Tech Slowdown

Recently, I came across an article in Hindustan Times on ‘Bangalore Blues’. One part, about the tribulations of one Sunil, caught my attention: “Sunil, who was with an IT company, was preparing to get married when the slowdown struck. Mysteriously, all proposals dried up and he was avoided by families that had earlier wooed him with everything they had.” Clearly the tech slowdown is hitting home. What caused it and how serious is it? 

In the year 2000, US IT spending is estimated to have hit a record $532 billion, up 23 percent over the previous year. In the last two years, $172 billion was invested as venture funding in technology companies, $66 billion was raised as IPO financing, and $50 billion as follow-on financing. This adds up to over $288 billion, causing a feverish pace of innovations and investments–amazing improvements in technology along with decreasing prices; significant improvements in communications technology; and investments in communications infrastructure. 

There were productivity improvements in the workplace too–the ubiquity of e-mail, and automation of many aspects of business and personal interactions are instances of this. Companies are investing in making a presence on the Internet, and have invested in software for supply chain optimization, enterprise resource planning systems, and improving customer relationships.

The valuations of many technology companies have gone down by over 70 percent in the last year; the Nasdaq composite index has lost 50 percent and Nasdaq telecom index 70 percent of their respective values. This has reduced the flow of all types of financing. Many technology companies are issuing earnings and profit warnings. Since technology spending was about 50 percent of the total capital spending in the last year in the US, this also has an impact on other sectors of the economy, including investment banks and financial services. In a global economy, this will affect India adversely, especially because India’s software industry primarily depends on IT services. 

“The pace of technological change has not slowed down,” Gates said recently. I echo the same sentiments. We are still in the midst of amazing technological breakthroughs. If you look at the promise of ubiquitous computing with miniaturization of processors, ubiquitous connectivity with mobile technology and increased bandwidth and how they can continue to change our lives, there is a lot of steam left in the technology sector. Maybe it needs to catch its breath for the next sprint.

As always, there are lessons to be learnt. The Silicon Valley model of promoting innovations created hot new products and technologies. New companies were set up when established players were not willing to embrace new technologies rapidly. This increased competition and IT spending from established players who needed to catch up. In this flurry, some wrong decisions were made. 

But the bottom line, I believe, is that this slowdown is temporary and the technology industry will continue to grow over the next few years.

S Gopalakrishnan 

is the deputy managing director of Infosys Technologies.

The views expressed here are the author’s views