Information technology: Great expectations? - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

Information technology: Great expectations?

Mar 21, 2001

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 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

If You had Invested Rs 1 Lakh in TCS in 2011, this is how Much You Would have Today (Views On News)

Nov 30, 2021

Did TCS perform better than the market and its peers?

India's Top 4 IT Companies are Struggling. Here's Why... (Views On News)

Oct 22, 2021

As attrition rates are unbelievably high, top Indian IT companies are going for big-ticket raises, and much more hiring this year.

Infosys had an Exceptional Quarter Buoyed by Huge Deal Wins. Revenue Guidance Boosts Stock (Views On News)

Oct 14, 2021

Infosys raised its forecast for annual revenue growth to 16.5-17.5% from the earlier 14-16%, predicted in July 2021.

Info Edge: The Anatomy of an Indian Internet Behemoth (Views On News)

Oct 2, 2021

Info Edge is very popular in the Indian startup ecosystem due to its active participation in funding events.

This Indian Company is Tapping into the Huge Autonomous Driving Opportunity (Views On News)

Sep 14, 2021

Despite many challenges, Indian companies and startups have not shied away from entering this space.

More Views on News

Most Popular

Infosys vs TCS: Which is Better? (Views On News)

Nov 26, 2021

In the post pandemic era, the top two IT companies in India are fighting to capture the growing demand for IT.

This Multibagger Stock Zooms 20% After Dolly Khanna Buys Stake (Views On News)

Nov 24, 2021

Shares of this edible oil company zoomed over 50% in three days after ace investor bought around 1% stake.

6 Popular Stocks that Turned into Penny Stocks (Views On News)

Nov 27, 2021

A look at popular stocks that crashed big time and never recovered, i.e. which went from 'Multibaggers to Multibeggers'.

India's Top 5 Monopoly Stocks to Watch Out for (Views On News)

Nov 30, 2021

These 5 companies dominate their sectors with a huge piece of the pie.

5 Indian Companies Embracing Blockchain Technology (Views On News)

Nov 23, 2021

Blockchain adoption in India was slow in the past. Now, the technology is being well received.


Become A Smarter Investor
In Just 5 Minutes

Multibagger Stock Guide 2022
Get our special report Multibagger Stocks Guide (2022 Edition) Now!
We will never sell or rent your email id.
Please read our Terms


Dec 3, 2021 (Close)