Economist Intelligence Unit Tech Sector Barometer

Transcription

1 Economist Intelligence Unit Tech Sector Barometer Looking up October 2009 Economist Intelligence Unit 26 Red Lion Square London WC1R 4HQ United Kingdom

2 The Economist Intelligence Unit The Economist Intelligence Unit is a specialist publisher serving companies establishing and managing operations across national borders. For 60 years it has been a source of information on business developments, economic and political trends, government regulations and corporate practice worldwide. The Economist Intelligence Unit delivers its information in four ways: through its digital portfolio, where the latest analysis is updated daily; through printed subscription products ranging from newsletters to annual reference works; through research reports; and by organising seminars and presentations. The firm is a member of The Economist Group. London The Economist Intelligence Unit 26 Red Lion Square London WC1R 4HQ United Kingdom Tel: (44.20) Fax: (44.20) london@eiu.com Website: New York The Economist Intelligence Unit The Economist Building 111 West 57th Street New York NY 10019, US Tel: (1.212) Fax: (1.212) newyork@eiu.com Hong Kong The Economist Intelligence Unit 60/F, Central Plaza 18 Harbour Road Wanchai Hong Kong Tel: (852) Fax: (852) hongkong@eiu.com Electronic delivery This publication can be viewed by subscribing online at Reports are also available in various other electronic formats, such as CD-ROM, Lotus Notes, online databases and as direct feeds to corporate intranets. For further information, please contact your nearest Economist Intelligence Unit office. Copyright 2009 The Economist Intelligence Unit Limited. All rights reserved. Neither this publication nor any part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of The Economist Intelligence Unit Limited. All information in this report is verified to the best of the author's and the publisher's ability. However, the Economist Intelligence Unit does not accept responsibility for any loss arising from reliance on it. Symbols for tables n/a means not available; means not applicable

3 Economist Intelligence Unit Tech Sector Barometer: Looking up 3 Economist Intelligence Unit Tech Sector Barometer Looking up In a sharp change in sentiment, IT and telecoms executives are now predicting better prospects ahead. Global business leaders in IT and telecoms are now seeing a marked recovery in their sectors, according to the latest Tech Sector Barometer, a biannual survey published today by the Economist Intelligence Unit. Nearly three out of five of those surveyed say they expect demand conditions to improve over the next six months. This reflects a sharp reversal in sentiment from the first quarter of this year when just one in five expressed optimism. Only 9% of those surveyed now expect demand to deteriorate, as opposed to 47% in the first quarter. Although the mood across the global IT and telecoms industry has improved dramatically, the survey shows a marked regional split. Asian executives, for example, show the most confidence while the percentage of upbeat Europeans is much lower. This finding reflects the EIU's global economic outlook, which is forecasting world GDP growth of 2% next year, but an expansion in Asia of 3.7% compared to just 0.5% growth in Western Europe. The survey also shows a split between the telecoms and IT sectors, with hardware, software and IT services companies showing more confidence in the recovery than those in the telecoms sector. This is primarily a reflection of how hard the hardware sector, in particular, was hit by the slump. Along with chipmakers, it is now beginning to see restocking by companies that have cut back hard on IT spending over the past year. A total of 358 executives of telecoms and IT firms took part in the survey, which was conducted online by the Economist Intelligence Unit in September The respondents were senior 56% were senior management or C-suite executives as well as global, with 57% from the developed economies and 43% from emerging markets. Large firms accounted for more than half of those represented in the survey. Although nearly every indicator in the survey has turned positive, the Economist Intelligence Unit expects the recovery for the IT and telecoms sectors to be a long, hard slog. Global IT spending for 2010, for example, is forecast by IDC to rise by 4.4% in dollar terms, but that will be after a steep 7.3% decline this year. Companies best placed to prosper will be those with low levels of debt, wide geographic reach and tight controls on costs.

4 4 Economist Intelligence Unit Tech Sector Barometer: Looking up Key findings Optimism in the IT and telecoms sectors reflects a growing sentiment that the worst of the recession is now over, with 59% of those surveyed expecting demand conditions to improve over the next six months, compared to just 20% in the first quarter. Only 9% now expect demand to deteriorate, compared to 47% in the first quarter. Confidence in the financial health of players in the tech sector has returned over the past six months, with only 19% expecting finances to deteriorate. Asian tech executives are the most optimistic, with 77% of those surveyed anticipating improved demand conditions, followed by North America with 66%. Investment in research and development (R&D) is picking up, with 35% of all respondents expecting an improvement in R&D spending over the next six months. A further 46% expect R&D budgets to be maintained. Downward pressure on prices is now the biggest barrier to growth, with reduced demand the second most cited reason for slower growth. Bouncing back After a year of bad news, revisions in sales targets and red ink, confidence is returning to the telecoms and IT sectors. While it is too early to say whether this change in sentiment reflects the end of the current recession, it does seem to show that the worst is now over. Out of the 358 executives interviewed for our survey worldwide, a decisive 58% say they expected demand conditions to improve over the next six months. This compares to just 20% of those interviewed in February and March for our inaugural Tech Sector Barometer survey. How do you expect demand conditions in your market(s) to change over the next 6 months? Q3 Q1 They will improve They will remain the same They will deteriorate In the most marked turnaround in sentiment, Asian executives proved to be the most optimistic about the short-term outlook, with a whopping 77% of those interviewed saying they expect improved demand over the next six months, compared with just 15% in the first quarter. North Americans are the second most optimistic, with 66% expecting improved demand. Europeans, by contrast, are the gloomiest, with less than half expecting an improvement in demand. Overall, telecoms and IT have fared better in the current downturn than the automotive, financial services and consumer goods sectors. The number of bankruptcies in the sector has been modest; it has rarely needed to appeal for

