General overview: Outlook for 2008
Outlook 2008: World economy is growing,
so are concerns about the US economy
Startling beginning of 2008
 What
a start we had in 2008! Falling stock prices in the US,
a panic reaction in Asia and Europe with still steeper decreases.
Problems in the financial sector, not only in the US but
also in the UK, Germany, Switzerland and France. Everybody
with its own scandal: what to think about Northern Rock
and what about Soc Gen the most surprising of all? There
is a strong suspicion that the steep fall of the shares
in Europe was mainly caused by a € 70B transaction
money that was moved around by Soc Gen in order to undo
certain 'future' positions. Nobody thought that could happen
within such reputable institutions. Even the Swiss Banks
are affected taking positions in the US housing market;
UBS announced huge losses and needs a 21Bn $ capital infusion
to keep its solvency ratios in the right brackets. Total
write downs of UBS since the beginning of the credit crises
were almost 37Bn $. What a disaster!
Recent news of the IMF tell us that they estimate the total
costs of the financial crises at one trillion (1000 Bn)
dollars! That is serious money! It is the worst crisis since
1929 is said.
Worsening situation in the US
The ailing US economy, together with misjudgement of the
housing market bubble and as a consequence of which a huge
lack of confidence in the financial world has caused a credit
crunch and all kinds of nasty side effects from which have
not seen the end. There is more bad news to come. The Central
Banks of the US, UK and the ECB are trying to create temporary
liquidity in the financial system as long as this severe
crisis carries on. The Fed is lowering interest rates; Europe
is probably to follow if current inflation can be  brought
down this year. We are at the brink of the sale of one of
the famous investment banks in the US namely Bear Sterns
to JP Morgan, because the bank needed an urgent infuse of
JPM. It is really serious! Now we know how the largest US
banks have performed in their Q1 ending at Feb. '08 (as
expected, last write offs taken), we could presume that
the end is in sight. But we don't know for sure. New rules
have to be written to enable more effective independent
oversight to prevent this to happen again, is the lesson
to be learned!
Situation regarding the world economy as a whole looks
favourable at first sight. World economy is growing (last
year > 5%) and similar percentages are expected this
year. Not bad at all. There is a vulnerable situation however
in the US caused by a series of already existing and new
problems. Older problems: shortage government budget, structural
trade deficit. New problems: falling housing prices, bad
mortgage backed loans.....credit crunch, inflationary pressures,
decreasing consumer spending. Economy is slowing down (already
below 1%), recession is looming and it seems uncertain if
a soft landing is possible. The US government has taken
measures to stimulate consumption to prevent worse. The
oil price is up again - even crossed $ 100 line and maintaining
an all time high level, minerals and food prices are also
sky rocketing. The colours at the boards at the Wall Street
stock exchange were red but ultimately also green again,
stock prices are recovering. The dollar has sunk in 2008
to above 1.50 to the euro and is still sliding. There is
still the problem of the US staggering trade deficit that
could also be mended partially by the lower dollar and by
increasing the value of the Chinese official currency which
the Chinese are refusing to do until now. The same goes
for the Japanese who had a bad start at the stock exchange
(Nikkei) this year. Asian markets are some kind of a rebound
now. They all want to keep  their
export pricing low in order to make their factories compete
at the maximum. Both Japan and especially China also depend
on the demand in the US; if the US sneezes they are catching
a cold. So there is a common ground to reach a solution
there which makes sense. A lower dollar makes US export
more attractive and could compensate. The US economy has
proven to be resilient in the past; the all mighty free
market mechanism will do the rest.
Europe in recession?
Europe is doing better, economic growth percentages are
up in almost all EU countries. However housing prices are
down in the UK and over the top in Spain. The pound sterling
has lowered considerably to the euro. Inflation is running
into 3% in the Euro zone according to last estimates and
wage increases are underway. Average growth rate in total
in continental Europe is expected to be around 2% conservatively
but slowing down in the second half of this year to 1,6
- 1,3% next year. The problems in the US will have its effect
on the situation here too. There is going to be a second
round regarding the bad loans and credit crunch effect.
Interest costs are rising since banks cannot source the
money as cheaply as in the past. Parity to the dollar is
point of concern and could affect European export position.
 The
German economic situation has improved however, the German
export machine is running at full speed, the employment
situation is improving, but growth percentage is expected
to be a little less this year since there is a dependency
on UK and US markets. Asia has its individual problems but
has the fastest growing potentials in its midst: India,
China with an enormous demand for almost everything and
can pay for that from its huge monetary reserves. Together
with several other emerging countries like i.e. Brazil and
Mexico they have definitively become an important driving
force for world economy and make us gradually less dependent
on what goes on in the US.
