CEOs Brace for the Long Haul

Chambers, Ballmer, Fiorina, others weigh in on down it industry.

With no recovery in sight and little to inspire a technology revolution, IT managers are getting back to basics and trying to deliver whatever value they can to their organizations. Its a message that leaders of the tech industry say theyre getting loud and clear.

"We have to understand the environment were in and operate the best way we can," said Michael Fleisher, chairman and CEO of Gartner Inc., of Stamford, Conn., during the Gartner ITxpo here last week. "Companies that dont follow our simple model are going to be in trouble."

Enterprises need to "place small and very thoughtful bets," Fleisher said. "There is not some big huge innovation that is massively changing the way work is done, but there are opportunities from implementations of technology at most businesses."

The hard times will mean radical change in the ranks of IT providers as well. "There will be no broad-based recovery in 2003," Fleisher said. "Many vendors will fail or see structural changes. Fifty percent of brand names will be gone in 2004." If that werent bad enough, the survivors will have to content themselves with the modest growth rates of possibly 10 percent for strong companies of a mature industry, said Fleisher.

Thats about the level of growth Cisco Systems Inc.s John Chambers is predicting as well. The San Jose, Calif., companys CEO told conference attendees that that growth rate, however, will translate to a company that is 50 to 100 percent larger five years from now. Chambers stressed the notion that vendors and users fortunes are linked. "The good times for IT vendors will turn up when business for our customers turns up," he said. For now, however, sales dont come easy. CEOs, he added, are the most cautious hes ever seen.

Although previously quoted as saying there will be a technology recovery next year, Craig Barrett, CEO of Intel Corp., of Santa Clara, Calif., demurred at endorsing that prediction, instead saying only that the high-tech recovery will lag behind the general recovery and that the communications recovery will take place after the recovery in the computing sector.

The sluggish market has many top-tier tech companies reaffirming their commitment to current customers.

"The level of expectation that our customers have from us is higher than its ever been," said Steve Ballmer, CEO at Microsoft Corp., of Redmond, Wash., also speaking at the conference. "When we underperform, the negative fallout from that kind of performance is worse than its ever been."

Two years ago, the software developer had to carefully watch the competitive threat from Sun Microsystems Inc., but today it is paying close attention to IBMs WebSphere application environment and Linux, according to Ballmer.

Amid the downturn in enterprise systems sales, vendors such as Dell Computer Corp. and Hewlett-Packard Co. voiced commitment to services, a segment not without its own growth challenges, analysts here said.

HP CEO Carly Fiorina said that the decline in consulting at her Palo Alto, Calif., company is an industrywide phenomenon but that HPs services business continues to make money. Consulting is a low-growth, low-profitability area and one in which HP plans to accomplish more through partnering, she said.

On the more practical side, Gartners Fleisher urged the symposiums attendees to take advantage of the current buyers market and renegotiate existing contracts where possible. The economic climate will continue to work in IT users favor for only another 12 to 24 months, he said.

Such measures can help get IT back into the good graces of their companies upper management, said Fleisher. Thats because of a credibility gap that opened up in the wake of Y2K and dot-com spending sprees, he added.

But that will not keep IT pros out of corporate boardrooms, Fleisher said, predicting that by 2005, 80 percent of CIOs will report to the CEO of their company, up from 50 percent today.