Crisis tech sales prove life has to have its little rewards

Technology sales are proving that people are still buying something other than life's essentials in the downturn. Big US government purchases are not hurting the sector either

Sales of 3D TV and 3D-capable Blu-ray players have a long way to go to make up for a drop in flat-screen TV sales.

Something very odd is happening on Wall Street. As the world economy continues to splutter, as seen in the 10 per cent employment rate in the US and the near-bankruptcy of Greece, one unlikely sector - technology - is providing investors with something to celebrate.
And it's not just Apple, even though the launch of the iPhone 4 has become yet another sales phenomenon for the company. An estimated 1.5 million units were shifted on the first day, despite a reported glitch that leads to a loss of signal while calling left-handed. The database company Oracle has also steamrolled analysts' expectations with its most recent quarterly results, while the big household names such as Microsoft and IBM are expecting to see the kind of upturn for the rest of the year that they haven't enjoyed since the millennium bug bonanza.
All of which raises the question: why? There are two theories. The first is that US consumers are finally starting to feel more confident but still are not willing or able to dump thousands of dollars on their credit cards for big outlays such as luxury holidays. Instead, they are looking for less expensive ways to treat and or entertain themselves, and nothing beats the feel-good factor of a sleek new smartphone with a "retina display", or a new flatscreen TV, on which you can now watch a 3D golf tournament or a 3D NASCAR race.
As always with the tech sector, however, this trend is rewarding only the companies that can impress the most with their products. Witness the unhappy fate of Research in Motion, which makes the outdated BlackBerry, when the gadgets fail to glitter. It should also be noted that consumer 3D TV, which was introduced about three months ago along with 3D-capable Blu-ray players, has a long way to go before it makes up for the steep decline in the market for conventional flatscreens.
But US tech retailers such as Best Buy, which this month noted an improvement in demand for laptops, smartphones and appliances, are feeling more optimistic than they have in a long time. The sometimes illogical priority consumers give to buying new electronic toys in an economic downturn is not the only thing driving the good mood in the sector. There is also increasing evidence that large corporations the world over are starting to spend again on infrastructure, and IT infrastructure in particular. This kind of investment has been on hold since 2008, so there is a lot of catching up to do.
This explains the 13 per cent rise in sales at Oracle, excluding gains from recently acquired Sun Microsystems, which is now profitable. The computer maker Dell is expected to experience a similar increase in business because of the introduction of the well-received Windows 7 operating system. "An overdue client refresh [of hardware and software] among commercial and public customers is under way and we anticipate it will continue, and we will benefit from a strong cycle," was how Dell's chief financial officer, Brain Gladden, put it last week.
Perhaps most heartening for the infrastructure players, which also include Cisco Systems and Intel, is strong demand from clients in emerging markets, particularly China and India. But there is another, less obvious factor influencing demand: US government spending. While government contracting is generally expected to decline in the next five years, thanks to alarm over the US President Barack Obama's vast deficit, a report from the public sector research firm INPUT suggests the federal IT market will grow at a compound annual rate of 5.4 per cent to reach US$115 billion (Dh422.38bn) in 2015.
"There's no doubt that the administration will continue to push for cost-cutting measures," says the analyst John Slye. "However, the criticality of IT to government operations and priorities, as well as the gap in federal IT expertise, suggests that IT spending will continue with modest growth." All of which is good news for Wall Street investors, who have been alarmed lately by Mr Obama's seemingly anti-business outlook.
Fortunately for them, the president also happens to be a serious technology geek. [e-mail]