IT industry braces for more market turmoil

 

Can the industry weather another financial crisis?

Australia’s technology industry should prepare for the potential return of flat or even declining IT budgets in the wake of turmoil on global financial markets, according to a prominent Australian analyst.

The Australian share market recovered slightly yesterday after several days of consecutive falls sparked by debt crises among governments in the United States and Europe.

Some $120 billion has been wiped off the Australian share market over the past week after ratings agency Standard and Poors downgraded the US Government’s credit rating over its inability to service debt.

Trading in information technology stocks have declined roughly in line with the wider market.

Yesterday the Australian share market plunged five percent within minutes of opening, but was swiftly corrected in a flurry of late trading to close slightly higher than it had opened.

Mark McDonnell, IT and telecommunications analyst at BBY told iTnews the day-to-day volatility of share prices was not nearly as concerning for the technology industry as the broader trends driving the market downward.

“In the immediate near-term in Australia there shouldn’t be an obvious, direct impact,” he said late Tuesday afternoon. “But if in the medium term the economy slips into recession – and there are increasingly plausible indications that this could be a risk – the circumstances could be ominous.”

Many Australian technology firms are already skating on thin ice, he noted.

McDonnell expressed disappointment with the results posted by IT services firm Oakton yesterday, which reported declining revenues for the third consecutive year.

This was a cause of “some concern”, McDonnell said, as over the same period most listed Australian IT services firms (and their global peers) posted modest growth. Data#3, SMS Management and Technology and ASG had all reported single-digit growth, he said.

McDonnell expressed doubts Oakton could rebound to its forecast five to ten percent revenue growth for the current fiscal year in the wake of market uncertainty.

“My view is that if you can’t break even during the past three years, it will be harder to this year – at least as the world looks today.”  

BBY has subsequently revised Oakton from “buy” status to “underperform”.

“With global growth down, analysts will take a less bullish view for future growth prospects of companies in this sector,” McDonnell said.

“During the last downturn, there was a pronounced tendency for [end user] organisations to defer discretionary IT spending.”

The debt crisis could have the same effect, he said.

This time around, companies are unlikely to be buffeted by government stimulus spending.

McDonnell expressed doubts about US Government plans to introduce quantitative easing in the American economy to again attempt to boost confidence. Interest rates were already low, he noted, and there is little room for tax cuts when the issue at hand is government debt.

“The capacity for monetary or fiscal policy has already greatly been reduced”, he said.

Many of the same limits apply to the Australian Government.

Australia’s Treasurer Wayne Swan yesterday committed to returning Australia’s Federal Budget to surplus by 2012/13.

“We expect to come back to surplus as planned... but there is no doubt that global events have made that role harder,” Swan said.

But McDonnell said this task is “less likely to be achieved” if the United States falls back into recession and global markets respond.

“The [Australian] Government may look to IT budgets as one area to cut costs to help that case a little,” he said.

What do you think? Is this a temporary slip or are trading conditions again on the decline?

Copyright © iTnews.com.au . All rights reserved.


IT industry braces for more market turmoil
 
 
 
Top Stories
Frugality as a service: the Amazon story
Behind the scenes, Amazon Web Services is one lean machine.
 
Negotiating with the cloud email megavendors
[Blog post] Lessons from Woolworths’ mammoth migration.
 
Qld govt to move up to 149k staff onto Office 365
Australia's largest deployment, outside of the universities.
 
 
Sign up to receive iTnews email bulletins
   FOLLOW US...

Latest VideosSee all videos »