The rise of the large private equity firms together with
a shear unlimited access to cheep loans in the past has
also come to a standstill for the time being. The cheap
loans are not so easy to get any more. Several eye catching
transactions that were already announced had to be cancelled.
That gives strategic parties a better chance again. Also
this will stimulate IPO's and secondary listings again.
Amsterdam Euronext is expecting billions of new market capitalisations
but is waiting for the momentum. Most of the money is expected
from straight M&A transactions by strategic buyers however.
 A
new phenomenon is the rise of the state owned Investment
companies from China, Singapore and the Middle Eastern countries
that are loaded with cash. In view of lowering share prices
of major financial institutions, they are buying themselves
substantial stakes insuring also positions on board level.
They can be competitors of the large private equity firms
in a couple of years.
In resume we can say that though the world outlook is positive
looking at the economic fundamentals, but it will be difficult
to make stable projections for a longer term. The world
has become more vulnerable and therefore more volatile.
The corporate and world news of tomorrow determines the
sentiment of economic behaviour of individuals and enterprises
in the world tomorrow. Geopolitical tensions have not become
smaller, large disruptive incidents (Black Swans), wars
and other disasters (as a consequence of climate change?)
can influence the economic sentiment in the world. The movement
of the stock exchanges are also a reflection of that sentiment.
The psychological effect of uncertainty and risky situations
which cannot be measured easily makes the markets very unpredictable.
 What
we have seen until now that when there is something wrong
in the US, Asia's and Europe's stock markets are over reacting
which could reflect not only in stock prices but also in
overall spending of companies and consumers.
Outlook
Best estimate for 2008 is:
- The US is getting into a mild recession it seems, it
will take some time to swallow the heavy losses, reorganize,
recapitalize and recover in the financial world and absorb
the negative impact on the US economy in a broader sense
like on the housing market, higher unemployment and lesser
consumer spending.
- Europe is doing better, will experience a slowdown in
growth, but is not going to get into a recession.
- There is more bad news to come in H1 2008 in line what
we already experienced in the last weeks. At a certain
moment the negative effects are priced into the stock
prices. The Tech sector will be affected too as one of
the first as we observed in the fallen stock prices the
last months. That will gradually disappear in the course
of 2008 we predict and we will end 2008 with renewed continuous
growth if ........nothing disruptive happens.
- In spite of problems, IT sector still strong, major
ICT companies published healthy earnings, however earnings
outlook is slowing down as we could see Oracle not achieving
its revenue targets, down beat reports from chip suppliers
and Nokia tempering its guidance.
- Regarding M&A dynamics: Global M&A is tumbling
in the first quarter of 2008. Buyout firms led the collapse
in deals as their buying power evaporated and they saw
a 77 percent fall in acquisitions after 6 years' growth.
The credit crunch has dented banks' confidence in lending
to buyout firms, which rely on debt to achieve their returns.
Meantime slowing U.S. and European economies and volatile
markets are making corporate CEOs reluctant to take large
risks. The numbers come after a record year for M&A
in 2007. However the start of the credit crunch last summer
had already contributed to global M&A falling by more
than a quarter year-on-year in the second half. Europe
remained ahead of the U.S. in terms of deal volumes and
also better-weathered the downturn, with M&A falling
just 10 percent on the continent, compared with a 53 percent
fall-off in the U.S. Valuations of Peer Groups we follow
are down for the time being, under pressure of uncertainty
we see more ICT companies as sellers however. M&A
activity in ICT in 2008 may exceed 2007 in the mid market
segment and in new territories.
 ICT industry Europe
 We
have certainly witnessed a roller coaster year for the industry
in 2007 sustained by higher investments in ICT. 2008 will
be more of same compared to 2007 but a lesser year in terms
of growth. Many professional services companies have reached
their limits in trying to recruit and retain professionals.
The growth in ICT spending will be less especially in the
banking sector not only in the US but also here in Europe.
When we speak about Europe we distinguish the Euro zone
and Euro 27 (total Europe). Growth percentages for 2008
according to Eurostat are 2,2% and 2,4% respectively. Nothing
really alarming at first sight.
Europe's economy as a whole continues to grow; the balance
between east and west, north and south show some slight
change, but the tendency in the emerging states will continue
to be to close the gap, and sometimes that technology investment
enables them to leapfrog established, legacy systems in
the mature economies.
