CFOs Cautious About RecoveryBy Samuel Greengard | Posted 2012-05-15 Email Print
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The lingering effects of the global downturn persist, and tech CFOs are sending mixed signals about the months ahead.
By Samuel Greengard
The Great Recession, along with radical changes in technology, has forced companies to significantly alter the way they approach business. It has left many organizations timid about making necessary investments and grappling with an array of process changes.
Not surprisingly, a recent GE Middle-Market CFO Survey found that the lingering effects of the global downturn persist, and tech CFOs are sending mixed signals about the months ahead.
GE Capital found that tech CFOs are increasingly "optimistic about the current state of their own industry and the U.S. economy, but they're significantly more pessimistic about the global economy,” states Michael Zimm, senior technology and business analyst with GE Capital's commercial lending and leasing business. Just over one-third of respondents (35 percent) expect their industry to expand over the next 12 months. The figure dropped by one point from the third quarter of 2011.
Altogether, 61 percent of CFOs anticipate greater revenue in 2012 compared with 2011, while 24 percent expect revenue to remain flat. Meanwhile, 46 percent expect profit margins to remain stable this year, up 13 points from the third quarter. Those expecting greater profitability shrank from 38 percent in 2011 to 33 percent in 2012.
In addition, among the nearly 500 CFOs surveyed across all industries, 51 percent expect their corporate IT spending budgets to remain the same this year, up 8 points from the third quarter of 2011. Thirty-nine percent expect an increase, down 9 points from the previous survey. And 8 percent expect a decrease, a figure that's unchanged from the previous survey.
These numbers are revealing, Zimm says: "While IT vendors feel that the U.S. economy may have hit bottom, the fact that many of their customers are global in nature" is significant. Many are "wrestling with still unresolved global macro and geopolitical issues. This means that any recovery in the IT spending environment is likely to be a slow and uneven grind, rather than a quickly rising tide that lifts all boats."
Over the past six months, business conditions and the outlook for midmarket technology and business service companies have mirrored the improvements in most domestic macro indicators, he notes. And while IT spending in the U.S. and abroad should approximate 1 ½ to 2 times GDP growth, these and other projections could change. That's because "unresolved sovereign debt and other geopolitical issues are a threat to a still-modest and arguably fragile macro recovery and, likewise, discretionary IT spending."
Zimm finds it somewhat surprising that sentiment among CFOs at small and midsize IT vendors was not more positive. He posits that smaller IT vendors may be a lagging indicator of the economic recovery.
The industries most likely to increase IT spending are health care (54 percent of respondents) and retail (48 percent). These areas "may present opportunities for tech companies that are looking to prospect for new business in those verticals," he concludes.