Bright future for IT but hurdles remain

An upturn is under way but a strong euro and competition from low-cost regions may hinder job creation, writes Jamie Smyth, Technology Reporter

A stubborn three-year downturn in the technology sector came to an abrupt halt this year and many analysts forecast a steady performance during 2004.

Surveys by international consultants Gartner and IDC suggest single-digit increases in IT spending next year as companies look to replace outdated equipment to boost productivity.

And a 45 per cent increase in the value of the technology-laden Nasdaq index this year reflects a succession of strong results produced by technology firms as order books fill up and investors predict an economic turnaround.

Some multinationals based in the Republic have already seen demand in certain technology sectors increase significantly.

Dell, which last year overtook Microsoft as the State's biggest revenue-generating technology firm, experienced huge growth in 2003 as the firm diversified into selling computer peripherals.

The company's exports from the Republic in 2003 were worth more than €8 billion, similar to the combined value of the tourism and agricultural sectors.

"There was a double-digit decline in computer sales in 2002 and a a double-digit increase in sales during 2003," according to Mr Tim McCarthy, general manager, Dell Ireland.

"Arguably this brings it back to 2001 levels but it does support the thesis that the downturn has now bottomed out."

Dell has seen huge growth in notebook sales as more companies install wireless networks in their offices and Wi-Fi hotspots are rolled out across Europe.

Similarly, technology industry bellwether Intel, which employs about 3,600 people in the Republic, recently raised its forecasts for 2004 on strong demand for computer chips. This is a hugely positive signal for the industry as a whole as semiconductors are the building blocks for most types of computer and telecommunications equipment.

However, increased sales for many of the big multinationals in the Republic did not translate into net job additions during 2003. IDA Ireland and Enterprise Ireland will both record net job losses this year among their client firms, underscored by several closures such as 3Com's manufacturing operation in Dublin.

This trend was mirrored in the US, where recruitment consultants Challenger, Gray and Christmas, said there were 146,000 job losses in the IT sector this year.

This has caused several US commentators to talk about a "jobless recovery" during 2003, a situation that seems to mirror the position in the Republic, which is very exposed to the US market.

But there are signs of a recovery in employment within the Irish technology sector and Goodbody Stockbrokers predicts that 2004 will see net job gains rather than losses for the first time in several years.

"The technology industry has now passed its inflection point and should grow in 2004," according to Mr Gerry Hennigan, technology analyst with Goodbody.

Indeed, some recruitment firms specialising in technology are already recording a major uptick in activity as companies hire contractors and permanent staff to meet increased demand.

Ms Nessa Butler, managing director of Rescon, says there has been a big increase in jobs advertised since the middle of the year, which has heated up in the final quarter of the year.

"Hiring freezes have been lifted at about 50 per cent of the multinational firms that we have as clients and there are signs that bonuses are again being paid to staff in the technology sector," Ms Butler said. "There is a definite sign that companies are winning business and taking on more people."

But while the overall picture is bright for the Irish technology sector, there are a few crucial challenges on the horizon for 2004.

Goodbody singles out the steady rise in the value of the dollar versus the euro as a specific weakness that many Irish firms will face during the year.

Indigenous software firms often sell their products in dollars in the US marketplace yet have to incur costs in euro as they are based in the Republic. This could undermine their 2004 sales figures and hurt their ability to turn a profit, which remains a crucial goal for smaller firms in the technology sector.

Meanwhile, if the cost of doing business in the Republic continues to increase in 2004 as it has over the past three years, multinationals will be tempted to shift operations to other states.

During 2004, the Republic is likely to face tough competition from eastern Europe as several states become members of the European Union. It will also face competition from China and India.

However, overall business sentiment in the technology industry is improving and new jobs should be created if the US economy continues to rebound in 2004.