Companies Take the Lead
Even during the slump, the technology industry could count on Gwen Marker.
Over the years she bought a DVD player, a PlayStation 2, a laptop computer, a Palm device and, recently, a new cellphone. And now she feels technologically maxed out.
“I have most things I think I need,” the 29-year-old USC graduate student said, though she added: “A digital camera would be nice.”
Consumers like Marker are no longer a major driver of the sector’s growth. But the tech industry isn’t despairing: Corporate America is starting to pick up the slack.
This month, Santa Monica fashion company Design Merchants Inc. tossed its cranky old PCs and leased a dozen new machines from Dell Inc.
“They’re way faster than the old computers,” said Maggie Lobl, director of design and merchandising, who added that a recent boost in orders persuaded the company to replace its aging computers.
Market research firm IDC expects worldwide spending on computers and software to rise 6% to 8% in 2004, much of it fueled by businesses. That contrasts with less than 1% growth expected this year and spending declines in 2001 and 2002.
Bellwether companies -- Dell, Intel Corp., Oracle Corp. and Microsoft Corp. -- expect sales and profits to climb in 2004.
In fact, next year “will be the first time in several years that the market will grow in a meaningful way,” said Nathan Brookwood, an independent semiconductor analyst in Saratoga, Calif.
“We’re starting to see more anecdotal data of companies replacing old equipment,” he said.
The reemergence of corporate spending couldn’t come at a better time.
Consumers have nearly tapped out this year’s one-time federal tax rebates.
“The consumer is your risk factor,” said Fred Hickey, publisher of the newsletter High-Tech Strategist. “We had a mass of stimulus in 2003 with the tax breaks and refinancing. Consumers cannot keep spending beyond their means forever and not have any repercussions.”
The Consumer Electronics Assn. estimates that sales of consumer electronics will grow a modest 2.4% in 2004. That would be thanks in large part to “buyers who are phasing out analog devices in favor of digital, particularly in television, where the price points have come down tremendously,” said Sean Wargo, an analyst at the trade group.
Shipments of computers to companies in the U.S. were up 7% in the third quarter to 8.8 million units, a three-year high, according to IDC. Next year, IDC expects those companies to boost PC purchases by 15%, compared with 9% for PCs bought by American consumers.
Global sales of semiconductors that go into gadgets and computers also are starting to perk up. After dropping 33% in 2001 and stabilizing in 2002, chip sales are expected to rise 12% this year and 13% in 2004, to $197 billion, technology research firm Gartner Dataquest said.
For all that, few expect tech firms to start hiring significantly.
“We’re clearly at the early stages of a technology recovery,” said Ross C. DeVol, director of regional economics at the Milken Institute in Santa Monica. “But it’s largely going to be a jobless recovery. It’s going to take a while before firms will feel comfortable hiring again.”
Silicon Valley shed 180,000 jobs from August 2000 through September, an 18% decline.
“This is the largest employment decline in a metropolitan area since the Great Depression,” DeVol said. “It’s been a devastating drop.”
Many of those jobs are not coming back. DeVol estimates that 75,000 technology jobs in California have been shifted to less expensive, offshore locations over the last two years. Nationwide from 2000 through 2002, technology shed one-third of the 1.8 million jobs it had added since 1993, according to the Commerce Department.
At the same time, there are indications that venture capitalists are more willing to finance new companies.
“On an anecdotal basis, we’re seeing that VCs have gotten a lot more active in the fourth quarter,” said Lawrence Aragon, editor of Venture Capital Journal in San Francisco. “In particular, you’re seeing social networking companies such as Friendster get funded. Those are super-speculative deals with no profit and no clear business plans. It says volumes about the venture capital environment when they’re willing to take a flier on something like this. If I were an entrepreneur, I’d take that as a good sign.”
But no one should expect the kind of easy money that flowed in the 1990s.
“There’s a more hard-nosed approach,” said Mitchell Kertzman, a partner at Hummer Winblad Venture Partners in San Francisco. “We’re looking for companies with real revenue and real operating models, companies that use innovative technology to solve really hard problems.”
