The technology industry has so far avoided the ravages of the
credit crunch as the government and private sector appear unable to
cut back IT investments, which are seen as critical during hard
times and for the future when the economic outlook improves.
The IT industry's resilience has been reiterated by the
attractiveness of private sector IT suppliers for investment by
peers in other markets.
Business and public sector IT suppliers have caught the eye of
defence companies, which are looking further afield from their
traditional sources of work. These firms have noticed that
governments, for instance, are spending ever more in the national
security arena.
As a result, big players in the defence industry have been
acquiring technology companies. Last month saw technology
specialist Detica Group
agree to a takeover by BAE Systems, Europe's biggest defence
company, for around £538m.
Detica is a partner in the roll-out of intelligence-led UK
border security. Around two-thirds of the company's revenues comes
from national security. At the time of the deal, Detica also
announced that its sales in the three months to June 30 rose by
14% on the same period in the previous year, boosted by government
contracts. "Strong demand in our government markets has more than
offset the continuing weakness in our financial services unit," it
said.
Those figures indicate what was attractive about Detica to BAE
Systems, which expects the UK's national-security market to double
to more than £3bn by 2011.
Earlier this month, Thales, the French defence systems company
won the first contract in the UK's national identity scheme.
Thales, formerly Thomson-CSF, was helped after buying nCipher, the
UK-based encryption company, for £50.7m.
David Lacey, information security consultant and
Computer
Weekly's IT security blogger, says, "Some fields are currently
recession-proof: security, and specifically national security, is
one of them.
"There is a lot of spending on IT in the public sector because
it had fallen behind and they have to catch up."
According to Lacey businesses also feel that they must spend on
IT. "There is a talent war on. If you are trying to attract the
best talent, you have to have modern technology."
William Fellows, principal analyst at the
451 Group, a technology
analysis company, agreed that the amount of work for IT companies
from government agencies is increasing.
He says, "The technology sector is fairly robust because it has
become part of the DNA of organisations - in the private as well as
the public sphere".
"In the private sphere, the rate of growth of spending on
technology has slowed, but it is still growing year on year.
Businesses see that by spending more on IT, it takes more costs out
in the long run," adds Fellows.
And although, in general, consumers are showing signs of cutting
back, they spent nearly 9% more on computer equipment in the first
half of this year, according to GfK IT
Barometer.
According to Peter Rowell, executive chairman of
Regent Associates, many
factors have helped to protect technology companies from the
downturn which has hit other sectors such as house building and
financial services hard.
He says that even companies hit by the credit crunch are still
spending on IT. "We are still seeing a lot of growth for IT
services in the financial services sector despite banks being in
trouble, After the dot.com crash, banks increased their IT spend on
projects, and they are carrying on with these projects."
IT is not immune to downturn, as history has shown, but when
economic conditions worsen it appears that cutting back on
technology investments is not an option for the public or the
private sector. IT directors will play an even more important role
over the coming months if the economy slows further as businesses
attempt to retain business and prepare to be more competitive.