By Robin Bloor

The sales of PCs, desktops and laptops, are in decline. It’s not a forecast, it’s a reality that didn’t begin when Mr Recession rapped smartly on the door and the stock market fell out of bed. The trend began a year ago (reported in surveys by ChangeWave Research.) There was no sudden decline in buying intentions in November following the nightmare on Wall St. The trend just stayed in place, indicating a drop of about 10 percent year-on-year in buying intentions. This trend will continue. It’s inevitable.

Unemployment is set to rise and that’s going to add to the inventory of desktops and laptops lined up for disposal on eBay, both from consumers and companies. The situation is further exacerbated by the fact that corporations currently aren’t inclined to upgrade their PCs just for the privilege of running Vista. One of the first calls I got after Wall St went deep sea diving was from a CEO who simply said that Vista was out of the question for a year. He’s thinking of skipping Vista completely and I’m sure he’s not alone.

The practical reality is that most budget decision in most organizations will be implemented round about now (January), so we don’t really know what the real damage to the PC market is yet, but the signs are not good.

The Economy

Let’s cut to the chase. There are some obvious trends that have already taken hold and which will inevitably persist. Economically, the contraction in the economy (worldwide) will not be reversed until sufficient government spending has actually been made to stimulate the deflationary trend. Reversing the current economic momentum (or lack of momentum, if you like) will not happen until the upside growth eliminates the downward momentum. This may not be an easy trick to pull off. There are unknowns and there are perils.

Here are some things to consider:

- The dominant world economy, if you think of it as an economic block, is actually Europe (with GDP greater than $17 trillion). The US is a little smaller (with GDP of $14 trillion). Taken together the two make up about 56% of the world GDP.

- While the European economy is larger, the US economy is more vibrant at the sunrise edge. It is just more entrepreneurial and hence capable (imho) of faster revival. We should expect the slump will be deeper in the US (because that’s where the collapse in values came from and where it’s deepest), but once it fires it will generate more momentum that Europe is capable of.

- The recovery will be politically driven. In the US there is resentment about “jobs being exported by major corporations.” Doesn’t matter whether it’s a fair opinion, because it’s a political fact. Therefore recovery is going to be all about US jobs. Reversing a dip in the GDP will be politically meaningless if it doesn’t generate US jobs. The jobless figure will be the metric by which President Obama will be measured.

- The last time the world economy got this bad, the major economies (they were empires mostly) went into a protectionist stance and raised import tariffs in the hope of keeping home markets healthy, but it just made matters worse. There were also rounds of competitive currency devaluations, which simply reinforced the slump. It’s a different world now, with a completely different economic foundation (no gold standard), but the tendency will be for countries to engage in similar activities to move the pain elsewhere. Remember that China has been artificially suppressing the value of its currency (by buying wagon loads of US Treasury Debt) to drive exports into the US. That game is probably over.

- This time, it looks to me like there will be little option for many countries but to print money in a big way, but in the end that’s not much different than competitive devaluation – although the trick is to drive down the value of the currency without driving capital away, and it’s no easy trick to pull off. The UK is currently seeing the value of its currency fall, but capital is flowing out.

The upshot of all this is that we can’t know how severe or long the recession will be, until we see whether the governments of the world, and particularly Europe and the US, choose to hang together or hang separately. The world is waiting on Obama.

The IT Consequences

As a rough figure, 50% of capital investment worldwide is in IT. As capital investment falls, so will IT spend. The dip in IT spend should, pretty much, mirror the dip in GDP in a country. In the last recession, the dotcom bust, IT had a bad time. The damage to IT was disproportionate, because the inflated dotcom values had translated into IT spend in a a disproportionate way.

On average, 10% of the IT spend in any country comes from government spending. Given that nowdays all the governments of the world understand the economic wisdom of John Maynard Keynes (the government isn’t just the lender of last resort, it’s the spender of last resort) IT spending may not dip as low as it might otherwise do. In particular, in the US Obama intends to:

- Invest in healthcare, especially in IT in healthcare. – Extend investment in the Internet

America also intends to restore regulatory sanity to Wall St and the banking industry, and that will probably mitigate in favor of IT spend to some degree. Put this together and it will alleviate some of the economic pain for the IT sector in the US – but not so much that the recession magically vanishes.

There is also what we can think of as a big psychological factor. Even if IT budgets hadn’t been cut at all, there’s an irreversible psychological impact from what has happened, which has flipped attitudes towards being cautious in purchasing anything. Having said that, it’s fairly easy to lay down a few inevitable consequent trends.

1. PC spend, as we’ve seen, was contracting before the economy leapt off the balcony. It will continue to do so. Vista upgrades will be deferred. The netbook will do well (it’s cheap but cheerless.)

2. This will be the year when Open Office makes a breakthrough.

3. There will be a trend towards more widespread use of open source products. Thus far its been mostly a bottom-up revolution. Now there is likely to be more “strategic adoption” of Open Source.

4. The trend to desktop virtualization will accelerate to some degree. Vendors of desktop virtualization technology will do better if they can minimize the capital spend involved and demonstrate quick ROI.

5. The trend to server virtualization will remain healthy as a means of forestalling increases elsewhere in data center costs.

6. The cloud will be dominate. Every vendor that can have a cloud offering will have one, whether it makes sense or not. It will be like Web Services/SOA. Everyone and his dog will be cloud-ready.

7. Mashups and mashup ecosystems will prosper. This is a trend in progress (Facebook and Twitter have both done well in this regard. They’ve become strong software ecosystems.)

8. Despite recent stirrings in the world of the semantic web, this is not the year of the semantic web. That (I believe) will require a resurgent economy.

9. Despite the costs involved, BI (from simple BI implementations to big BI projects with very large databases) will do reasonably well. There’s a gap here that needs to be filled and which complements SOA developments.

10. Despite the costs involved, service management software of all varieties will continue to sell well. As with the last point, there’s a gap here that needs to be filled and which complements SOA developments.

Robin Bloor, Founder Bloor Research, Partner Hurwitz & Associates, http://www.havemacwillblog.com/

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