10 Ways the Financial Meltdown Impacts Technology Companies

Can the problems impacting the financial sector impact technology companies? You bet they can!

We know there is a credit crunch and that the economy is slowing. This is translating into falling revenues and a drop in new orders. Tech company management is hunkering down. So are consumers. IT budgets are stagnant or falling and cost cutting will be the order of the day. Below we look at some specific ways that the tech sector will be reacting to this situation.

Surprisingly, there are some impacts that may turn out to be net positive for certain tech companies. As expected, though, there are also some seriously negative impacts.

1. Increase in cloud computing - Companies may look to avoid buying data center equipment and will instead look for a "pay-as-you-go" model. Beneficiaries Amazon (AMZN), Google (GOOG), eventually Microsoft (MSFT)

2. Increase in usage of open source products - Generally cheaper to acquire and implement than the licensed products from vendors like Microsoft and Oracle (ORCL), we may see an increase in the adoption rate of Linux operating systems, Apache web server software, Google Docs ... Beneficiaries could be Red Hat (RHT), Google or Citrix (CTXS) who now owns open source virtualization vendor XenSource

3. Industry Consolidation - Those companies with money will acquire companies with good technology who are suffering due to this crisis. With financing difficult and expensive, those companies sitting on plenty of cash will be able to out-maneuver their competitors. Think of Oracle and Microsoft scooping up more software companies on the cheap. Intel (INTC) and IBM also have the heft to be players here.

4. Integration - Consolidation among tech companies and in the financial sector will increase the need for system integration services and software. This could benefit big consulting companies like Accenture (ACN) and the HP/EDS (HPQ) combination, for example. Also some of the software companies specializing in products that tie systems together like Informatica (INFA) and Pervasive Software (PVSW).

5. Cost cutting is in - Look for more emphasis on virtualization in an effort to reduce data center costs. Beneficiaries are VMWare (VMW), Citrix.

6. Investing - Angel investors and venture capital firms will have more opportunities to invest in up-and-coming young companies as these entrepreneurs are turned down for bank financing.

7. Software-as-a-service (SAAS) may become more attractive. With this model, the initial investment to get up and running on a particular software application tends to be much less than it would be if a company were purchasing and installing the full licensed application in their own data center. Look for Salesforce.com (CRM) and Concur (CNQR) to maintain leadership positions through this downturn (if not high stock prices) and perhaps even NetSuite (N) will at least hold its own.

8. Hardware spending delayed - Expect server sales to decrease as businesses put off spending on new equipment and focus on consolidating servers through virtualization. Who gets hurt: Sun (JAVA), HP (HPQ), Dell (DELL), maybe IBM. Big telecom suppliers are feeling the pressure in their sector: Nortel (NT), Alcatel-Lucent (ALU) reporting losses though Cisco (CSCO) seems relatively solid at this point. And with the consolidation mentioned above, it is quite possible redundant systems will be decommissioned, leaving surplus hardware and further reducing demand.

9. Consumers cut back - Worried consumers may decide they can do without the latest gadgets. This will hurt the semiconductor stocks as more than half of all semiconductors find their way into consumer electronics. The semiconductor equipment stocks, currently deep in the doldrums, will find their bear streak extended. High-flying gadget stocks like Apple (AAPL) and Blackberry producer Research in Motion (RIMM) may likewise see their growth curtailed. Who really needs a new TV? Makers of LCD panels for TVs are already seeing growth slow - think Corning (GLW).

10. The weak get weaker - Financing is something all companies need whether it is for growth, carrying inventory or making payroll. With lending tight, credit lines being reduced and banks reeling, tech companies won't be the only ones feeling the effects of this credit crunch. But for those tech companies teetering on the edge, this kind of environment could be enough to push them into bankruptcy or into the arms of a suitor. Think of AMD (AMD) and Micron Technology (MU), both reporting big losses, seeing their stocks crushed and facing an uncertain future. Where do they go from here?

In summary, today's environment will provide opportunities for some companies and serious challenges for others. As tech investors, the 10 factors listed here should be kept in mind as we tiptoe through this bear market minefield.

Outsourcing has proven to be the remedy. Indian companies will flourish amid our collapse.

That's a f*****g joke. The turnover rate among Indian outsourcing firms is astronomical.

Offshore, they can't keep trained people in place; they go out and get better-paying jobs with another company, which leaves the original company in the position of having to train replacements.

They're not all, but are mostly script readers who know about 1/100th of what I do. And I don't care where the person on the other end of the phone is located; what I DO care about is whether they know what the F they're doing.

