Net Rebound Now Likely

A new sense of urgency sweeping the interactive technology world will quicken the pace of mergers, remove shaky businesses from the public markets and inspire major initiatives that could hold the keys to a rapid recovery, industry experts said.

A new sense of urgency sweeping the interactive technology world will quicken the pace of mergers, remove shaky businesses from the public markets and inspire major initiatives that could hold the keys to a rapid recovery, industry experts said.

Amid the threat of future terrorist attacks, the business climate is serious and uncertain, but hardly hopeless. While the wounded Internet economy faces a hard landing of historic proportions, the rebound could soar higher than anyone expected before the World Trade Centers Twin Towers fell on Sept. 11. More significantly, the seeds of a new era of expansion could take root with the right incentives, experts said.

With $75 billion in government stimulus pouring into the economy, Net-related industries are expected to see new life with a sharper focus.

"Youre now going to show the true nature of the IT sector," said Prabhudev Konana, a University of Texas at Austin professor and an expert in electronic commerce. "There is going to be more investment in e-business transformation. Companies that dont invest in these kinds of technologies are going to be in trouble two or three years down the road because theyre going to be less cost-efficient."

Skilled technology workers are suddenly abundant because of the downturn. And I-managers are finding the workers they have are sticking around.

I-managers should also prepare new budgets for acquiring state-of-the-art equipment under proposed federal incentives, while anticipating lower costs in a fiercely competitive market, industry experts said.

A stimulus package under consideration would accelerate depreciation of computer equipment. That would lead more businesses to upgrade their technology departments with state-of-the-art gear, such as Intels Pentium 4 processor and Microsofts Windows XP operating system, said Joe Rubin, director of congressional affairs of the U.S. Chamber of Commerce.

Meanwhile, telecom carriers are likely to step up software installation to ease federal wiretapping, industry executives said. Under the 1994 Communications Assistance for Law Enforcement Act, networks had until 2003 to upgrade systems in compliance with FBI technical requirements for electronic surveillance. The FBI is expected to pick up the price tag, and that means more money flowing toward network technology, said Van Phung, chief architect and head of product line management for Siemens next-generation networks in the U.S.

The most profound change to come from the terrorist attacks could be a transformation of the telecom networks that could rival the creation of the Internet itself, Phung said. Replacement of traditional circuit switches with IP-based soft switches would allow a proliferation of services enabled by the new infrastructure.

"Were actually very excited about the future," Phung said. "Things like this dont happen very often. Were talking about a new infrastructure for new services."

For any observer of the Internet revolution, the dramatic reversal of fortunes is unprecedented. A year ago, the industry shifted from a 70 percent growth rate to drop a stomach-churning 30 percent. Suddenly, companies in high gear were forced to begin swallowing costly inventory and laying off thousands of employees.

An incident such as the terrorist attacks accelerates that process, which translates to lower supplies and lower costs in the near term amid growing demand. Those factors explain why economists anticipate a more rapid recovery now.

The Sept. 11 attacks coincided not only with an economic slump, however, but with what historians may look back on as the first down cycle in a new economy. Certainly, theres no consensus that the Internet has revealed itself as a cyclical industry, but theres no question Sept. 11 packed a rare combination of blows to the high-tech psyche.

"The only way to describe this is a perfect storm," said Compaq Computer Chairman Michael Capellas, who reaffirmed plans to merge with rival computer maker Hewlett-Packard, despite falling revenue.

The terrorist attacks added pressure to AT&T to sell its cable unit to Comcast or other bidders while seeking a merger partner for its traditional telephone service, observers said. Any company whose stock value is holding up is a potential acquisitor, while those whose shares are falling into the penny-stock range are potential targets, they said.

That would make a giant such as Nortel Networks a potential target after its share price fell below $6 and it announced 15,000 layoffs. While Cisco Systems Chairman John Chambers said he had no plans to go after Nortel, he did confirm last week that Cisco would continue buying companies.

Chambers inspired a Nasdaq rally by announcing that Cisco expects to make its projections for the quarter, and Dell Computer said it would make its estimated earnings for the quarter. Sun Microsystems, however, announced it is cutting 9 percent of its work force and expects bigger than expected losses.

"Im more optimistic now than I was earlier this year," said Tom Siebel, CEO and chairman of customer relationship management software maker Siebel Systems. "The short-term effects are going to be very nasty, but I think the recovery is going to happen faster now."