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SPRING 2002

THE TECH OUTLOOK

The Tech Outlook
A couple of bright spots amid the gloom: Software that enhances productivity or helps a company help customers


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Last April, during a miserable earnings conference call, Sun Microsystems Inc. (SUNW ) CEO Scott G. McNealy was asked if the tech downturn had bottomed out yet. His answer: The only bottom he saw was that of his 1-year-old son when he changed his diapers. Reminded of that reply now, McNealy doesn't try to hide the ugly truth: He still has not glimpsed the bottom of the deepest technology slump in more than two decades. "I have two in diapers now. It's still a mess," he says.

McNealy has gamely taken on the mantle of gloomsayer for an industry that seems to be mired in no-growth mode even while the economy peps up. Worldwide information-technology spending is expected to grow only 2% this year, up slightly from its woeful 1.5% growth last year, according to Morgan Stanley Dean Witter & Co.

A couple of tech companies threw off the gloom, though, to rank in the BusinessWeek 50 list. Chip-equipment maker KLA-Tencor Corp. (KLAC ), No. 6, for example, bucked the trend by helping chipmakers boost yields. Things are better for the broader universe of science companies. Some pharmaceutical giants are thriving, including Johnson & Johnson (JNJ ), No. 1, and Pfizer Inc. (PFE ), No. 3.

There's hope for info tech's future, too. Because corporations want to save money and boost revenues, sales of customer-management software are expected to jump 21% this year, according to AMR Research Inc. On the consumer side, people are tapping into digital entertainment as music, videos, and games come to them over the Internet via a slew of devices. These markets are expected to boom over the next half-decade as more people get broadband connections. Further out, nanotechnology is expected to take hold--inspiring a market worth $1 trillion in 2015, says the National Science Foundation. In one far-out scenario, tiny robots would harvest atoms from dirt to assemble computers and consumer appliances.

Even Sun's McNealy has his sunnier moments when he peers into the future. "There are a lot of bright people working on bright ideas," he says. Eventually, some of these will pay off--for both entrepreneurs and investors.

MARCH 25, 2002




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