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Oil-rich nations lift tech industry

business Updated: Jun 06, 2008 16:54 IST
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Spending on information technology is set to rise despite a U.S.-led economic slowdown, as oil-rich regions, such as Russia and the Middle East spend their petrodollars on large-scale IT projects.

The rising popularity of low-cost, ultra portable laptops in emerging markets in China, India and Latin America will also boost the global technology industry, which is facing some signs of weakening corporate spending as the U.S. subprime crisis hits company earnings.

Executives from top technology companies were bullish on their prospects at this week's Computex trade fair, saying growth was looking good even at a time of shaky consumer confidence, wobbly company earnings, and rising raw materials costs.

"Some of the key growth drivers will be big emerging markets. The BRIC countries (Brazil, Russia, India and China) hold a lot of promise," said Robert Chu, Vice President of Asia Pacific at Hitachi's hard disk drive unit.

"They are still growing because it's all about infrastructure build-up ... rather than looking upgrades and replacement, which are probably more budget sensitive."

Information technology spending by companies, consumers and governments will likely grow 6 percent to $1.43 trillion this year, compared with 7 percent growth a year earlier, with weakness in the United States largely offset by growth in BRIC nations and other vibrant economies, research firm IDC said.

Although rocketing oil prices have dented earnings, they are also allowing oil exporters to spend more on technology.

"High oil prices are pushing up the economy in countries like Russia and also in the Middle East, driving the ability of companies and the governments to keep increasing their IT spending," said Stephen Minton, vice president of IDC's Worldwide IT Markets.

Dell Inc, the world's No. 2 PC maker behind Hewlett Packard, underlined the optimistic outlook last week when it posted a higher-than-expected quarterly profit, driven by cost cuts and strong demand from consumers and markets outside the United States.


LOW-COST CRAZE

Facing soaring fuel and food costs, and finding lenders less willing to hand over cash in the wake of the U.S. subprime mortgage crisis, cost-conscious consumers are increasingly turning to cheaper, smaller laptops, called Netbooks, or mobile Internet devices.

The rising popularity of Netbooks, which allow users to surf the Internet and play games, is another area where technology companies can achieve growth.

Asustek Computer Inc expects sales of its handbag-sized Eee PC laptops to double to around 10 million units next year, while Acer Inc, the world No.3 PC vendor, said this week that smaller, cheaper laptops are seeing significant growth from emerging markets.

"The notebook market is growing for at least the next two to three years, and with the entry of new mobile Internet devices, the market can easily double in size, changing the profile of the industry dramatically," Acer President Gianfranco Lanci said.

Intel Corp also sees potential in the market for low-cost computers, and has designed a range of chips called Atom for use in Netbooks and Nettops, a low-cost desktop computer.

Despite the bullish comments from company executives, some analysts are wary about corporate technology spending.

"In the past, what happened to the economy in a year often started affecting IT spending in the middle of the following year. There's a possibility subprime-related impacts will appear a bit later," Gartner research director Hiroyuki Katayama said.

The U.S. subprime mortgage crisis hit financial markets last summer.

Dell said in its latest quarterly earnings announcement that U.S. corporate customers were keeping a tight grip on spending, a trend it expects to last through the summer.

Typically the hardware side of the industry suffers first, followed later by software providers, IDC's Minton said.

"I wouldn't say the worst is yet to come. It's more like the full cycle has yet to play itself out," he said.

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