Commentary: IT industry picks up the pace

By Martin Reynolds, Gartner Analyst

Intel's better-than-expected financial performance for the fourth quarter of 2001 reflects the company's aggressive price- and cost-cutting measures--and may indicate that the information-technology industry's free fall is over.

Despite a disastrous year for the IT industry, Intel has reported significantly better fourth-quarter revenue and earnings than Wall Street expected. This upside performance indicates that Intel's moves to cut costs and prices are working and that the IT industry will be returning to something close to normal growth--though certainly not normal sales volumes.

There's no question that 2001 was a disastrous year for IT--probably the worst on record. But the bottom seems to have been reached, and there's hopefully nowhere to go from there but up. In fact, Gartner predicts a slow but robust recovery for IT spending in the second half of 2002.

This recovery will be led by corporate spending. Enterprise PC buying has shown only single-digit growth rates since 2000, when Y2K spending fell off dramatically. The recession hit corporations hard in 2001, and the events of Sept. 11 largely put their IT spending plans on hold.

The result is highly significant pent-up corporate demand for IT products and services. Enterprises will have to upgrade their systems sooner or later--and the improvements in the overall economic climate, coupled with dramatic cost reductions, are rewarding corporate IT buyers' decisions to wait.

	See news story: Intel beats estimates to end tough year

Although big companies are critical to the IT recovery, consumer spending will likely also improve dramatically in the second half of 2002. Consumers, like enterprise buyers, have been waiting for signs of recovery--from the news media, from financial institutions, and above all from their employers--before reaching for their checkbooks. As the outline of the overall recovery becomes clearer, consumers, too, will return to the stores.

It's important to remember that the IT sector, and major infrastructure providers like Intel in particular, are not leading indicators of an overall economic recovery. In fact, IT's recovery is a lagging indicator--at least in this recession--following a more general return to economic confidence. This means that IT will likely recover later than the rest of the economy--but it also makes the sector's recovery an even more reliable sign of an improved outlook for the economy as a whole.

(For a related commentary on the IT spending outlook and the effect on vendors, see gartner.com.)

Entire contents, Copyright © 2002 Gartner, Inc. All rights reserved. The information contained herein represents Gartner's initial commentary and analysis and has been obtained from sources believed to be reliable. Positions taken are subject to change as more information becomes available and further analysis is undertaken. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of the information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof.