Letter from the editor
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There is a growing sense that the IT industry is finally about to recover, says Dominic Tonner, but can this really be true?
Industry executives and market analysts believe the technology sector recession has reached its lowest point and that 2003 will be a year of steady growth. However appealing that notion might be, it is important to guard against self-delusion.
The bulls base their arguments on a combination of factors - and not always the content of technology companies' order books. This also takes into account two notoriously fallible sources: market forecasts and CIO buying-intention surveys. One does not have to be familiar with Disraeli's statement to understand the correlation between lies and statistics.
The indicators are confusing. First, the bulls' arguments. Gartner says IT spending in Europe will increase by 5.4% in 2003 - more than triple the growth rate between 2001 and 2002. IDC says the European IT industry will grow annually by between 6% and 10% from 2003 to 2006. And Merrill Lynch says that one in three companies will substantially increase their IT budgets next year.
If that is true, it is clear the business will not be shared out evenly - and there is a lot of pain to come. Venture capital firms in Europe and the US stand to lose €40 billion on technology investments between 1999 and 2001. Of the 4,044 European high-tech start-ups launched since 1999, 15% have gone bust, according to VentureOne. This proportion is likely to rise significantly because more than 1,100 of them have not gained much-needed additional equity funding for almost two years.
Even with this number of bankruptcies, however, there are still about twice as many technology companies today as in 1995. The technology industry remains structured as if a rapid recovery is expected. And economists warn that, with falling sales and margin pressure across the board, consolidation is desperately needed. The one glimmer of hope is that the rate of innovation shows little sign of slowing, judging by the number of entries we received for this month's Nabarro Nathanson Technology Industry Awards, organised by Infoconomist. There are still many well-run companies in Europe, developing exciting products and clever sales strategies. The future rests with them.
