The Ten Potential Developments That Could Shape The Tech Market In 2012

At the end of December 2011, I wrote about the top ten tech market events of 2011. Last Friday, we published our global tech market forecasts for 2012 and 2013 (see January 6, 2012, “Global Tech Market Outlook For 2012 And 2013 — Eight Themes Will Shape Vendors' Prospects Over The Next Two Years”) . With that report now live, I would like to share the top ten things that I will be monitoring in 2012 because of their potential impacts on how the tech market will perform in 2012. Some of these things are macroeconomic developments that could hurt or help tech market demand. Others are supply-side or vendor-related events or trends that will define winners and losers in whatever tech demand does emerge. As with my top ten 2011 tech market events, these are counted down in reverse order of importance:

10. Will software vendors like IBM, Microsoft, SAP, and others report strong or weak results from Q4 2011? Strong growth in software revenues is a major requirement for the health tech sector in 2012, both because software is the largest category of tech purchases (excluding telecommunications services) and because of its follow-on impacts on demand for hardware and IT systems integration services. Oracle's results for its fiscal quarter ending in November 2011 were very weak, with low single-digit growth and flat or declining license revenues depending on the product. So, I will be watching closely IBM's and Microsoft's financial results on January 19, EMC's on January 24, and SAP's on January 25 to see if Oracle's results were an outlier, or a bellwether for poor results from other software vendors. The strong revenue growth that Adobe Systems (14% growth) and Tibco Software (20% growth) reported in December 2 suggest that Oracle's poor showing was unique to Oracle, but we will need to see the other large software vendor results to make sure.

9. Will communications equipment vendors reverse their downward slides? In the smartphone market, RIM is approaching a possible death spiral because it looks like it won't have its new operating system and phones available until the end of 2012 — a deadly delay at a time when Apple and Android smartphones are taking share. Nokia's prospects look a bit brighter thanks to its partnership with Microsoft, but the two vendors still have to prove that a Windows-based device can be competitive. In terms of network equipment, Alcatel, Avaya, Cisco Systems, Ericsson, Motorola Solutions, and Nokia Siemens Networks have to figure out where to grow at a time when both the carrier market and the corporate market seem to be saturated.

8. Which Japanese vendors (e.g., Fujitsu, Hitachi, NEC, NTT Data, and Toshiba) will move the most aggressively and successfully into markets beyond Japan?The big Japanese tech vendors have achieved their scale by dominating the Japanese tech market, but with that market stuck with little or no growth, they increasingly have to look to other markets for growth. That is a challenge, since it requires strength in software, which has not been a strong point. Fujitsu has made the most progress, but still faces an uphill battle to compete with IBM.

7. How many acquisitions will Oracle and SAP make in 2012? Both vendors made acquisitions of leading software-as-a-service (SaaS) vendors in 2011. Given Oracle's poor results in its last quarter and past history, it is likely that it will step up its pace of acquisitions to goose revenue and profit growth in 2012. One potential target could be Infor, which reported 28% license revenue and 12% total revenue growth in Q4 2011, and is headed by ex-Oracle executive Charles Phillips. SAP is also likely to make more acquisitions to keep pace with both Oracle and IBM.

6. Will Wintel PCs continue to lose ground to Apple Macs and tablets in 2012? Both Microsoft's Windows operating system and Wintel PC vendors like Dell and HP had a lousy 2011, when Apple Macs and iPads stole significant chunks of market share in both the consumer and the corporate PC market. Sooner or later, Microsoft will respond with a new operating system that will incorporate the ease of use of Apple devices, while Apple's momentum is bound to slow. But whether that happens in 2012 or in 2013 is still up in the air.

5. Will Accenture, Capgemini, Cognizant, CSC, Infosys, TCS, and Wipro start to break out and report separately software revenues? Both IT outsourcing and business process outsourcing are showing slowing growth, and systems integration project work is starting to lag as more and more companies move toward SaaS solutions that require or provide many fewer opportunities for customization and integration. One approach is for these vendors to start to build software products that offer faster growth and better margins, building on the industry and specialized process expertise that these services vendors have built up in their consulting practices. Many of these vendors actually have a software business buried in their organization — if and as they surface this as a distinct business unit, that will be clear evidence that they are following IBM in turning consulting intellectual property (IP) into software products.

4. Will IBM be able to grow its software revenues enough to offset sluggish growth in its services businesses? IBM has been very explicit about making its software division the leading engine of company growth, and it has detailed plans and methods for turning consulting IP into software products. We think its 2011 software revenues will grow by 10% in 2011 when final Q4 2011 figures come in, compared with 6% growth in its IT services revenues and 8% in total IBM revenues. We will be looking closely to see if that pattern continues in 2012. But with IBM's services revenues more than two times larger than its software revenues, it will take very strong software growth for IBM's total revenues to grow faster than the total tech market.

3. Will US economic growth accelerate or decelerate in 2012? We have assumed in our tech market forecasts that the US economy will continue to grow at a modest rate of 2% to 2.5% for real GDP. While it is possible that growth will be stronger than that (some forecasters are predicting that US real GDP growth in Q4 2011 will grow by more than 3%), there are greater risks of even weaker growth, due to the side-effects of the European economic problems, consumers being unable to sustain their current rate of purchases, or an end to federal government economic stimulus if Democrats and Republicans cannot agree on a full-year extension of the payroll tax cut and unemployment benefits. Odds favor our basic forecast, but there's a 25% probability of slower US economic and tech market growth in 2012.

2. Will China and/or India slip into slow economic growth? In our global tech market forecast, we have assumed that China and India will continue to grow by 8% to 9% in real terms, with tech markets growing in the mid-teens. However, there are signs (such as falling industrial production) that Indian economy growth is slowing due to the Reserve Bank of India's efforts to fight inflation, while political deadlocks prevent progress toward liberalization, infrastructure investments, and reform that could stimulate countervailing growth. In China, economic policymakers have been able to slow growth to the point that consumer inflation is easing. However, property price inflation is still an issue that could require more aggressive action to bring under control, which could overshoot and cause a larger-than-expected economic slowdown. Slower growth in China or India would then lead to significantly slower growth in the Asia Pacific tech market.

1. How deep and long will the European recession be? Our European tech market forecast assumes that Europe is or will soon be in a relatively shallow two- to three-quarter recession. That forecast assumes that the European Central Bank's aggressive lending to banks will filter through to national governments (thereby helping to bring bond rates for Italy and Spain, in particular, to sustainable levels), and that austerity programs don't push public sentiment to the breaking point (thereby causing elections of governments that are willing to leave the Euro). If those assumptions turn out to be wrong, and Italy or Spain were to default on their debts or leave the Euro, the resulting financial crisis would cause a much deeper recession, and thus a much bigger drop in European tech purchases.

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Information technology can be

Information technology can be of greater value to executives and managers in supporting their assessments and decision-making, and ensuring follow-through once a decision is made. But I question how long it will take before using the technology to do this becomes a standard feature of business.