Tech gathers momentum

The dot-com crash that shook Silicon Valley 12 years ago may have faded into memory, but investors are still wary of diving into the IT sector, despite market predictions that another boom is on the horizon.

Major tech players such as Apple have experienced contrasting degrees of success, but experts say most of the sector's problems should be resolved in the next few years. Mike Segar / Reuters

It might still be premature to talk of a boom, but industry watchers believe that good times for the technology sector could be just around the corner.

"Technology has been, and likely will continue to be, one of the strongest industries in the US and we are far from the end of its growth cycle ... In general, technology isn't just up, it is up sharply," says Rob Enderle, an analyst at the Enderle Group in Silicon Valley, California.

But, according to Forrester, the international research company, the rest of the world will take about a year to catch up with the boom mentality now starting to spread across Silicon Valley.

"We see the global tech market neither booming nor busting in 2012 and 2013, but instead enjoying modest growth of 4 to 5 per cent in local currency terms," says Andrew Bartels, a principal analyst at Forrester.

"Beyond 2013, assuming that Europe recovers and growth picks up in the US and the rest of the world, we could see the tech market growing at rates of 8 to 10 per cent, which would be close to a boom."

However, global growth remains patchy with big variances across many regions. The Middle East, for example, is poised for growth in Gulf countries such as the UAE, while some of its neighbours may lag behind.

"The information and communications technology market in the Middle East includes companies with a wide range of growth prospects, with Saudi Arabia, the United Arab Emirates and other Gulf states having relatively strong growth," Mr Bartels says.

"Egypt, Iraq and Jordan having moderate growth; but Iran, Syria, and Yemen are doing poorly because of economic sanctions and political upheavals."

However, the strength of the tech market in the Middle East is highly dependent on the overall prosperity of the region.

"The price of oil is, of course, a key variable, since most of these countries are major oil exporters," says Mr Bartels. "If oil prices stay at current levels or rise, tech spending will be higher; if oil prices fall, tech spending growth will slow."

According to a report, Global Tech Market outlook for 2012 and 2013, published earlier this year by Forrester, the definition of developing economies should be redefined to take full account of the changing global picture.

Businesses have a tendency to refer to the world's rapidly developing countries as Bric economies. Forrester believes Bric, which refers only to Brazil, Russia, India and China, ignores other economies now poised for rapid tech sector growth such as "the post-Arab Spring Middle East", as well as Africa, the Association of Southeast Asian Nations countries and the Pacific coast countries of Central and South America.

Partly as a result of mushrooming global demand, global business and government spending on IT products and services will have risen by 5 per cent by the end of this year to a staggering US$2.12 trillion (Dh7.79tn). Forrester says this market will expand by a further 8 per cent next year.

Another difficulty in predicting exactly when the tech market will boom is the extreme contrast in the recent performance of some of the sector's leading companies.

"Intel, Nvidia, Qualcomm, IBM, EMC, Cisco and Apple continue to invest heavily in the future of technology and they are driving their current industries," Mr Enderle says.

But he adds that companies struggling at the moment due to past mistakes and organisational problems include HP, Nokia, Rim, Facebook, Yahoo and Microsoft, all of which are racing to cope with market changes.

"Most problems are transitory and should resolve themselves in the next few years one way or another," Mr Enderle says.

Apple's latest smartphone, the iPhone 5, has been so well received that Wall Street analysts immediately raised their share price targets for the company. But Apple's growing momentum as the world's largest company is offset by recent disasters such as the Facebook initial public offering (IPO) earlier this year, which saw the social-networking site's share value plummet because of the botched offering of its shares.

This was followed by a sharp fall in the value of Intel after the chipmaking giant slashed revenue targets. Intel reduced its third-quarter revenue target for 2012 from between $13.8 billion and $14.8bn to $13.2bn. The company also reduced its expected profit margins.

While Intel may blame market conditions for its reduced revenue targets, this is not the only reason. Intel is something of a dinosaur from the IT sector's "Wintel" stage of evolution, a time when the personal computing world was dominated by big white boxes almost exclusively running Microsoft software through Intel chipsets.

But today's most popular personal computing devices, smartphones and tablets, manufactured in their millions by companies such as Samsung, require an entirely different type of microchip.

Just as Intel's old ally Microsoft has seen its near monopoly shattered by Apple, Intel has lost massive market share to ARM Holdings, a chip designer based in Cambridge in the United Kingdom that has operations in Taiwan, France, India, Sweden and the US.

Founded in 1990, ARM Holdings began life as a start-up, but has shipped more than 20 billion microchips.

Both the business and consumer IT markets are growing fast as more developing countries join the IT race and buy into new technologies and devices.

But it is a truism in financial circles that markets do not have memories longer than a decade. And it is now more than 10 years since the dot-com crash that more or less put the IT industry on hold in the early years of the 21st century.

Rather than being signs of an imminent bust, blips such as Facebook's IPO and Intel's lower forecasts may be seen as indications of new investor caution that could make the coming tech boom a little more long-lived than the last one.