Subprime Meltdown Has Yet to Soften Tech

The technology sector ended 2007 relatively unscathed by credit woes, while the impact of the subprime mortgage meltdown edged into other areas of the U.S. economy, which saw the sharp increase in the cost of home mortgages soften auto sales, manufacturing contracted and the services sector weakened.

Observers believe that technology is healthier and more resilient than the rest of the economy, thanks largely to the potential diversity of its role.

“This recession will be very sector-specific, so technologies that work well in multiple business environments and multiple geographic regions will fare the best,” Carl Steidtmann, chief economist with Deloitte Research, told eWEEK.

However, he cautioned against unbridled confidence in the notion of tech as a safe haven, as a slowing U.S. economy will eventually affect corporate technology spending. This is true for areas that are directly affected by the mortgage crisis, like financial services, as well as areas of the economy that are affected less directly.

Financial services are big buyers of technology, but “theyre going to be hard-pressed to keep up a level of investing that they have in the past as they run into balance sheet problems,” said Steidtmann.

“Consumer businesses, housing and the service sectors will be the most directly negatively impacted by the credit crunch, as their revenue streams and profitability ultimately will drive down their investment in technology,” he said.

While it is unlikely that corporations will slash their technology budgets, Steidtmann expects tech growth to be muted but stable in the first half of 2008.

“A lot of segments are going into 2008 with a pretty strong balance sheet, such as energy and commodities, and all of those sectors should be able to weather a downturn relatively well in terms of technology investment,” said Steidtmann.

But, as the impact of the housing crisis pushes into the future, tech—especially those parts that were heavily impacted by the dot-com bust—is anxious to see where the chips may fall.

“Theres a lot of nervousness, and when people get nervous they stop buying tech and luxury items,” Rob Enderle, principal analyst with the Enderle Group, told eWEEK. “So far, tech has weathered this slowdown, but tech is often collateral damage in other recessions, so a lot of us will be watching the numbers closely.”

However, most analysts feel confident that tech will not be this downturns hardest hit.

“I certainly dont think that the tech sector faces anywhere near the severity of a downturn that it did in 2001 or 2002. There were a whole bunch of unique events that made it different for it then—Y2K accelerated investment and there was a lot of speculation,” said Steidtmann. “Every business expansion is subject to speculation. Last time it was in technology and it is clearly not the case this time around.”

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