Techs Soft Landing In Rough Economy

2001 will prove better than expected for IT community

A year ago people, were nervous about planes falling out of the sky, money disappearing from bank accounts and entire countries going dark from the widely feared year-2000 glitch.

As we head into 2001, people are still worried. But now attention has shifted to the state of the stock markets, a steady flow of layoff announcements in the technology sector and the possibility of a full-fledged recession.

Time for another reality check.

Like the buzz about the Y2K bug, there now seems to be too much hype about the prospect that the information technology (IT) industry will crash or the country will fall into an economic recession, according to a panel of economists, analysts and Fortune 500 chief information officers (CIOs) consulted by Interactive Week.

Certainly, the IT industry is experiencing a significant amount of pain — pain that many say it deserves. And yes, no one can say for sure that consumer fears or skyrocketing fuel costs wont ultimately stall the increasingly fragile economy. But the underlying fundamentals suggest this should be another solid year of growth for the high-tech sector as companies turn to the Internet to cut costs and become more efficient. Not a stellar year like weve gotten used to over the past four years, but a year that should infuse a healthy dose of reality back into the industry.

"Everything tends to get exaggerated in the computer industry," said Shyam Sunder, an economics professor at Yale Universitys School of Management, who specializes in e-commerce. "What we have is an industry thats used to an extremely high growth rate, so a slowdown like we seem to be experiencing looks like a crash. But I think if you look at the macro level and ask how many people are worried about their jobs at this stage of the economy . . . how many companies plan to cut back on IT spending . . . I think you would find the percentage is relatively small."

Reports coming from industry seem to back up Sunders analysis. A year-end survey of 150 chief technology officers at Fortune 1,000 companies released late last month by Morgan Stanley Dean Witter & Co. shows that companies plan to increase their IT budgets in 2001 by an average of 8 percent, most of which is targeted at moving more company systems onto the Internet. Thats a healthy increase, but a drop from the 12 percent growth in spending budgeted for 2000.

"You cant continue to do business without up-to-date information technology," said Harris Miller, who directs the Information Technology Association of America. "The projections show continued growth in the high single digits or low double digits."

Why all the fuss then? For starters, its hard to dismiss the storm clouds that appear to be gathering on the horizon. And perhaps theres something in our underlying psyche that says weve had it so good for so long now, its time for a little payback.