Storm clouds

Warning signs are beginning to appear that indicate there could be troubled times ahead for the IT industry.

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By  Eliot Beer Published  November 4, 2007

The business world is not a stable place at the moment. Every day seems to see the dollar plunge to a new low, while oil rises to new highs. Stock markets are yo-yoing, the credit market is shattered, commodities are in turmoil.

Through this all sails the good ship IT - looking at the technology news this month, you wouldn't necessarily guess the world economy was teetering on a catastrophe curve. SAP has shelled out a huge sum of money for Business Objects, while Oracle and BEA are deadlocked over another mammoth acquisition deal.

Looking at the technology news this month, you wouldn’t necessarily guess the world economy was teetering on a catastrophe curve.

In the region, HP's purchase of Atos Origin Middle East, coming close on the heels of SAP AG's SAP Arabia buyout, shows the big players are willing to splash the cash in smaller theatres, as well as on the world stage.

But there are warning signs - clouds gathering on the horizon. First, HP again, and its announcement that it is to cease its PC production in Saudi Arabia raises questions about the long-term prospects for genuine IT production in the Middle East - as opposed to the small sales and marketing operations that so often pass for vendor offices in the region.

The recent news that eBay is writing down much of the value of Skype - an acquisition that was viewed at the time as a costly error - sent a chill through many market watchers.

And while the development has failed to hit tech stocks in any serious fashion, it could mark the first rumble of thunder.

Around the world, increasing numbers of questions are being asked - by whom it's not always clear - about issues such as intellectual property, copyright, and theft. While much of this surrounds the vast currents of illegally-transferred music and video flowing around the internet, serious business issues are also at stake.

Some industry commentators have highlighted Microsoft's acquiescence in its long-running antitrust case with the European Union as sounding a warning shot to all IP-holders around the world. The principle of source code as a copyrightable, and confidential, asset has been breached.

And at the same time, more and more dot-com style startups are appearing - now mainly under the ‘Web 2.0' banner. Once again, many of these are verging on the preposterous - and once again, investors are starting to ask where revenues will come from even in the short term, let alone the years to come.

So, is there really a risk of another tech-bubble crash? Of course, but I don't see the Middle East under particular threat. Whereas the last dot-com crash happened at a time when Middle Eastern economies were investing outside of the region, now the focus has moved to keeping the money closer at hand.

Combined with the current drive for development in the region, this makes the Middle East one of the fastest-growing areas anywhere in the world - and with oil not likely to suffer significant falls in the medium term at least, likely to remain so.

This makes the Middle East a very safe harbour for embattled tech vendors looking to make a quick buck. The size of the regional market will remain relatively small, but profit margins will stay high, and growth will be assured.

A greater danger is for regional enterprises; should a crash come, there will be casualties among the international vendors, and their customers may end up holding obsolete technology.

Regional IT buyers must make careful choices, and select vendors that have a long-term roadmap and revenue potential. Otherwise they might find themselves all at sea.

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