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Second Survey Finds Slipping Confidence in Tech Sales

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For months, the question asked softly around Silicon Valley has been: Is this another tech bubble?

With restaurants filled with well-paid tech workers and home prices soaring into the stratosphere, such doubts are usually shrugged off with a phrase that hasn't been heard much around the San Francisco Bay Area since the spring of 2000: "It's different this time."

Yes, it is different. Significantly, Silicon Valley giants, unlike the tiny start-ups of the dot-com era, are highly profitable, and some have billions of dollars in cash. However, the outlook for technology rests on a highly complex economic and geopolitical landscape, and that has been shaken recently by the potential for Russian intervention in Ukraine, the strikes by ISIS in Iraq, Israel's actions in Gaza and new fears about the debts of some European governments.

Since setting a new high a month ago, the tech-heavy Nasdaq Composite Index, like much of the broader market, has fallen back in choppy trading. And, in just the past week, two independent studies have found new signs of doubt that technology sales, while still growing, will reach levels expected when 2014 began.

Slipping Confidence

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The latest report comes from CompTIA, the computer industry trade association. The Downers Grove, Ill.-based organization reported its IT Industry Business Confidence Index fell slightly in the third quarter to 60.1 on a scale of 100 from 61.3 in the second quarter. The index is based on the opinions of IT executives about the US economy, the technology industry and their own companies.

According to a statement, three-quarters of the managers said they were on target or ahead of their 2014 revenue goals halfway through the year, well ahead of the 68 percent who could say that a year ago. By company  size, execs at 93 percent of medium IT firms and 80 percent of larger companies said they were on track for sales. The same was true for 74 percent of small companies and 58 percent of "micro firms."

However the 293 industry executives surveyed during July showed concern over a number of factors. For example, 44 percent said they're concerned about price-sensitive customers.

"Closely related is concern over downward pressure on margins," said Tim Herbert, vice president for research and market intelligence. "With an ever-expanding array of technology solutions available at a range of price points, cost-conscious customer have more options than ever to optimize their spending."

Wage Inflation

Another concern is the cost of all those well-paid workers. Concern about labor costs rose 4 percentage points to 28 percent from CompTIA's second-quarter survey.

In a separate report last week, the research firm IDC acknowledged that IT spending in the first half of 2014 fell short of its expectations "in line with the weather-related slowdown in the US and the impact of wild card events, including the conflict in Ukraine."

To be sure, neither of the forecasts is predicting gloom. The technology market is growing.

IDC said with the help of smartphones, data analytics and collaborative applications, global IT sales would rise 4.1 percent this year. And CompTIA said the forward-looking component of its index projects a 2 percent gain in confidence for the next six months.

A Dip vs A Trend

In an interview with CMSWire, Herbert noted a single quarter doesn't constitute a trend. "Generally, if we see a dip in one quarter, we wait another quarter to see if it's a genuine decline or a temporary blip," he said.

Right now, Herbert sees mixed signals. One one hand, the economy is generally healthier than it has been in several years and consumers are spending more money.

"At the same time, we do see a number of structural changes in the IT sector," he said. "Most of it has to do with customers who have more options than ever for the tech they consume. In some cases, we seeing a lot of technology but it may be at a lower price point, or it may be from a customer switching from a single transaction to buying software as a service."

High Valuations

Like his colleagues at IDC, Herbert noted there's been "quite a bit of international turmoil along with some volatility in the stock market." From the amount of capital flowing into technology and the valuations placed on some companies, he said "it's hard to justify where some companies are."

However, he said the biggest difference today compared to wild days of 1999 is that casual  investors are not indiscriminately pumping money into the stock market as they did during the dot-com boom 15 years ago.

"My mother hasn't asked me for a stock tip yet," said Herbert. "When she does, I'll begin to worry."

Title image by Alexandr79/Shutterstock.

 
 
 
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