What to watch for in the coming years? One good indication
of consumer sentiment is the rate of mall building. This
has become a very visible feature on the skyline of countries
such as Turkey and Bulgaria. And in Russia, where the mall-building
movement shows how far out of Moscow the economic rewards
are reaching.
Another pointer is the levels of education and skills training
generally. So great will be the gap between demand and supply
of skilled people in the IT industry in five to 10 years
time, that only those companies and countries making plans
now will be able to continue their upward curve. Expect
more government-sponsored education programmes, and more
initiatives from forward-thinking businesses such as Cisco
with its academies. Watch also for the progress of the Schengen
agreement and similar national arrangements in opening borders
to skilled people. While causing pressure on national infrastructures,
Europe is opening up, and we expect more evidence of this
in 2008
Business trends & drivers are still:
- sourcing: in sourcing, outsourcing, out tasking, BPO.
- business IT alignment: implementation new technologies,
converging technologies (VoIP), portals, internet enabling,
migration legacy software, software integration.
- infra structure management and control: centralized
computing, hot items SOA, SaaS, security and storage from
data, fixed, and mobile assets.
- trendy multi media product getting more acceptance
in the retail channel are also pushed into the b2b environment.
- mobile working: is really taking off because hardware
and software providers are providing solutions that work
and are easy to operate.
- Convergence of IT and Telecom technology, is really
taking place. Fast and cheap broadband mobile internet
will available for many Europeans within short.
- compelling events that demand internal action within
corporations, change and adaptation such as Corp. Governance
regulations, IFRS, SOX, Security reasons etc.
A new element is the break 'through' of web based applications
driven by Google! Office applications, geo spatial .....and
what so ever....
 Despite
the predictions of many Microsoft is still driving PC and
server sales with Vista/ XP, the new collaboration software
(Share Point) and Xbox 350 consoles. 2007 has been an excellent
year for M/S with a healthy balance between business and
consumer sales. Mumblings of discontent in the channel already
suggest that some direct PC vendors are considering direct
sales; HP is already 'rightsizing' its disti channel and
others may follow suit. But direct sales may not yet be
the panacea that such big vendors hope; for almost all main
vendors the disti channel is still very important, even
Dell is planning alliances with retail stores in the US
and the UK.
The telecom operators are in turmoil and under pressure
to compete. There is a lot of innovation going on and to
be expected in converging technology offerings such as triple
play, mobile TV etc. Communications will really continue
to drive the reseller channel in 2008. IT resellers will
experiment more with advanced telephony solutions, VoIP
and other converged products. And the other big change in
this channel is the development of solution-based models
as products become more and more commoditised. This is happening
fast in the UK already and will accelerate in 2008. As communications
are so cheap now, the entire landscape having been fundamentally
altered by the advent of broadband, the market for solutions
as a service among end-users will grow too.
All telecom operators are active in the field acquiring
IT related service companies! Since they lack the expertise
and their networks are migrated into real ICT networks,
they have to bring the skills on board and adapt their business
models to the new situation. In the Benelux the most striking
example is of course the take over of Getronics by KPN.
 Consolidation
in the midsize ERP market has not come to an end yet. We
are waiting for Lawson's next big move after taking over
Intentia 3 years ago though Lawson is an acquisition target
itself; Sage's on going acquisition spree will not stop
either we expect. Infor has recently been active too. The
enterprise resource planning (or EA) market is entering
a major technology transition phase in which service oriented
architectures are likely to transform the technology as
profoundly as the emergence of client-server systems in
the 1990s. One of the shining examples of how to succeed
there is salesforce.com, who is taking market share from
established parties like Siebel. Others, under which big
boys like SAP, are about to react.
Market analysts expect the top five vendors in 2007 (SAP,
Oracle, Sage Group, Microsoft and Infor) to account for
approx. 70 per cent of ERP vendors' total revenue."
The ERP market showed solid organic growth in the last years
as IT spending improved," the same market analysts
declared.
"The market was also affected by consolidation within
the segment, as well as ERP vendors acquiring best-of-breed
players to broaden their portfolios." The M&A surge
in the mid market ERP world is not over yet. We predict
that several smaller independent continental European players
that have strong niche positions like Unit4Agresso, Cegid,
Exact are going to move forward. Exact is apparently in
a process to delist and be bought by Private Equity, U4A
has announced a bidding on CODA for more then € 200m
emptying its war chest in order to get nearer the 500M limit
which is the minimum size to stay out of the hands of Private
Equity and Hedge Funds.
