Comment Articles

When will the technology recession end?

Eugene Lacey GameSpot Europe

Published: 24 Jul 2002 14:09 BST

If you want the quick take without the analysis, fine. I'll give it to you -- don't expect any significant lift in corporate IT spending before the middle of next year.

That's the quick answer. The longer answer addresses how we got into a tech recession in the first place, how long we have been in it, and precisely where in the cycle we believe we are now. But what exactly do we mean by the "tech recession"?

We are concerned here with the reluctance of companies to spend money on IT systems, the scaling back of projects, the laying off of permanent staff, the freezing of contractor spending, and the trend towards IT projects requiring an ever shorter pay back period -- and generally having more to do with cutting costs in businesses processes than attempting to boost revenues.

Two powerful forces are driving events -- two forces that don't appear to be connected, or at least didn't until relatively recently. These forces are the stock market evaluations of technology companies, and the reality of the revenues and profits these same companies have been able to generate.

The dot-com and technology bubbles have been pricked and their bursting is well documented. First the 'fluffy' dot-com bubble went pop, but then larger firms, with deep technologies and strings of patents to their name, began to be perceived as bubble stocks too. All of this is understood, and the share prices of tech firms are now tending back towards multiples of their anticipated profits, bringing them into line with other sectors.

If bubble share prices had more to do with what Alan Greenspan described as "irrational exuberance" than real revenues, then that understanding is now exacting a painful correction. Some say it has a further 10 or 20 percent to fall until the bursting bubble is fully 'priced in' -- others that the correction has already gone too far and now is the time to buy. The bubble that nobody spotted, however, and the one with potentially the most damaging consequences as it pops, is the Wall Street bubble.