With "boom year" 1997 under its belt, the Irish technology industry is smacking its lips as it anticipates another year of record growth. The indicators are favourable in both the electronics and software sectors.

Employing 33,000 and 17,000 people respectively, the two sectors now account for 30-40 per cent of Ireland's exports and look set to become even more central to Ireland's economic performance in 1998.

The electronics industry has been growing rapidly, with employment rising by 5,000 per annum. Mr Frank Ryan, head of electronics at the IDA, predicts that growth will continue. The multinational side of the industry is performing strongly, with major companies like Intel, Hewlett-Packard, Motorola and IBM making a major contribution. HewlettPackard, for example, took on 600 people in 1997 alone.

"The companies which have proven themselves to be most competitive are the ones who have produced a series of generations of technology products. They don't rest on their laurels. In the electronics area you earn your living every day it is a very volatile sector," says Mr Ryan.

This is best evidenced by an annual 3-4 per cent loss of jobs, the recent Seagate closure in Clonmel and the cloud of doubt currently surrounding the future of computer company, AST, in Limerick. Both of these companies have come up against shrinking market share caused by low-cost manufacturing companies opening up in the Far East, and a fall-off in demand in Europe, the Middle East and Africa.

The industry is reluctant to identify these developments as an emerging trend, and points instead to the close ties between electronics and the law of the marketplace. IDA Ireland has witnessed companies engaging in a wide range of activities here, and establishing strong, well-diversified positions.

By establishing a critical mass of operations research and development, marketing facilities the running of the business becomes inextricably linked to Ireland. Companies like 3Com, Bay Networks, Fore Systems and Kingston Technology are expected to lead the field in this area again in 1998.

Meanwhile, Irish-owned technology companies are also performing well. The number of indigenous electronics companies receiving project approvals and undergoing expansion is accelerating. With employment growing at between 800 and 1,000 jobs annually, at least six Irish companies are expected to go for a stock market listing this year. Front runners for a DCM/AIM or Nasdaq listing include Lake Communications, Trintech, Datalex, Raidtec, MDS, Machine Vision, Eurologic and Europlex.

Telecommunications companies will tend towards a DCM/AIM listing as their market is very different to that of the US, while companies that need to develop a US market base are more likely to choose a Nasdaq listing. However, Ms Patricia McLister, divisional manager of electronic engineering at Forbairt predicts a change in the drive towards the Nasdaq listing.

"The DCM/AIM markets have become more user friendly for high-tech stocks which have previously been viewed as very high risk. That attitude is changing, and I think we will see a shift, with companies possibly going for both markets," Ms McLister says.

Emerging sectors within the indigenous electronics industry, developing high levels of expertise globally, include the auto vision, control systems and optoelectronics fields. In these sectors the average research and development for a growing firm spend would be high, with third-level graduates accounting for more than 50 per cent of the workforce.

Ms McLister notes: "These companies are raising a lot of capital, and as well as initial public offerings they will make significant global acquisitions. They will go on to be the next Ionas and CBTs."

Employment in the software sector grew by 5,000 this year to a total of 17,000. With year on year growth running at 15 per cent, feedback to Forbairt suggests that the current target of 20,000 jobs by 2000 will be exceeded this year. An average of 40-50 companies started up last year, of these, only a few will go on to emulate the success of Iona Technologies or CBT Systems. However, Euristix, Baltimore Technologies, Card Services International and WBT Systems are heavily tipped as the next tier of companies establishing a global presence with a view to a stock market listing.

"The Irish software industry is increasingly characterised by business-to-business products. The maturity of the industry is evident, with the UK no longer seen as the traditional export route. This year, exports to the US will grow faster than elsewhere. Clear sub-sectors are now emerging which include telecommunications, financial services, education and training areas. Though multimedia and the Internet are still a bit muddled up," says Ms Jennifer Condon, head of the National Software Directorate.

As the market becomes increasingly demanding it will be crucial to provide customers with a competitive edge, according to Ms Mary Cryan, director of the Irish Software Association. "Companies will have to start tying in their customers now don't take anything for granted. Software components based on object technology will become a serious reality because they are more reusable. Also, software should be developing application deployment technologies which support the network environment," she says.

So how are these companies funding themselves? With difficulty it seems, but recent successes at Iona and BCO Technologies have aroused the interest of venture capital companies. New seed and venture capital schemes have reduced the threshold for entry allowing lower investments in the region of 100,000 but assistance only seems to arrive after the technology has proven itself.

Venture capital companies will only step in to invest in the marketing of the product, though the potential of technology for high returns is evident in increased activity. This year Smurfit Venture Investments made nine investments, five of which were in the technology sector. Next year, Mr John McInerney, chief executive of Smurfit Venture Investments, predicts a significant increase in these numbers, with the bias towards technology remaining.

"The trend will continue to aid marketing and not start-ups unless the fees to venture capital companies are increased to manage a start-up. We would be interested in getting involved at the start, but until there is a change in fee structure we can't consider it," says Mr Maurice McHenry, managing director of the ICC software fund.

"Venture capital companies will only target blue-chip clients with a proven product, an excellent management team and money in the bank then they will rush to you with funding," says Ms Cryan.

For this reason, the Irish Software Association is looking into developing a formalised structure to get successful IT companies to reinvest in the industry at a risk capital stage. This could help counter the affect on the Business Expansion Scheme (BES) of a total investment limit of 250,000, which was introduced in the recent budget.

The skills shortage problem is endemic in the technology sector, and is cited in every quarter as an area of serious concern. It is widely accepted the recently announced £250 million Education Technology Investment Fund, and the 40 million schools IT programme will go a long way towards alleviating the problem, but only in the long term.

In the shorter term, many companies are starting to recruit from Eastern Europe. The problem will also lead to spiralling cost bases for companies as they compete for staff on price. In the last three to four years, salary costs in software companies have risen from 15-30 per cent of total costs.

"Funding universities takes four years to produce results. In the meantime we need to work on accelerating the upgrading of skills within companies. Creating career progression within the sector makes it more progressive and attractive to work in," says Ms McLister.

The Year 2000 and Economic and Monetary Union (EMU) will present major technology headaches for many companies this year. These issues will impact on all sectors of the economy, and those who have not prepared themselves at this stage have a great deal of catching up to do. A recent survey conducted by PA Consulting Group, found that only 16 per cent of smaller organisations have a millennium programme in place.

"The SME sector currently is a major employer and focus for growth. Going forward we must question the management competence, levels of dependency on external IT service providers and business planning in the sector. Once the millennium problem hits their systems, the business impact could be horrendous," says Mr Ray Nulty, PA's practice head in Ireland.

Similarly EMU awareness needs to be heightened, as many business will have to completely overhaul general ledger, accounts receivable and accounts payable applications when cashless transactions are introduced on January 1st, 1999.