Tech companies feel slowdown

As domestic clients pull back, foreign demand is saving grace

The slowing U.S. economy is expected to take its toll on technology spending, which could hurt this region's tech sector.

No one expects a repeat of the last recession, when Triangle tech companies slashed thousands of jobs and scrapped expansion plans. But the latest cuts in corporate information-technology budgets are likely to ripple through the area, which is home to software developers, telecommunications-gear makers and other tech companies.

To weather the downturn, companies are relying increasingly on sales overseas. Solid growth in Asia, Latin America and other markets is expected to offset the U.S. downturn if the situation doesn't worsen dramatically.

But faster sales growth abroad has led a number of tech companies to move their resources, which likely means less hiring growth in the U.S.

"We are seeing some slippage in new projects," said Steve Maysonave, CEO of Relativity Technologies. The Raleigh-based company updates business software primarily for the financial sector, which is reeling from the subprime mortgage meltdown.

"Banks in particular are putting off noncritical investments and tightening the belts on budgets," Maysonave said.

Relativity has responded by trying to shift more business overseas and to attract insurance and health-care companies. Maysonave projects a solid first quarter but said the second and third may be more difficult. "We're conservative right now, because we don't know what is going to happen."

The same goes for executives at networking equipment maker Cisco Systems, which recently reduced its third-quarter outlook. The California company, which employs several thousand people in Research Triangle Park, cited slowdowns in spending on new networking gear in the United States and Europe.

That highlights economists' fear that sluggishness in the U.S. economy will spread overseas and cut critical foreign demand.

"If the U.S. consumer decides not to spend for six months, you better believe China is going to be hit hard," said Joel Naroff, an economic consultant in Holland, Pa. And that would further dampen IT spending.

Globally, spending on information technology is expected to increase 6 percent in 2008, down from a previous forecast of 9 percent, according to technology research firm Forrester, which cites a broad U.S. economic decline. The company, which revised its 2008 outlook last week, predicts that IT spending in the United States will increase 2.8 percent this year, down from a previous forecast of 4.6 percent.

Not like last recession

The recession seven years ago hit the Triangle particularly hard. Technology companies such as Nortel Networks cut thousands of local jobs and scaled back expansion plans. Smaller companies went bust, including online building-supplies company BuildNet.

Now, it's worldwide demand, not wild bets on Web ventures, that underpins growth in the tech sector. But that does not mean this region's tech industry is immune to a slowdown.

James Smith, chief economist for Parsec Financial Management in Asheville, agrees that the foundering U.S. economy and financial sector may weaken IT companies, particularly those dependent on banks and consumers.

"But the dramatic slowdown for tech is wildly overstated," Smith said. "I'm not hearing that from anyone in technology."

That's partly due to stronger IT spending overseas. There also could be a domestic boost from the federal economic stimulus plan signed by President Bush last week. That plan's business tax breaks could spur corporate spending through 2008, including for IT, Smith said.