Software & Technology

Outlook for Software and Technology sector seems to be improving

According to a survey conducted by audit, tax, and advisory firm KPMG, eight out of 10 executives expect business conditions in the software and technology sector to improve in 2010, with 78% expecting stronger revenue and 72%, improved profitability. The survey, conducted among 130 top-level software and hardware technology executives, shows that two-thirds of the respondents are bullish about an early recovery, expecting the industry to fully recover from the current crisis ahead of the overall U.S. economy. This is even truer for Silicon Valley-based executives, 77% of whom expect the sector to outpace the U.S. recovery.

About 43% of the technology leaders surveyed expect the U.S. economy to recover only after 2010, while 39% predict a recovery by next year. Commenting on the findings, KPMG Partner, Global Chair and U.S. leader for the organization’s information, communications, and entertainment practice, Gary Matuszak said, “The results are in line with recent earnings reports in the technology sector which suggest business conditions are starting to improve. There are also reports of software industry sales expanding five to ten percent annually after the recession, so while it’s far from blue skies in the industry, the worst seems to be behind us.”

The stimulus package announced by the Obama Administration significantly helped companies in various industries survive the recession. This has improved the balance sheet of financial institutions, especially troubled firms. The announcement of the stimulus package, along with a historically low benchmark interest rate maintained by the Federal Reserve helped restart lending by financial institutions to businesses and individual customers at a slow pace, as financial institutions remained cautious in lending. The tax relief announced in the stimulus package helped U.S. firms reduce their losses, and has also increased the disposable income for individuals. Easing lending conditions has led to easier access to funds for investment by corporate entities.

The survey also highlights the fact that executives are more focused on investing for long-term growth rather than cost-cutting, as 69% responded in favor of long-term growth strategy versus 31% responding in favor of cost-cutting strategy. In terms of the steps taken to fight the recession during the past year, 68% responded in favor of layoffs, while only 14% said they are considering further layoffs in 2010. About 49% of the executives are expecting a better employment picture in 2010.

As for the biggest challenges the industry faces during the recession, the most frequent replies were: finding new sources of revenue (66%), managing costs and restoring business confidence (42%), and adjusting to changing customer demand (37%).

According to the survey, the major triggers that will help spur economic recovery were: improved business confidence (42% of executives), improved consumer confidence (41%), improved job market (32%), and increased consumer spending (30%). The three triggers cited least frequently by the respondents were: effective regulation (6%), government stimulus spending (5%), and government bailouts (4%).

Separately, a survey of about 1,000 IT professionals worldwide by consulting firm Gartner shows that 28% of companies in North America are expected to increase their software budgets in 2010. This figure is 25% for companies in Europe, the Middle East, and Africa (EMEA), and 30% for the Asia-Pacific region.

These survey results show that outlook for the growth of the software and technology sector has changed significantly in recent quarters compared to the previous year, with moderation in the economic slowdown, especially in Q2 2009, amid improved consumer and business confidence. The optimism for the growth sector has increased significantly in Q3 2009, as executives are expecting faster recovery for the sector as compared to recovery in the U.S. economy.

“The results are in line with recent earnings reports in the technology sector which suggest business conditions are starting to improve,” Gary Matuszak of KPMG said. “There are also reports of software industry sales expanding five to ten percent annually after the recession, so while it’s far from blue skies in the industry, the worst seems to be behind us.”