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Monday, December 29, 2008

Tech Chiefs See Bright Pockets

As posted by: Wall Street Journal

The technology industry was dominated this year by the question of whether businesses and consumers would scale back their tech spending. Now that it's clear they are cutting back, the question for 2009 is how that fallout will affect tech companies.

Corporate tech chiefs, analysts and others say they see several likely effects next year. While the spending slowdown is expected to hit many technology categories, some pockets of tech -- such as online software, mobile applications and security -- may see increased investment and attention, they say. And unlike in previous years, the industry is likely to see fewer big mergers and acquisitions, they add.

Overall, "there will be a lot more caution and businesses will invest [in tech] more selectively" in 2009, says Michele Pelino, an analyst at Forrester Research.

In particular, online software, which businesses access over the Internet instead of installing on tech equipment they operate themselves, is expected to gain attention since it can save money and help productivity. While some corporate tech chiefs had been reluctant to embrace the online software model, and online software accounts for less than 10% of software sales, the slumping economy now has many businesses looking at the category for the first time.

Microsoft Corp. recently launched a set of online services to capitalize on such sentiment. And another online-software naysayer, Oracle Corp.'s Chief Executive Larry Ellison, is changing his tune. Mr. Ellison, who long argued that companies can't make money selling online software, last week touted his company's online offerings in a call with Wall Street analysts.

Mobile technology has also been a growing priority for businesses for the last few years, says Forrester's Ms. Pelino. Next year, "we're expecting to see a lot of mobile applications intended to increase productivity," she says. People already have mobile devices like Apple Inc.'s iPhone or Research in Motion Ltd.'s BlackBerry, and "now they want to use these devices for different enterprise purposes," she says.

Adoption will likely be helped by Apple, which created a market for software that runs on mobile devices in 2008 with its App Store. Under Apple's model, outside parties write the software and either sell it or make it available for free through the online store, which now has more than 300 apps targeting workers. RIM also intends to launch a store for software that runs on BlackBerrys early next year.

Businesses are also expected to spend on security, especially as the number of computer viruses and other malicious software hit an all-time high in 2008.

The economic downturn is heightening cyber security problems. Phishing attacks -- emails that pretend to be from banks or some other legitimate source -- are growing in sophistication. Cyber criminals capitalized on the collapse of several financial institutions this year by sending emails claiming that customers of failed banks needed to log on to a Web site and update their account information. The Web sites were really controlled by cyber criminals.

Tech mergers and acquisitions are also expected to slow down. While this year was highlighted by major deals like Oracle's purchase of BEA Systems Inc. and Microsoft's failed bid for Yahoo Inc., the economy is likely to discourage any big transactions next year, as companies won't want to sell at today's valuations and buyers won't pay the six-months-ago price.

Cash-strapped companies looking for a lifeline could get snapped up on the cheap. But Sarah Friar, an analyst at Goldman Sachs, says the market shouldn't expect to see the major consolidation that has marked the tech industry for the last few years until the economy bottoms out.