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TMFDeej (99.47)

Positive Sign: companies are ramping up their IT spending

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June 11, 2009 – Comments (11) | RELATED TICKERS: VGT

 

I just got off the phone with someone who works in sales for one of the world's top e-commerce companies (that shall remain nameless).  This individual is very "plugged-in" in terms of how sales are going and what the order pipeline is like for business investment in IT in general and e-commerce specfically.

Towards the end of last year and the beginning of this year business investment in this sector completely fell off of a cliff.  Businesses were uncertain about where the economy is headed and the completely cut off any expenditures that weren't absolutely necessary.  Flash forward to today and this individual tells me that his company's order pipeline is as full as he has ever seen it and he's been in the industry for nearly a decade.

This is not a person who is prone to hyperbole and it's someone whose opinion I trust very much, so I take this as an extremely positive sign that business investment, at least in terms of technology and e-commerce, will improve over the course of the year.  I would not be surprised in the least to see some positive earnings surprises in the tech sector in Q3 and Q4.

Food for thought.

Deej

11 Comments – Post Your Own

#1) On June 11, 2009 at 11:39 AM, russiangambit (29.94) wrote:

Strange. I see nothing of the kind. IT is still not hiring, but cutting people.

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#2) On June 11, 2009 at 11:49 AM, TMFDeej (99.47) wrote:

Hi Russian.  The person who I spoke with was in e-commerce.  Perhaps that subsector of the industry is going better than others like hardware. 

Also, the person who I spoke with said that the order pipeline was filling up again.  It take some time from the point when orders start coming in to when companies actually need employees to fill them.

Furthermore, I'm sure that many companies have decided to play it safe and run lean for a while before going on some sort of hiring spree again.

We will likely see business pick up and earnings improve before companies start hiring again and the unemployment rate stabilizes, let alone drops.

Do you work in IT?  Perhaps you can share your perspective on another subsector.

Deej

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#3) On June 11, 2009 at 12:15 PM, synergize (32.01) wrote:

I won't be surprised. Semiconductor stocks are moving up the market.

http://synergeticstocks.com/post/2009/06/09/2009-JUN-10-Bullish-Stock-Picks-Semiconductors.aspx

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#4) On June 11, 2009 at 12:19 PM, russiangambit (29.94) wrote:

> Do you work in IT?  Perhaps you can share your perspective on another subsector.

Yes, I work in Enterprise Software sector, which is similar to ecommerce. My experience has been that IT is one of the last sectors to recover from a recession . This is because companies can't justify spending money on IT (some new fancy software or  faster servers ) when their core business is hurting. IT doesn't make money, IT only helps cut costs somewhat. Thisis why it is about the last palce where a company would invest. First, the core business has to recover and show solid operating profits before anything is done for IT.

The only time IT takes precendence if there is a legal requirement to fulfill like SOX of IFRS.

The bottom line, IT spending is a lagging indicator. You don't see IT spending increase until you are way into recovery phase. So, to believe your friend we must've passed the end of the recession about 6 months ago, which is not possible. There must be special circumstances in that company.

 

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#5) On June 11, 2009 at 1:09 PM, TMFDeej (99.47) wrote:

Thanks for sharing your thoughts, Russian.  I think that the main difference between the sector that you work in and the sector that my friend works in is that he is on the e-commerce end of things which definitely does create new business.  Companies can directly improve their revenue and earnings by selling more things on-line.

The person who I spoke with definitely knows what he is talking about.  I highly doubt that this is the start of a new raging bull market for anything, including ecommerce software.  What might be happening is that there was a ton of pent-up demand and plans that were put on hold at the end of 2008 that companies are now proceeding with.  Things might end up leveling off after this wave of pent-up demand passes.

In any event, it's good to see that some companies are starting to spend money again.

Deej

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#6) On June 11, 2009 at 1:15 PM, russiangambit (29.94) wrote:

> Thanks for sharing your thoughts, Russian.  I think that the main difference between the sector that you work in and the sector that my friend works in is that he is on the e-commerce end of things which definitely does create new business.  Companies can directly improve their revenue and earnings by selling more things on-line.

-------------------------------------

Companies with existing solutions wouldn't invest in ecommerce at this point. I think what happened is that many people were laid off and they started their own companies since then, and these new companies need ecommerce solutions to seel their products, as you said.

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#7) On June 11, 2009 at 1:26 PM, Londamania (61.01) wrote:

I have worked in "IT" or software development for 25 years. Back in the 80s & 90s I would completely agree with Russian.  Now - not so much.  IT is an integral part of most every business these days.  And think about - you just laid off a bunch of people to make your earnings numbers and control costs.  Yet - there still is all this work to be done.  About now is when the companies are making some hard decisions on the screaming from the middle management layers that they need this or that techno-widget in order for the remaining 3 people to do the work that used to be done with 4 people (extrapolate up as company size increases). 

Also these systems need months to implement and integrate into your business operations.  A company that becomes convinced that business is picking up is likely to start ordering the improvement things they wanted and have held off on so that they can have it in time for it to help them when demand is spiking.  Contrary to many opinions, not all business are run by stupid people and many of them are actually pretty good at planning ahead.  Capitilism encourages that :)

So I think we may see IT spending change from a lagging indicator as we go forward.  And if you accept that the market started to price a recovery in early March, it kinda is lagging from that.  But that goes contrary to all the doom bear thinking so it gets discounted immediately. 

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#8) On June 11, 2009 at 1:29 PM, maxnik0215 (51.05) wrote:

my co-worker went to an RF and Microwave Simposium in Boston couple of days ago.  Basically we work in Semiconductors and other Electronics. He talked to a lot of people who are in the field. It seems that a lot of companies have hiring reqs open and ready to go and are planning to start hiring q3 and q4. Hopefully this will come true...

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#9) On June 11, 2009 at 1:42 PM, russiangambit (29.94) wrote:

> So I think we may see IT spending change from a lagging indicator as we go forward.  And if you accept that the market started to price a recovery in early March, it kinda is lagging from that.  But that goes contrary to all the doom bear thinking so it gets discounted immediately. 

An average project  I would do costs between 2-10 mil USD and takes one or two years start to finish. I am not seeing much projects like this starting in the US. Why? Because IT departments are short  not only on money but also on people. They would need to rehire people to increase IT spending.

However, I understand there are different dynamics at different companies. I rest my case.

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#10) On June 12, 2009 at 3:18 PM, Londamania (61.01) wrote:

A good point here is "IT" covers a lot of ground.  Putting in a new SAP back office system is completely different from buying some new desktop PCs.  And a CRM system would be somewhere in the middle.  If things are opening up on the lighter weight end of IT, that is still a good sign, and could indicate better things to come for the larger parts of IT - in due time. 

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#11) On June 17, 2009 at 4:24 PM, vtBrunson (60.26) wrote:

Don't know about other areas, but IT the DC metro area seems to be going strong.  I own an IT business here, and since the beginning of '09 I've had to pass up opportunities more than I've done in years... Been getting calls from all kinda of former collegues asking if I know anyone looking for work.  One recruiter even dug my resume up from 1999 and asked if I was interested in some work.  (BTW I am doing work on e-commerce, but there seem to be jobs available for all types of work here...)

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