied industries (handsets, content, advertising etc.)

Now to sustain this growth telcos need to stay invested in technology and continue creating infrastructure. Also the anticipation of huge revenue opportunities and economies of scale may also induce telcos to keep their spending continued.

Collectively it spells good times ahead for telcos, technology players and allied industries. I cannot see a huge negative repercussion of recession in this sector; rather telcos can activate a chain reaction of sorts which will be critical for the revival of global economy.

Technology companies have also realised that consumers in these times are happier buying a stripped down product at a cheaper cost rather than a fully loaded and futuristic expensive product.

So, you see technology vendors offering upfront discounts, promoting open source, offering 0% lease, and what have you to attract customers-both enterprise and home users.

Cloud computing may also help firms keep the cost of ownership low (though initial investments could be high) and is now increasingly being talked about as a cost saving alternative.

It seems that the technology industry, is well immune to the economic recession, and is aware of what needs to be done in these tough times. We just need to hope that the recession does not extend too far into 2009, because if it does, the chances of our revival would be extended by another year (from 2010 to 2011)!

 

 

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