Banking optimize

How does a possible recession affect IT?

On January 23, 2008, <i>The Boston Globe</i> reported that, despite the NASDAQ's recent 2% dive, the tech sector is well poised to weather a recession that is mostly contained to the United States.

According to Ubuntu's CEO, Mark Shuttleworth, Federal Reserve Chairman Ben Bernanke made a mistake in reducing the interest rate that banks charge each other for overnight loans by 0.75%. The large reductions in interest rates pushed by former Fed chief Alan Greenspan were an easier pill to swallow because of the extraordinarily low inflation at the time, possibly the result of productivity gains in China, says Shuttleworth.

Markets "are smart enough to see that all Bernanke has done is cover up the symptoms of malaise," he said and offered a gloomy forecast: "I expect that any relief will be brief, market recoveries will fade, the rout has been deferred but not averted."

Ubuntu chief decries interest rate cut (News.com)

On January 23, 2008, The Boston Globe reported that, despite the NASDAQ's recent 2% dive, the tech sector is well poised to weather a recession that is mostly contained to the United States, as most tech firms do significant business with foreign customers.

Many in the technology world remain upbeat. "I'm not in a state of panic," said Paul F. Deninger, vice chairman at investment bank Jefferies & Co. in Waltham, which focuses on high-tech firms. "If a recession lasts less than a year, the technology sector will be OK. If it lasts more than a year, then of course there'll be some fallout."

Bill Watkins, the CEO of Seagate, is apparently not concerned yet as his company "tripled Net income on a 14 percent increase in sales." Watkins went on to say that 70% of Seagate's business comes from overseas sales. Furthermore, he claimed in an interview published on 1/23/08 that while people might not be buying as many homes or cars and perhaps aren't eating out as much, they are still consuming storage products like gangbusters. This claim is easy to swallow given the storage giant's recent performance.

As recession fears grow, Massachusetts industries hunker down for a tough '08 (Boston Globe)

Take your tech recession and stuff it (News.com)

Personally, I work in education, where economic downturns can mean even more business when people come in to upgrade job skills. I suspect that my particular industry will remain mostly immune, unless the entire state of Texas goes broke. How is your industry suited to take the looming economic issues? Do you see yourself cutting down on tech consumption?

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15 comments
ahill
ahill

I live in th UK and manage an IT department within a finance company. The U.S. credit crunch has certainly hit and all tech budgets have been put on hold, stalling all projects which includes the implementation of company wide virtualisation. Redundancies have occurred with the threat of more unless the industry begins to regain confidence. A recession in the U.S. will certainly have an effect on companies like ours worldwide, probably leading to a large amount of IT staff looking for new roles.

JoeParent
JoeParent

Myself and 27 other people received our pink slip last Friday. We were all contractors/consultants, with 3 addition were permanent employees. I see it getting worse, Indiana is becoming a waste land, only the big companies, i.e. Liberty Mutual, Roche, Eli Lilly are still hiring but for lesser pay and almost no benefits now. Alone the IT in Indiana has decreased by almost 26%. To many are only for testing now. Now the Dept of Defense is trying to open IT possitions to make or take up the slack. I am an IT Manager, and I see it getting some what worst or should say going down by 10% for 2008. The average IT shop is now working, money and resources, overall with less and taking longer to accomplish their task.

ChipN
ChipN

Management (CIOs / VPs) are still going to have their list of key projects and goals for the year, even if their budget for 2008 is flat or even declines. This gap between "business as usual" and "getting business done no matter what" will spur changes and innovation. I believe that we will see more companies shifting to open source, software as a service (SaaS), and lean initiatives this year. The first two minimize capital expenditures and TCO, and the last eliminates waste and increases efficiency. Innovation will come out of those efforts to be more efficient and doing things in a new way. So, is this necessarily a bad thing? For some people it will be - at least if history is a guide. But this time I believe that the changes will be far better than some of the outsourcing and managed services efforts employed in the past as means of cost-savings. Why? Because now companies will actually be building something that is their own - even if it doesn't run on their own equipment (as in the case of SaaS), or implementing a low cost platform that can be economically built on / extended (as in the case of open source). Best regards, Chip Nickolett (ChipN@Comp-Soln.com)

zen71001
zen71001

As a former CTO of a billion page view per year website with up to 12 million unique visitors every day. I agree that open source is the CTO's friend in tight financial times. You see my team served its Billion pages per year on a cluster of 52 ordinary intel LAMP servers that cost ?2003 pounds each to build. Thats really cost effective computing.

pr.arun
pr.arun

The push to more innovation on the cost front will be a boost to technologies that seek to provide services via the online frontier.

anne.sullivan
anne.sullivan

Yesterday I read that wall street is predicting a good chance that the Fed will drop rates even lower when they have their regular meeting next week (Jan. 30th). If this surprise huge cut is bad, what happens if they cut even further?

jheaton
jheaton

I happen to agree with an article I read the other day, saying this cut was a bad idea. Inflation has a lot to do with the reasoning. Inflation is going to be going up, due to the cut, which prompts the Fed to raise the rate, which slows economic growth; it's a vicious cycle. They need to keep the rate where it is, even if the economy slips into a recession, it should be mild, and right itself within a year or so. All the monkeying with the rate will just make it worse in the long run.

nhahajn
nhahajn

People have such a short memory. Markets go up and they go down, it called cycles. Yes some are more severe than others, but they can't go up for ever. I'm not even that old, but all these people who grew up in the rapid expansion of the late 90's got spoiled, the market will go down, but at some point it will recover, it's just the way economies work.

Popoyd
Popoyd

These cuts are only temporary measures. On top of it, the last cut was taken as a confirmation of bad news, not as a good reaction from the Fed. Markets. Go figure.

Andy Moon
Andy Moon

Do you work in an industry that will be impacted by the looming economic problems? Do you see your business cutting back on tech purchases or will cuts be made to personnel instead? What will be the impact in your IT area?

jackintheback
jackintheback

we wouldn't have this "resession" Ouality is usually cut first, especially as the young ones learn, to keep the "'atta persons" motivated I sure hope this doesn't happen the Quality Control getting cut first.

JohnMcGrew
JohnMcGrew

My experience is that in hard times, my clients get determined to "work smarter"; this frequently means trimming the dead-weight in their organizations and leveraging technology to be more efficient. On the other hand, inflation hurts everyone. But then again, it means that I get to up my rates without much resistence and then pay off my mortgage with worthless dollars. I've been warning people for years now; the unintelligencia in this country seem determined to relive the '70s. So I might as well profit from that.

Popoyd
Popoyd

My company does IT outsourcing services. Predictions say that if pressed to cut costs companies will tend to increase their outsourced proceses. Good for us, maybe, but not for their staffed IT personnel... Which industries would be hardest hit by a recession? If I were in one of those I'd move PRONTO.

IT Guy with many hats
IT Guy with many hats

My industry is in the Real Estate sector so I am worried all the time about the economy. The only good thing is that if you do a good job you should be OK. Being the only IT person around I think I am OK but who knows. Companies do what they think is best even if in the long run it isn't. Corporate America, it will cut off it's nose in spite of its face if it thinks it will save money.

Popoyd
Popoyd

You're right, short term savings seem to be the rule in large companies, even if it means more serious problems down the road. Poor vision and planning are common, and bred and nurtured even more in uncertain times like this with cross signals all over and panicky markets. Hope it's all right with you though; that market will pick up later and hopefully they will have the vision to stay ready...