Car makers might be biting their nails waiting for an economic recovery, and the shipping business is looking at its empty tankers and wondering when things will get better. But the technology industry is already leading the corporate world out of the gloom.
In recent weeks companies such as IBM, Google, Microsoft and Intel have reported strong quarterly results accompanied by bullish predictions for the coming year. Apple was first, posting the biggest quarterly jump in profits in its history. Even the mobile handset business, which was bitten hard by consumers choosing to wait a little longer before upgrading their phones, appears to have turned a crucial corner. Handset sales, while still lower than the same period last year, grew over the previous quarter.
"The mobile phone market is showing the first signs of improvement since the onset of the economic crisis," says Ramon Llamas, a senior research analyst with IDC. "Now that we have moved into the fourth quarter, vendors are setting the stage for further gains by launching their flagship devices to meet pent-up demand." Nokia will soon launch the N900, their follow-up attempt at a serious competitor to the Apple iPhone. The previous device, the N97, failed, but early versions of the N900 have received positive reviews.
Not to be outdone, Apple is widely expected to launch a larger "tablet" size version of its iPhone, creating a new market for touch-screen miniature computers. Its iPhone will also go on sale this week in China, bringing the iconic device to the world's largest handset market. Microsoft's release of a new operating system, Windows 7, should also stimulate a boost in computer sales as users buy new computers loaded with the system. Hundreds of millions of Microsoft customers chose not to upgrade to Windows Vista, the previous system, meaning the majority of the world's computer users are still running an operating system launched in 2001.
The volume of computer users, particularly businesses, that are still using the outdated Windows XP means PC sales will grow by more than 10 per cent next year and the following one, the research group Gartner predicts. "Recent OS releases have not been a growth driver in the PC market, however the timing of Windows 7 is favourable for the industry due to expected economic improvements and an overdue hardware replacement cycle," says Mikako Kitagawa, a principal analyst at Gartner.
"We anticipate renewed interest in hardware upgrades from consumers and small business during the holiday season as a result of Windows 7's release. In the corporate market, Windows 7 adoption is not expected to ramp up until late 2010." Internet companies are also experiencing brisk growth. Google recently announced its quarterly profits were up by 27 per cent. In a conference call to discuss the results, the company's chief executive, Eric Schmidt, said Google was "very optimistic about the future. We now have the business confidence to invest heavily in the next phase of innovation."
Google, which receives more than US$1 (Dh3.67) in every $3 spent on online advertising, is slowly expanding its reach into markets that others dominate. Last week, it announced that it would provide a free turn-by-turn navigation system, powered by its Google Maps service, to all users of its Android mobile phone platform. The news sent shares in specialist GPS navigation companies such as Garmin and TomTom tumbling.
And while Google is flexing its muscles at the top of the market, the culture of innovation and entrepreneurship among the web's smaller companies has never been stronger. While platforms such as Facebook, Twitter and Netlog are adding new users by the million, smaller start-ups are capitalising on vast new open spaces in the market created by the ubiquity of mobile internet and instantaneous information.
Silicon Valley's venture capitalists appear to have emerged from a five-year low in confidence late last year, a study last week suggested. The Silicon Valley Venture Capitalist Confidence Index, compiled each quarter by Mark Cannice, an associate professor at the University of San Francisco, suggested a degree of optimism is returning to a previously frozen market. "The predominant sentiment was cautious optimism that the worst of the financial crisis and economic decline was behind us and it is time to put investment capital to work in at least some of the many attractive new ventures that are seeking funds," Mr Cannice says.
Much like steel makers would benefit from a resurgent car industry, a major beneficiary of a technology-led period of economic growth will be the microchip manufacturers, which produce the electronic brains the power the industry. While still booking a loss, as it has done for many consecutive quarters, Advanced Micro Devices (AMD) has said it is seeing increased demand from consumers, and expects corporate spending on computers to rise significantly next year. Intel's strong results come with similar predictions.
Significantly for AMD, whose largest shareholder is Mubadala Development, the strategic investment arm of the Abu Dhabi Government, the company said its core chip design and marketing business turned profitable in the quarter. Earlier in the year, the business was separated from its manufacturing wing, which was spun off into a new company in a joint venture with Abu Dhabi's Advanced Technology Investment Company.
The intent of the split, to separate the capital intensive job of building and maintaining microchip fabrication plants from the task of designing and marketing the chips, appears to have succeeded, at least in creating a profitable AMD chip business. Whether Globalfoundries, the Abu Dhabi-owned manufacturing joint venture, will make money remains to be seen; being privately owned means it has yet to report results.
But others in the chip-making industry enjoyed strong quarters, benefiting from the same release of pent up demand that gave hope to mobile phone and computer makers. Hynix, the South Korean maker of memory chips, emerged from seven consecutive periods of quarterly losses to post an encouraging profit, saying its customers were beginning to rebuild their inventories after more than a year of stockpiling.
And Chartered Semiconductor, the Singapore chip maker that is in the process of being acquired by Globalfoundries, said its sales rose by 25 per cent in the quarter. If such growth is a sign of things to come, Abu Dhabi's venture into technology's most complicated industry could become profitable much sooner than expected. @Email:tgara@thenational.ae
Technology sets pace for global recovery
Windows 7 and the iPhone are bright growth prospects, and microchip companies that supply the brains of mobiles and computers stand to benefit.
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