IT Investment and the Downturn

By now, it's obvious that the economy and especially the technology industry are in the midst of a significant downturn.

By now, its obvious that the economy and especially the technology industry are in the midst of a significant downturn. But hand-wringing over ever-dropping stock prices, new rounds of layoffs and lowered earnings projections isnt a strategy. Whats needed is a long-term view that embraces new investments in technology.

This runs counter to what is among some vendors and users the conventional wisdom to cut back spending on IT. This results from the view that we have often decried in this space—that IT is a cost center and not a business strategy and productivity center.

Vendors from Compaq to Computer Sciences have announced hundreds or even thousands of layoffs. However, a closer look at some of the layoffs, from Motorola, for instance, shows that most job cuts will come from attrition or from the ranks of part-timers or consultants—positions clearly not vitally important to the core of a companys initiatives—making us wonder if the rash of cutbacks from vendors is really necessary and long overdue or if those cutbacks are merely bows to Wall Street made to prop up sagging stock prices, a show to investors that management is doing something—anything—about the downturn.

Corporate IT buyers and users alike deserve more leadership from providers of critical infrastructure. Rather than announcing layoffs to boost their stock prices in the short run, these vendors need to continue to invest for the inevitable upturn. Spinning in the winds of the investment community is not the way to demonstrate the kind of stability that the builders of enterprise IT demand.

There is still money in the world to be invested, and, as always, it is seeking the greatest return. So its encouraging that, as recently reported in our pages, a plethora of startups, with names such as Cereva, BlueArc and FalconStor, are being formed around new concepts in data storage. This is a subtle, bullish indicator for the Internet economy because the proliferation of data on the Net is one of the inevitable byproducts of e-business. Investing in storage businesses now is a way of expressing belief in the long-term growth prospects of e-business.

And among established companies, there is a bright side as well. Intel has had its troubles but is still investing billions in research and development and in new chip plants. And IBM this month announced it will increase its marketing and sales budget by 110 percent. CEO Lou Gerstner called the current state of affairs a "prime opportunity" for his company.

We think hes right and that its a prime opportunity for many other companies, too.