 The
strength of Indian IT services and software players in Europe
will grow, although they now face stiff competition from
local players, particularly in CEE, where the outsourcing
market is developing fast. This means the battle for IT
talent, which has been brewing for years, will really explode.
Expect to see high-level head-hunting but also increased
M&A activity of the Indian IT companies. The latest
rumour was that Cap Gemini, the listed French management
consulting and IT services group could be in talks with
Wipro.
And on the back of last year's acquisition frenzy driven
by IBM and HP's software divisions, other business software
vendors are being forced to bulk up in response. More brides
will be dressed. What about the rumours that Atos was to
be taken over by a group of Investment Funds (Pardus and
Centaurus) holding more then 20% of the shares already and
substantial voting rights?
Meanwhile, ISVs will take a more important role in the
verticalisation and software provisioning for specific technologies.
Microsoft Business Solutions is at the forefront of this
move with its Dynamics product suite, and will continue
to drive its European ISV community to new heights in 2008.
Watch out for similar initiatives from other players.
Over in Central Eastern Europe (CEE), the software development
sector will be a key area, showing the importance of how
the right applications can be useful to businesses of all
shapes and sizes. And they'll need to appeal to all levels
of the end-user organisations; it isn't just the IT guys
making the decisions anymore, it's CIOs and CFOs, too.
 The
big news is that Bulgaria and Romania are now fully signed-up
EU members, bringing huge changes to both countries' channels.
A survey of the Romanian market a year ago showed massive
growth, particularly in software development and outsourced
services, but things could get tough, particularly as the
talent wars go nuclear. Bulgaria, on the other hand, faces
more fundamental difficulties, such as allegations of corruption.
But even so, the Bulgarian market has huge untapped (and
compelling) potential. Across CEE, the rush towards maturity
will continue, with Poland and the Czech Republic leading
the charge. As always, expect big things from the Russian
bear, too.
Down in southern Europe, we're in a waiting mode on a resumption
of healthy growth in the Spanish market. Spain is wrestling
with a down turn of the housing market and high inflationary
pressures. But could we see a turnaround in the turbulent
Greek and Italian markets? We certainly expect movement
from Italian telecom players, their acquisition drive isn't
over yet.
Finally, Western Europe and the Nordics will see more and
more solution-driven business in 2008. Consolidation in
the crowded Nordic disti channel will continue as the markets
remain crowded. We expect shifts in the landscape of these
mature markets, but predict that very few, if any of them,
will be seismic, channel-shattering events.
IT Spending
 Just
a little bit of history repeating itself? For the European
IT services industry, 2007 was the best year for technology
spending since 2000. Unfortunately, the recent fall of share
prices suggests that the slump of 2001 is due an encore
as well.
Company protestations that they are yet to see a slowdown
do not help. IT consultants tend to discover spending plans
have changed when customers mention that they won't be signing
that deal next week after all. Business confidence is what
powers investment in IT projects, so a hiatus in spending
seems likely for at least the next quarter or so. Banks
under pressure to cut costs are already starting to put
plans on hold. Over the past year, surveys of corporate
intentions have shown that a declining proportion of budgets
is expected to grow.
The downturn is unlikely to be as bad as last time. Unlike
the pre- millennial binge, investment in IT has not been
ramped up excessively. Technology spending as a proportion
of global gross domestic product was still below trend levels
last year. Both Atos Origin and Cap Gemini already have
big reorganisations under way to improve margins.
However, a structural threat lurks that could temper the
eventual upswing: Indian competitors. They have a three-to-one
cost advantage, but it is an oversimplification to attribute
their success simply to low pricing. Their expertise is
comparable to the Europeans - indeed Infosys can trumpet
a higher level of skill in software development. And their
managements have proved they can scale up rapidly without
significant hiccups while taking business from the European
incumbents.
It will take time to build a presence in the high-end consulting
market that produces valuable referrals, but the direction
is clear. With shares in the Indian-listed companies also
suffering significant falls since the credit crunch began,
they may be a better place to invest when thoughts eventually
turn to a recovery.
 Growth
in global technology spending will slow this year, hurt
by a U.S. economic downturn that could crimp spending on
computer hardware, research firm IDC said in a report with
predictions for 2008.
IDC estimates worldwide technology spending growth to range
between 5.5 percent and 6 percent in 2008, down from about
7 percent in 2007. U.S. spending growth will dip to 3 percent
to 4 percent this year from 6.6 percent in 2007, IDC said.
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