According to the performance of three bellwether technology companies, its clear the economy hasnt recovered yetcomplicating companies IT initiatives
There will be a number of global economic headwinds in 2014 that will mean slow or no growth around the world. This will result in IT budgets remaining constrained and making it difficult for IT executives to keep current in technology, meet new business demand and develop the skills necessary to satisfy corporate requirements.
Third-quarter U.S. GDP gives the illusion that the U.S. economy is strengthening, but that is hardly the case. The gains were in inventory buildups. Remove that, and the economy of the United States mirrors that of many other countries. Europe remains weak and bounces in and out of recession while many of the so-called emerging markets are no longer bounding ahead.
The BRIC nations (Brazil, Russia, India, China), whose growth had offset the weakness in the developed nations, are now underperforming. Growth in Brazil, India, and Russia has dropped significantly from the peak, while China's merely slipped into more normal numbers. If the U.S. Federal Reserve begins to taper, these nations could tumble even more. This doesnt bode well for revenue growth, which in turn means tighter IT budgets.
In addition to the Federal Reserve's actions overhanging the U.S. and global markets, the Affordable Care Act may add to the negative effect. Its not that affordable, and it seems the majority of individuals (and potentially corporations) are finding monthly payments are significantly higher, as are deductibles. This could slow general economic growth even more if consumers and corporations are forced to hold back spending to cover basic healthcare costs.
The Bellwethers Struggle
There are three information technology bellwethers for growth that can be looked at to see how the world economy is fairing and how its already impacting IT acquisitions. Some may say these companies:
- Cisco Systems
- Hewlett-Packard (HP)
- IBMare no longer applicable in the new world of cloud computing, but thats a false premise. These three firms are all heavily into the cloud and are growing rapidly in cloud/Internet-related areas.
Reported single-digit revenue growth for 2013 year-over-year, with revenues in the Asia Pacific region shrinking by 3 percent. While thats not bad, CEO John Chambers warned that revenues would decline 8 to 10 percent in this quarterthe companys biggest drop in 13 years. One reason is that its struggling in the top 5 emerging markets where revenues declined 21 percent. Brazil was down 25 percent; China, India and Mexico dropped 18 percent; and Russia slid 30 percent.
About the author
Mr. Braunstein serves as Chairman/CEO and Executive Director of Research at the Robert Frances Group (RFG). In addition to his corporate role, he helps his clients wrestle with a range of business, management, regulatory, and technology issues.
He has deep and broad experience in business strategy management, business process management, enterprise systems architecture, financing, mission-critical systems, project and portfolio management, procurement, risk management, sustainability, and vendor management. Cal also chaired a Business Operational Risk Council whose membership consisted of a number of top global financial institutions.