Software & Technology

U.S. Software & Technology: light at the end of 2009?

The growth in the software and technology industry after 2003 had essentially been a byproduct of growth in other sectors. Little wonder then that this sector was hit harder when the recession upset growth in client verticals and the U.S. economy as a whole. After a five-year upturn in the U.S., this sector has suffered a reverse trend over the last four quarters (Q3 2008 to Q2 2009). A significant component of the cost-cutting measures adopted by U.S. businesses – other than downsizing and deferment of expansion programs – has been a cut in software and technology expenditure.

Since the start of the recovery after the dot.com bubble bust in 2001, the U.S. software and technology sector had been on a steady growth ride from Q1 2002 to Q2 2008. Total IT spending in the U.S. witnessed an annual average growth rate of 5.3% from 2004 to 2008, while the software segment registered a higher growth of 7.3%. However, with the deepening of the economic recession, the growth in the sector moderated significantly in the second half of 2008 and the first half of 2009, and is expected to witness a negative growth of 9.4% in 2009.

However, there could be a recovery starting as early as Q4 2009, as the U.S. economy shows tentative signs of improvement after a prolonged and painful slowdown. The gradual improvement in GDP growth was evident from a modest 1% fall in Q2 2009, after a massive contraction of 6.4% and 5.4% in Q1 2009 and Q4 2008, respectively. According to a survey conducted by KPMG in August 2009, about 77% of senior executives of technology companies in the Silicon Valley expect the IT industry to recover fully by 2010. Also, the total IT spending in the U.S. is expected to grow at an annual rate of 7.7% next year.

As of 2008, the size of the U.S. software industry was $207 billion (accounting for 35.7% of the U.S. IT and technology sector), and this segment registered an annual growth of 6.7%, despite a poor second half last year. According to Datamonitor, the U.S. software industry accounts for 36.9% of the global software market. General business productivity and home-use applications software commanded a market share of 24% of the U.S. software sector as of 2008.