Technology companies buck the 'credit crunch'

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,...

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.

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