Although no one is throwing away their mobile phones just yet, or for that matter, not even making fewer phone calls or surfing the Internet on their broadband connection less frequently, the global financial crisis may still hit the demand for ICT. That's the latest findings of a study by the ITU that feels that the current economic climate is affecting consumer incomes worldwide. And with many jobs under threat, consumers in general are turning increasingly cautious. So the end user demand for ICT will eventually suffer even if historically the demand for basic ICT services has been income-inelastic.
In the report called Confronting the Crisis: Assessing Its Impact on the ICT Industry, ITU said that demand for ICT may still continue to grow worldwide -- and particularly in the developing countries -- despite falling incomes, as telecom networks are in early stages and business use is high. However since consumers' disposable incomes were hit recently by rises in food prices in developing countries (where income elasticity for ICT, especially mobiles, is relatively high) and with falling incomes in the developed world, consumers may choose to give up or defer their broadband connection upgrades. As a result, usage of ICT may fall with a reduction in real income.
"There is no doubt that technology is a volatile sector where broadband connectivity and mobile telephony growth has remained robust despite the dotcom bubble. But to what extent the historical paradigm of technology as a growth sector will remain true in severe downturn is not known yet," said Phillippa Biggs, the author of the report.
The skepticism about the robustness of the future demand for ICT rises from the fact that during previous downturns, mobile and broadband were niche services, rather than the mass markets they have become today. So demand trends in response to the crisis may not be well understood.
Indeed, there is evidence that the rate of growth in some areas of ICT is already being adversely impacted. For instance, analysis firm Point Topic says that as broadband in developed markets -- that grew largely by converting dial-up users to high-speed services in the past -- approaches saturation due to rapidly decreasing 'no-net' homes and businesses, its growth is already slowing.
"Developing countries such as China and India have also gone through their initial rapid growth phase and are now growing steadily, rather than exponentially," Point Topic said.
Similarly, in contrast to mobile phones, global sales of fixed and mobile WiMAX equipment have started falling as well from the third quarter of 2008 and may decline throughout 2009 due to the recession. "Even a few niche areas, such as the top-end PC markets and high-end handset markets are seeing some softening of demand," says Biggs.
Consider the plight of the companies in the ICT sector as well. Alcatel Lucent for example, declared an unexpected 7.5 percent Q4 decline in yearly revenues, which at EUR 16.98 billion for the full year 2008 was also down 1.1% at constant currency year-on-year.
However, the biggest jolt came from the largest PC maker Intel. After record Q3 results ($ 10.2 billion in revenues, up 8% sequentially), Intel announced Q4 revenues of $8.2 billion, down 23% year-on-year. Not just that, in the "uncertain environment" Intel CEO and President Paul Otellini also announced $3 billion worth of cost cutting measures.
The bad news does not stop there. Other ICT sectors that are also facing shortfalls include the semiconductor industry, enterprise software, security, telecom infrastructure, as well as technology, media and telecommunication (TMT).
According to ITU, these are challenging times for the ICT sector. The old cliché that the tech sector was a long term growth industry, riding on a wave of convergence and digitization, that can beat global GDP growth even during difficult economic times, seems even less true today than the 1987 market shock and 2001-2003 dotcom burst.
Nevertheless, even "as the crisis may challenge many," says Hamadoun Touré firms, ITU Secretary-General "it can also overturn the established order and stimulate the emergence of new entrants with new technologies."
The report adds that in some ways, the crisis will reassert the old order. Those ICT companies with sustainable business models, stable cash-flows and deep pockets could regain some of the ground they have lost to new market entrants.
Financial weakness in the sector creates opportunities for cash rich players to acquire competitors and to purchase distressed assets at depressed prices. Economic crises also create openings for disruptive technologies and, here, small start-ups can prove the most agile in exploiting new opportunities, the report said.