5 Economist Intelligence Unit Tech Sector Barometer: Looking up 5 government bail-outs and its products are at the core of just about any business, anywhere. Having said that, a high proportion of tech products PCs, mobile phones and semiconductors are commodity items and are thus very much dependent on the state of regional economic growth. The reason for the regional split is not hard to understand. According to the EIU's latest global economic outlook, the emerging economies of Asia will again be the world's fastest growing region next year, with annual average growth of 6-7% over , led by strong growth in China and India. Western Europe, by contrast, will suffer the largest contraction of any region globally this year, with GDP dropping by 4.2%. Next year, we forecast an anaemic 0.5% growth. These figures are what are dividing the optimistic Asians from their counterparts in Europe. How do you expect the overall financial health of players in your market(s) to change over the next 6 months? Europe North America Asia Pacific 5 Telecoms IT It will improve It will remain the same It will deteriorate This regional division is also apparent in executives' attitudes to the financial health of the players in their markets. Overall, our survey shows that telecoms and IT sector executives have sharply upgraded their ratings of the financial health of the players in their market, with more than a third saying they will improve in the short term and 44% saying they will remain the same. This compares to just one in ten expecting improvement six months ago and only a quarter expecting the status quo. A large part of this increased optimism on corporate financial health is due to the shake-out that has taken place in the tech sector, with weaker firms like Nortel, the Canadian network equipment provider, filing for bankruptcy and selling off assets. Looking at the financial health of the sector on a regional basis, Asian and North American executives show demonstrably more confidence than their European counterparts. In Europe, only a quarter of those interviewed say companies are getting fitter, 44% say they expected no change and over 30% say they expect a deterioration in financial health in their sector. For the most part, this reflects the faster pace of consolidation and mergers in the US and Asian telecoms and IT sectors. It is also a clear indication that further consolidation can be expected in Europe.

6 6 Economist Intelligence Unit Tech Sector Barometer: Looking up Changing climate Despite the improved outlook, executives in the IT and telecoms sectors are still expecting tough trading conditions ahead. When asked what factors represented the greatest barriers to growth, executives put downward pressure on prices as their top concern, followed by reduced customer demand. This is the reverse of our first survey in the spring, and again reflects the beginnings of a revival in demand for tech products. After twelve months of cutting costs, customers are now expected to start buying new hardware, software and telecoms services or risk losing out on their competitiveness and productivity. In another indicator of better times, the number of executives who cited "lack of finance to fund business expansion" as a barrier to growth had dropped from 42% in the first quarter to just a third of respondents in the third quarter. And the proportion citing "shortage of talented staff" has increased from 14% six months ago to 22% of respondents. Which of the following represent the greatest barriers to growth for your business over the next 6 months? Select up to three. Q3 Q1 Downward pressure on prices Reduced customer demand Lack of finance to fund business expansion Shortage of talented staff Inability of partners to develop effective models of collaboration (eg, telecoms operators and content providers) Regulatory pressures or constraints Exceedingly slow development of promising technologies Weakness of telecoms infrastructure High labour costs 8 8 High cost of production materials 4 4 Don't know/not applicable A stronger sense of confidence about the future is also feeding into a more confident approach to R&D spending. According to our survey, a third of respondents expect R&D spending to increase in the next six months while nearly half expect it to be maintained. This is another sharp about-face from our last survey six months ago, when 44% of the executives surveyed worldwide expected R&D spending to deteriorate

7 Economist Intelligence Unit Tech Sector Barometer: Looking up 7 Again, the regional split is striking, reflecting the high level of confidence in the Asia-Pacific region. Nearly half of those interviewed in Asia said that R&D spending will increase over the next six months, compared to around a quarter in Europe and North America. Further, more than a quarter of Europeans expect R&D to be cut in the short term, signalling that more cost-cutting is on the agenda for European firms. How do you expect research and development activity in your sector to change over the next 6 months? Q3 Q1 It will improve It will remain the same It will deteriorate As far as the sectors go, IT firms are more optimistic than telecoms firms, with 64% of IT firms expecting demand conditions to improve as opposed to 54% of telecom firms. Again, this reflects the steeper drop in sales of hardware over the last year and the gradual restocking that is now taking place. Respondents' answers to a question on revenue growth prospects are another clear reflection of the overall increasing confidence in the tech sector. More than three-fifths say they expect these to be favourable or extremely favourable over the next six months, while two-fifths expect them to be neutral or unfavourable. Again, there is a strong regional split, with Asian and North American tech firms more optimistic on revenues than Europeans. No matter where they are located, however, there is little doubt that tech firms see much brighter prospects today than they have for many months. How would you characterise your company's revenue growth prospects over the next 6 months? Extremely favourable 8 Favourable Neither favourable nor unfavourable Unfavourable 14 Extremely unfavourable