We're not concerned

The US is panicking like mad over a dramatic slowdown in IT spending that it fears could wreck its economic recovery — the good news is that the Middle East doesn’t appear to be feeling the ripple effects

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By  David Ingham Published  April 5, 2001

Middle East keeps its nerve|~||~||~|The US technology sector is clearly experiencing a dramatic slowdown, but the good news is that the US’s malaise doesn’t appear to have spread to the Middle East. Whilst the corporate head offices of Cisco, Intel, Yahoo, Sun and others make one negative announcement after another, regional offices of IT majors remain upbeat.

Philip Roy, Gulf general manager, Sun Microsystems Middle East Africa, sums up the regional mood. “The conditions of the market in the US are not always directly reproduced here,” says Roy.
“Although US companies have slowed in technology purchase, infrastructure spending is still growing in the Middle East. Banks, utilities and telcos for example are still upgrading their infrastructure to support new services and to increase the quality of existing services.”

Compaq also argues that the region is not feeling a ripple effect from what’s happening in the US market. “The Middle East market is in a different cycle, in the growth phase and has not reached maturity as yet,” says Joseph Hanania, managing director for Compaq Middle East. “According to IDC, the ME market is anticipated to grow by 21% in 2001 and the UAE market is expected to grow by 23%.”

Compaq says it’s also seen no evidence that the Middle East’s businesses are planning to reduce IT budgets this year. “We’ve not seen or experienced any change from businesses in the region as they continue to invest in IT according to their plans,” says Hanania. “Startup companies are becoming more cautious, which is normal, but the market is still growing and developing.”

Still, you could say that IT vendors are bound to be positive. Their assertions are backed up though by an ITP.net spot poll conducted between March 14 and 18.

ITP (the publisher of this magazine) asked Web site visitors whether or not they expected their organisation’s technology spending to increase or decrease in the year 2001. They were given a choice of answering ‘increase’; ‘decrease’; or ‘stay the same.’

78% of 63 respondents expected IT spending to increase this year; 14% expected it to decrease; and 8% said they expect it to stay the same. Whilst 63 respondents is not an exhaustive number, Arabian Business.com believes that the poll shows IT spending is holding up in the Middle East.
||**||Why tech spending matters|~||~||~|
Why does the health of the technology sector matter so much? It matters a lot because any slowdown in IT spending doesn’t only affect the balance sheets and share prices of IT companies. Less spending on IT in the Middle East would mean companies putting on hold the overhauling of inefficient back office processes and the development of new customer services. This would both hold back productivity improvements and delay the growth of e-business, factors that could affect the Middle East’s position in the global economy.

That’s precisely why slowing revenue growth at companies like Cisco, Sun and Intel has economists and analysts in the US so worried. They believe that any cut back in IT spending could derail the productivity boom that has underpinned the US’s phenomenal economic growth in the last nine years.

Federal Reserve Chairman Alan Greenspan has publicly credited IT as the driver of at least two thirds of that productivity growth. So whilst ad-driven Yahoo’s expected revenue shortfall this quarter reflects a cutback in corporate marketing budgets, gloomy announcements by Cisco, Intel, Sun and other infrastructure providers are deeply worrying for the US economy.

Just about everyone has been affected in the US. Mighty Intel, for example, said revenue for the first quarter will be down approximately 25% from last quarter’s revenue of $8.7 billion. That’s lower than an earlier prediction that first quarter revenue would be down 15%.

Intel said it’s cutting 5000 jobs in an effort to maintain its traditionally high profit margins. Cisco Systems said it also plans to cut its workforce, by as many as 8,000 employees this year.
Ed Zander, president at Sun Microsystems, which also forecasts slowing revenue growth, said he has never seen a technology capital spending downturn as “dramatic and sudden” as the current slump. “I have never seen an environment where capital spending has fallen off as dramatic and as sudden as this in all the years I have been in the business,” said Zander.

“I have never seen anything so hysteria based and quick, going from Nov. 30 and waking up Dec. 1 and just watching CIO [chief information officer] after CIO put the clamps on capital spending,” added Zander. Those may be pessimistic words, but it seems that the US’s slump isn’t hurting the Middle East so far.||**||

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