Canadian computer and electronic product manufacturers in 2011 can expect a strong rebound from the recession, but the next six months are a critical period for the IT industry, according to The Conference Board of Canada.
Corporate profitability plunged about 40 per cent in late 2008/early 2009 as customers put a break on investing in technology, followed by a significant increase in the latter half of 2009, said Maxim Armstrong, economist with The Conference Board of Canada. “We had this super big wave that came after the big drop,” said Armstrong. “Now it’s flat.”
Armstrong expects the next six months will witness a moderate rise in corporate profitability. During this time, some but not all jobs will get re-created but companies will remain unsure, he said. Things will be “okay, but not bad, and not super good,” said Armstrong.
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Despite this precarious next six months, Armstrong said 2011 will start with a recovery phase that is more sustained, and finally a strong rebound.
The prediction for the IT sector is part of The Conference Board of Canada’s Canadian Industrial Outlook Spring 2010.
IT managers responsible for IT software and hardware procurement should consider what this report means for their IT budgets that have likely got slashed in the past couple of years, said Armstrong.
He thinks the rebound, albeit slow, is a signal to IT departments to resume investing in the IT infrastructure again unless they want to get left behind. “That means that their competitors are going to invest so they should think about it too,” said Armstrong.
The Conference Board of Canada has identified several factors that will assist the economy out of this slump. The computer systems design industry will continue to benefit from customer demands created by the usual short refresh cycle with equipment like PCs and smart phones, said Armstrong.
“So every time there’s a new product that comes out, we need new software to upgrade it,” said Armstrong. “So that’s a pretty good source for growth and demand.”
The health-care sector, too, will play a role in growing the economy. Armstrong said there is immense potential among hospitals and private clinics to implement IT systems with the goal of improving health care. However, rapid technology adoption is still largely hindered by cost, and security and privacy concerns, he said.
While technology investment in health care is a long-term investment, it’s a new line of business for the industry that is beginning to pick up speed, noted Armstrong.
Stamford, Conn.-based research firm Gartner Inc. projected a global enterprise IT spending increase by 4.1 per cent in 2010, following what it estimated was a 5.6 per cent drop between 2008 and 2009.
Gartner expects more money will be funneled into IT budgets this year. “2010 will see IT spending in all major industries returning to growth, although that growth will vary by individual sector,” Gartner research director Kenneth Brant.
That said, Gartner warns companies to prepare for a “double dip” recession where growth slows down as a result of decreased IT spending.
While The Conference Board of Canada sees health care as a new line of business for the IT industry, Gartner predicts that the health care sector will be among the slowest growth areas. Natural resources and transportation industries, too, will witness slow growth.
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