Signs point to a recovery in much-maligned tech sector

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The tech sector is making a comeback. Company stock prices have risen slightly, quarterly earnings are showing signs of improvement and tentative indications are that the economy is lurching toward recovery.

Corporate spending on information technology is projected to grow 4% in the U.S. in 2004 though it will remain flat this year at $370 billion, according to tech researcher IDC. Tech companies that only a year ago slashed ad and marketing budgets are poised to spend again as corporations begin to upgrade their infrastructure with new hardware, services and software. Industry analysts cite new momentum in the software category , which will require advertising and marketing support.

brand comeback

Brand marketing is making a comeback: "There is increased focus on clarifying and communicating corporate positioning, and on building corporate brand awareness in efforts to boost or rebuild corporate images which may have been tarnished in the downturn," said Rich Vancil, VP-technology marketing research, IDC.

A report issued by Goldman Sachs earlier this month also pointed to an upturn, projecting a 3.5% increase in corporate tech spending in 2004. The report, which surveyed 100 information technology managers at Fortune 1000 companies, indicated that 2003 spending is likely to be flat, though 24% of respondents said they thought spending would rise in the second half of the year.

Microsoft Corp. CEO Steve Ballmer said recently that increased competition from IBM Corp. and Hewlett-Packard Co. in the server software market, and an intense focus on software sales to small- and medium-sized businesses and overseas markets, will necessitate increased spending on advertising and marketing.

A spokesman for Microsoft said the software giant has increased net spending on marketing for its fiscal year 2004, which began July 1, though he declined to specify the percentage increase. Microsoft recently reported spending $2.1 billion in sales and marketing expenses globally for the quarter ending June 30, up from $1.5 billion for the same a year ago.

On the consumer side, wireless service providers including Verizon Wireless, Cingular Wireless and AT&T Wireless are expected to increase their ad and marketing spending in the fourth quarter in an effort to retain subscribers in advance of the wireless portability rule which goes into effect in November, which will allow consumers to take their wireless number with them if they choose to defect to another carrier. So far this year, wireless and telecom sector reviews have been abundant; most recently, AT&T Wireless' $115 million brand account shifted to Omnicom Group's Goodby, Silverstein & Partners, San Francisco, without a review.

"We're clearly seeing more business in the tech sector," said Russel Wohlwerth, principal, Select Resources International, West Hollywood, Calif. Select is in the process of conducting three tech reviews-Veritas Software Corp.'s media, direct marketing for Microsoft's MSN and Broadcom Corp.

Some signs of distress remain in tech-land: Siebel Systems last month announced it will cut 9% of its staff or 490 positions, due to weak sales and eight consecutive quarters of revenue losses. Sun Microsystems also reported dismal earnings-$12 million or 80% lower for the quarter as it competes with lower-cost servers from Hewlett-Packard and IBM.

contributing: bradley johnson

Fast Facts

$370 billion: amount of corporate spending on technology in 2003 *

4: percentage by which corporate tech spending is expected to grow in 2004 *

24: percentage of Fortune1000 information technology managers who believe spending will rise in the second half of 2003 **

Source: * IDC Research; **Goldman Sachs

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