Ailing IT firms need more aggression

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Ailing IT firms need more aggression

As global IT spending declines, high-tech firms will need to rethink their business models and act aggressively to weather the recession, according to consultancy McKinsey.

The firm's research recommendations for IT companies under the cosh included adopting a hard-line management of working capital and investment in sales and marketing staff.

Renegotiating supplier deals and entering partnerships and joint ventures to offload costs or gain market foothold was also part of the report's advice, as well as rationalising sales, general, and administrative expenses.

According to McKinsey, one in four high-tech companies will have to rely on credit lines or refinance their debt over the next year, but one of the main recommendations is still making acquisitions that fit existing portfolios and add value to business propositions.

Despite 2008 being a slow year for acquisitions, organisations are “playing a waiting game” to find bargain purchases, according to the report.

“Buyers are counting on further declines in stock prices; sellers are unwilling, for the present, to deal in a fire sale, which is why Yahoo rebuffed a Microsoft offer that would now be worth a hefty premium,” says McKinsey.

The report cites the case study of Cisco Systems, which weathered the 2000–02 downturn through 16 acquisitions totalling US$15bn and gaining extra capability in areas such as systems design, while disposing of non-core assets such as its European consulting arm.

“Our findings do suggest that understanding the shape of past high-tech recessions and taking well-timed moves, should help companies withstand the more pernicious effects of downturns and capitalise on their very real opportunities,” says the report.
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