Barron’s thinks that the next year will be tough for technology companies, but also offers some rays of hope:
To shake corporate executives out of their parsimonious mood will require a sense of urgency about that Next Big Thing. Trouble is, no one knows what it is. Possibly, says Sherlund, it will come from the adoption of Web services. He notes that companies like IBM, Oracle, BEA Systems and Microsoft all offer software to help integrate disparate software systems — the idea at the heart of the notion of Web services. Sherlund thinks the trend could be a significant growth driver.
Or, Sherlund posits, the trend could be the move to the digital home, as we all spend more time and money routing pictures, music and video around our home networks. “Many of the companies we think of as benefiting from corporate IT spending are rushing to leverage their positions in the digital market into the home,” he says. Little wonder: One of the industry’s few unqualified successes in recent years has been the iPod, Apple Computer’s hugely popular portable digital music player.
That said, neither of those trends — or any others we came across — seems monumental enough to drive a big wave of tech spending in the next 12 months. Sure, companies are still ga-ga over open- source software like Linux, they are adopting voice over IP phone services, they are buying densely packed “blade servers” and they are spending generously on security software. They also are forking over large sums to meet the stringent audit and reporting demands of Sarbanes-Oxley. But the dollars involved in all of those simply aren’t enough to move the needle on tech spending, given the huge size of the overall technology business.
“You need a pervasive sense that there is a next obvious thing to do, and that if you don’t do it, you will get left behind,” Berman says. “Right now, there is nothing like that. Companies are doing ‘keep the lights on’ spending, and I don’t see that changing anytime soon.”
Berman does see one hope on the distant horizon: a long-term bull market at the intersection of broadband and wireless. The ability to be productive anywhere, anytime, over a fast connection will ultimately be more powerful than what he terms “the last killer platform” — the ability to be productive every time you sit down at your desk, thanks to e-mail, word processing, spreadsheets and the Web. “The productivity implications of what’s coming are way more compelling,” he says. “But are the essential building blocks in place in 2005? I don’t think they are.”
Goldman Sachs’ Sherlund says it’s time to get used to a technology world that thinks as much about the global economy as it does new product cycles. To better understand this strange new world, Sherlund says he’s been spending more time with Jack Kelly, a Goldman analyst who covers economically sensitive industrial stocks like Tyco International and 3M.
“We are subordinate to the economic cycle now, something which used to be an afterthought, because product cycles were so strong,” he says. “Today, without any urgency to spend, people are looking much more at the economy. It’s a mature, consolidating market. A lot of what we talk about is corporate profit growth. It’s turned all of us into economists.” And there can’t be anything good about that.