The great data centre opportunity on Australia's doorstep
The great data centre opportunity on Australia's doorstep
Scott Noteboom, CEO of LitBit speaking at The Australian Data Centre Strategy Summit 2014 in the Gold Coast, Queensland, Australia. http://bit.ly/1qpxVfV Scott Noteboom is a data centre engineer who led builds for Apple and Yahoo in the earliest days of the cloud, and who now eyes Asia as the next big opportunity. Read more: http://www.itnews.com.au/News/372482,how-do-we-serve-three-billion-new-internet-users.aspx#ixzz2yNLmMG5C
Interview: Karl Maftoum, CIO, ACMA
Interview: Karl Maftoum, CIO, ACMA
To COTS or not to COTS? iTnews asks Karl Maftoum, CIO of the ACMA, at the CIO Strategy Summit.
Susan Sly: What is the Role of the CIO?
Susan Sly: What is the Role of the CIO?
AEMO chief information officer Susan Sly calls for more collaboration among Australia's technology leaders at the CIO Strategy Summit.
Meet the 2014 Finance CIO of the Year
Meet the 2014 Finance CIO of the Year
Credit Union Australia's David Gee awarded Finance CIO of the Year at the iTnews Benchmark Awards.
Meet the 2014 Retail CIO of the Year
Meet the 2014 Retail CIO of the Year
Damon Rees named Retail CIO of the Year at the iTnews Benchmark Awards for his work at Woolworths.
Robyn Elliott named the 2014 Utilities CIO of the Year
Robyn Elliott named the 2014 Utilities CIO of the Year
Acting Foxtel CIO David Marks accepts an iTnews Benchmark Award on behalf of Robyn Elliott.
Meet the 2014 Industrial CIO of the Year
Meet the 2014 Industrial CIO of the Year
Sanjay Mehta named Industrial CIO of the Year at the iTnews Benchmark Awards for his work at ConocoPhillips.
Meet the 2014 Healthcare CIO of the Year
Meet the 2014 Healthcare CIO of the Year
Greg Wells named Healthcare CIO of the Year at the iTnews Benchmark Awards for his work at NSW Health.
Meet the 2014 Education CIO of the Year
Meet the 2014 Education CIO of the Year
William Confalonieri named Healthcare CIO of the Year at the iTnews Benchmark Awards for his work at Deakin University.
Meet the 2014 Government CIO of the Year
Meet the 2014 Government CIO of the Year
David Johnson named Government CIO of the Year at the iTnews Benchmark Awards for his work at the Queensland Police Service.
Q and A: Coalition Broadband Policy
Q and A: Coalition Broadband Policy
Malcolm Turnbull and Tony Abbott discuss the Coalition's broadband policy with the press.
AFP scalps hacker 'leader' inside Australia's IT ranks.
AFP scalps hacker 'leader' inside Australia's IT ranks.
The Australian Federal Police have arrested a Sydney-based IT security professional for hacking a government website.
NBN Petition Delivered To Turnbull's Office
NBN Petition Delivered To Turnbull's Office
UTS CIO: IT teams of the future
UTS CIO: IT teams of the future
UTS CIO Chrissy Burns talks data.
New UTS Building: the IT within
New UTS Building: the IT within
The IT behind tomorrow's universities.
iTnews' NBN Panel
iTnews' NBN Panel
Is your enterprise NBN-ready?
Introducing iTnews Labs
Introducing iTnews Labs
See a timelapse of the iTnews labs being unboxed, set up and switched on! iTnews will produce independent testing of the latest enterprise software to hit the market after installing a purpose-built test lab in Sydney. Watch the installation of two DL380p servers, two HP StoreVirtual 4330 storage arrays and two HP ProCurve 2920 switches.
The True Cost of BYOD
The True Cost of BYOD
iTnews' Brett Winterford gives attendees of the first 'Touch Tomorrow' event in Brisbane a brief look at his research into enterprise mobility. What are the use cases and how can they be quantified? What price should you expect to pay for securing mobile access to corporate applications? What's coming around the corner?
Ghost clouds
Ghost clouds
ACMA chair Chris Chapman says there is uncertainty over whether certain classes of cloud service providers are caught by regulations.
Was the Snowden leak inevitable?
Was the Snowden leak inevitable?
Privacy experts David Vaile (UNSW Cyberspace Law and Policy Centre) and Craig Scroggie (CEO, NextDC) claim they were not surprised by the Snowden leaks about the NSA's PRISM program.
Latest Comments
Polls
Which bank is most likely to suffer an RBS-style meltdown?





   |   View results
ANZ
  21%
 
Bankwest
  9%
 
CommBank
  11%
 
National Australia Bank
  17%
 
Suncorp
  24%
 
Westpac
  19%
TOTAL VOTES: 1438

Vote