Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Information technology: Great expectations? - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Mar 21, 2001

    Information technology: Great expectations?

    The outlook towards the technology sector has been fickle for the past year or so. This has been more than reflected in the volatility of the stock prices and more than felt by the investors who have invested heavily in the technology sector. Lets do a quick recap, not so long ago everybody was talking about an information technology revolution, which would change the world, as we know it. There was going to be a paradigm shift and businesses would no longer be conducted the traditional way. The projections about E-commerce were mind-boggling. The tech sector became the darling of the stock markets all over the world. Even an economic slowdown could not touch these technology companies as they were the answer to doing business the better way and the best answer to tiding over difficult times.

    But then tragedy struck, as slow down in the US economy deepened, one tech company after the other came with profit warnings. The myth was broken. Were these companies affected only due to the slow down or there is something more to it? There is; as people began to realize that things were not going exactly the way they had predicted. It was not that the Information technology revolution was over; only it turned out to be more of an evolution. The rapid growth rates (and therefore the cash flows), which were the premise of huge investments and spends on IT were no longer realistic. They needed to be looked at harder.

    What had led to the projections in the first place? Most of the projections made are based on a cue from the past. The hardware sales and technology spending in the past that had grown at amazing pace had set the tone for the optimism. For example the PC sales in the US had been growing at double digit figures, the number of Internet user doubled almost every 18 months and the technology spend in the US grew by 42% in 1998 and 37% in 1999.

    The firm belief in an information technology revolution had led to a frenzy in IT spending. A chunk of the spending was by the “dot-coms” many of which never lived to see tomorrow and a host of businesses that did not meet targeted growth. And of course then came the great US slow down. All these factors together hit the companies hard.

    The growth rate for tech spending has been cut to half from what was seen in the past. The expected growth in tech spend is expected to be in the range of 5% to 12%, far lower than 20% plus seen in the past decade or so. The gloom seems to be spreading. Even IT companies in Europe joined the list of those issuing profit warnings.

    As always there is a prediction of a “Second Wave”. Carly Fiorina, the chief executive of Hewlett-Packard, has predicted a huge new wave of technology spending much larger than the last. According to Ms Fiorina, the next phase will involve transforming business processes rather than making current processes more efficient which will require a closer working relationship with customers. To meet this challenge HP is concentrating on its consulting business.

    No doubt information technology will continue to be adapted more and more by businesses to meet their strategic objectives. According to a survey by CIO.com about half (47%) of the IT professionals surveyed felt technology would provide the leading edge to move ahead of competitors. The top issues that information technology was to address were customer relationship management (CRM), e-business and enterprise resource planning (ERP). The other issues that technology needed to address were that of network infrastructure, supply chain automation and security tools.

    The foremost expectations from IT spend was to reduce cost of doing business and improve efficiency. The other strategic goals were improved customer service and generate more revenues. Only, 8% said that the decision was not tied to a specific business goal.

    The important point here is that Information Technology is a means to an end not an end in itself. And a service industry cannot buck the trend if the conventional industries that it draws its revenues from are not doing well. It is this fundamental point that has to be the base of all expectations from the IT sector.



    Equitymaster requests your view! Post a comment on "Information technology: Great expectations?". Click here!


    More Views on News

    Tech Mahindra: Our Revised View (Quarterly Results Update - Detailed)

    Aug 2, 2017

    A better than expected turnaround in performance results in a change in view.

    Wipro: A Decent Start to the Year (Quarterly Results Update - Detailed)

    Jul 27, 2017

    Digital services drive growth for Wipro in 1QFY18.

    Infosys: A Decent Start to FY18 (Quarterly Results Update - Detailed)

    Jul 14, 2017

    Infosys starts FY18 on an encouraging note with a stable performance.

    Ankit Shah's First Five Insider Recommendations (The 5 Minute Wrapup)

    Aug 5, 2017

    How to get exclusive insider recommendations from Ankit Shah.

    TCS: Currency Volatility Plays Spoilsport (Quarterly Results Update - Detailed)

    Jul 14, 2017

    TCS starts FY18 decently despite an adverse currency impact.

    More Views on News

    Most Popular

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    The Most Important Innovation in Finance Since Gold Coins(Vivek Kaul's Diary)

    Aug 10, 2017

    Bill connects the dots...between money and growth, real money and real resources, gold and cryptocurrencies...and between gold, cryptocurrencies, and time.

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    5 Steps To Become Financially Independent(Outside View)

    Aug 16, 2017

    Ensure your financial Independence, and pledge to start the journey towards financial freedom today!

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    S&P BSE IT

    Aug 22, 2017 12:33 PM