(I've been in the biz for almost twenty years, and, believe me, my employer knows enough about what we do (look up "mission-critical computing") to where they wouldn't dream of outsourcing us.

They see what happens to the quality of support whe nyou outsource because they did that to most of our desktop support.

And EVERYBODY in the company, from the top down knows from personal experience how badly the firm doing it is screwing the pooch.

And the systems my team manages are the core of our company's survival. We're about 20 percent through a multi-year migration to a newer generation of servers that run the same OS as our older ones.

And we're spending millions of dollars to do it. (We'll save more than we spend, but I won't bore you with the details.)

And, to make my position doubly secure, I do both system management and hardware (cluster design, build, setup, diagnostics, maintenance-- on our team I am known as Dr. Crashdump), and you can't fix hardware from fifteen thousand miles away.

Somebody with specific knowledge has to turn the screws.

We dont' even INTERVIEW people unless they have at least ten years of mission-critical under their belt.

We dont' even INTERVIEW people unless they have at least ten years of mission-critical under their belt.

Want my resume?

“7. Software-as-a-service (SAAS) may become more attractive. With this model, the initial investment to get up and running on a particular software application tends to be much less than it would be if a company were purchasing and installing the full licensed application in their own data center. Look for Salesforce.com (CRM) and Concur (CNQR) to maintain leadership positions through this downturn (if not high stock prices) and perhaps even NetSuite (N) will at least hold its own.”

My company is one of the big players here and almost all of our R&D programming has gone over to India. They have even started replacing the American liaison programmers with Indians, to cut down on miscommunication. Recently an Indian was added to the DBA team to work as the night shift DBA. His English is atrocious. So communicating with him about database issue is such fun! /s

On the other points on the article. We had already been doing the Citrix/Terminal Server thing with IBM/Oracle backend. The Citrix Servers run off of new Dell (eck!) multiple dual core processors with VMware ESX Server running ontop. So our Windows Server footprint has shrunk. Our IBM footprint has shrunk as well, by replacing the aging RS/6000s with a humongous PServer to run all the databases. So our DataCenter is getting a little empty. I would think cloud computing would start looking good for us, but Medicare would poo poo on that due to their arcane views on security. So all our other non government customers get held hostage based on what Medicare thinks is best.

Another observation on point number 7. No, this economic downturn is not helping us at all. It is hurting us pretty bad. Our model is based on companies that are getting started in the insurance industry. If nobody is going to be opening new businesses then how do we benefit? The big insurance companies with their own in house IT departments and owned or self created applications are not going to need us either. So I don’t know were this author is coming from on this.

So I don’t know were this author is coming from on this.

He is nested in some government related development center. They are immune to the real world, at least until the tax base erodes far enough to make DOD work a thing of the past.

We won't have our place in the sun in the near future, but China and India will be doing well. I've already seen Indian-owned companies turning out state of the art telephone equipment, while the products from American owned companies are second rate. The best Indians are now gravitating toward Indian-owned companies while the dregs remain in those that "support" American companies.

The ostrich view of those slopping from the government trough has resulting in the downturn we now enter. I suspect it will be permanent.

Which planet are you on? I have 36 years of realtime experience, and was dumped for the "over there guys". Nobody is interesting in interviewing me, I suppose becaue I am 59. I have extensive experience with VRTX, pSOS, NUCLEUS, and three I wrote myself. My entry in this trade started with processing Skylab down-link frames. I can even design electronics and lay out circuit boards. I'm so-so with analog, useless designing RF circuits. I write excellent documentation, and know how to get things done on time.
Want my resume?

Even at your age, there are lots of companies out there still looking for people with your skills.

Here's the caveat -- THESE COMPANIES MIGHT NOT BE LOCATED IN THE PLACE WHERE YOU LIVE.

When I was unemployed for a while in New York City, I posted my resume on Monster, Careebuilder and Hotjobs. I had lots of calls from recruiters and HR people. Unfortunately most of them were from places like Texas and Alabama. With my family in NY, I just can't quit and move like that.

Bottom line is this --- there are jobs out there. The problem is this is a big country and most of us are too tied down with our locational roots ( especially when you are in your 50's ) that when the opportunity is there, you can't just accept it.

Oh yeah, it took me 10 months to find another job. I took it at a lower salary than my previous one. But looking back, I'd have been working almost immediately if I was willing to relocate.

I suspect many of the auto workers in Michigan for instance would have the same problem as me. The South has a lot of auto related jobs, but how many of these Northerners are willing to uproot themselves to move ?

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