Home US Tech Sector Growth Slowed Significantly in 2008

US Tech Sector Growth Slowed Significantly in 2008

According to data released earlier this month by the US Census, the growth of the nation’s software and IT tech sectors dramatically slowed in 2008 – the first such drop since the dot-com crash. Overall, revenue still grew, just at a slower rate – 7.7% – than in 2007 when growth hit 13.2%. The 2008 numbers (PDF) are the agency’s most current figures, and they reveal an industry that earned significantly less on design and development work than it did just a year before. Revenue growth from other services, as well as exports, also slowed.

At least one industry analyst says that, based on anecdotal evidence, the Census numbers are too low. But others say that it was clear that many sectors were changing their spending habits and feeling the pangs of the building recession. The question is, are we out of that dip or will 2010 produce similar numbers?

2004 was the first time the tech sector saw positive revenue growth following the crash. After that, year-to-year growth hovered at between 7% and 8%. Then came 2007 when revenue boomed 13.2% to $229 million. In 2008, revenue topped $246 million, a 7.7% growth rate.

“I’m skeptical of that ’08 number,” says Toan Tran, associate director of the technology team at the research firm Morningstar. “That’s not something that jives with what we saw.”

Drop Due to Spending Cycle, Recession

Steve Cakebread, former president and chief strategy officer of Salesforce.com not only thinks there was a drop, he says it’s part of a long-term cycle. Between 2005 and 2008 companies spent a lot on upgrades and replacements, which is similar to what happened at the end of the 1990s. Once the upgrades were made, companies stopped spending money.

“This [decrease in] spending thru mid-2008 also accounts for some of the slower growth in jobs, as tech spending does improve productivity,” Cakebread says.

2008 is also when tech first began having cash flow problems due the slowing global economy, says Anirban Dutta, a director of global strategic business development at the consulting firm CSC. Big contract deals – which drive significant growth in the IT services industry – as well as mid-market deals took a hit.

So What Happens in 2010?

The 2008 data is based on an annual survey of 60,000 businesses from 11 broad industry categories. The tech section of the survey covers companies that write, modify and support software, as well as those that design systems that integrate hardware, software and communication technologies. It also includes companies that do on-site management of computer systems and data processing facilities.

It isn’t likely any of those sectors will struggle this year. There are always risks. But if cloud computing may affect the companies that manage IT, then it opens up opportunities, too. That’s a point that Cakebread, Dutta and others make when talking about what will happen this year: Whether it’s cloud, SaaS, or mobile, the growth of cheaper, easier-to-use services and technology will have a decided impact on how tech grows. Cakebread goes so far as to predict that we’re on the doorstep of a “new decade of growth.”

“To be fair, not without its stops and starts,” he says, “but it is starting again.”

What do you think? Did 2008 mark the beginning of a slowdown in the US tech sector? Or did your company do better than ever? Let us know in the comments.

Photo credit: Sigurd Decroos.

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