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Saturday, August 14, 2004

Tech Rebound ? Not So Far Via Knowledge@wharton

Technology buyers hit the brakes toward the end of the second quarter 2004, and it's worth asking whether spending on software and hardware--not to mention capital spending overall--is being hampered by gun-shy corporate executives.Technology buyers in particular are clearly scared of being burned by previous software purchases that didn't operate as advertised and are finding other uses for their cash. They aren't the only ones. According to an analysis by BusinessWeek, the 374 industrialized companies in Standard & Poor's 500 Index are collectively holding $555.6 billion in cash and short-term investments--more than double the amount in 1999.According to Wharton marketing professor Peter Fader, recent history may make it easy for executives to put technology projects on the back burner. Fader says that so many companies were burned by overhyped software that they don’t hesitate to pull the plug on projects now. “Many CRM (customer relationship management) and ERP (enterprise resource planning) companies are looking just to make a sale,” says Fader. “And every one of them has made outrageous claims.”Fader says it is possible that the boom-time actions of software vendors are still coming back to haunt them, but that there also appears to be a demand slowdown.In his semiannual testimony, Greenspan said corporate America is holding back on new capital investment even though it’s clear the economic recovery is gaining steam. “We are far from behaving the way we typically did,” said Greenspan.
“Businesses' ability to boost output without adding appreciably to their workforces likely resulted from a backlog of unexploited capabilities for enhancing productivity with minimal capital investment, which was an apparent outgrowth of the capital goods boom of the 1990s,” said Greenspan. “Indeed, over much of the previous three years, managers had seemed to pursue every avenue to avoid new hiring despite rising business sales. Their hesitancy to assume risks and expand employment was accentuated and extended by the corporate accounting and governance scandals that surfaced in the aftermath of the decline in stock prices and also, of course, by the environment of heightened geopolitical tensions,” he added.“Even now, following the pattern of recent quarters, corporate investment in fixed capital and inventories apparently continues to fall short of cash flow. The protracted nature of this shortfall is unprecedented over the past three decades. Moreover, the proportion of temporary hires relative to total employment continues to rise, underscoring that business caution remains a feature of the economic landscape.”
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