Game changing IT could drive sector returns

30th May 2012

Investment in information processing equipment and software as a share of GDP peaked between 1999 and 2001 and significantly tailed when the tech bubble burst. Ever since investment in this area has shrunk and since 2003 a significant gap of under-investment has grown, suggesting that at some point investment in IT will revert back to trend.

So, is now a good time for investors to reconsider their exposure to technology?

A study by PriceWaterhouseCoopers into investments in the next 1-3 years by Canadian private companies showed that top on the list of tech investment will be; 43% mobile computing, 42% social media and networking, 34% next generation data management and analytics, 33% information security and 21% cloud computing. Despite the survey's focus on Canadian companies I believe it is fair to assume that this is a similar story for private companies in other economies. Especially as companies in this ever connected global world seek to compete by improving efficiency, attract customers, drive growth, enhance competitiveness and reduce enterprise costs.

Advancements and new technologies are moving the goal posts allowing smaller companies to compete on a more level playing field to their larger counterparts. An example of such a shift down the food chain is Oracle Corp, losing out on a contract with Activision Blizzard Inc (world's biggest video-game maker), the company behind ‘Call of Duty' to Salesforce.com. Oracle Corp has a market cap of circa $149bn and Salesforce.com market cap is circa $20bn. By UK standards you would argue that Salesforce.com is a big company but not by U.S standards.

Activision wanted to deliver applications over the internet and stored in the Cloud rather than on its own servers, Oracle lost out because in Activision's words ‘it doesn't want to do plumbing' and increase the demands on its IT department.

Cloud computing will have a significant impact on companies in the years to come. It allows them to rent business applications and with no requirement to install them on their own servers. This will improve competiveness and reduce high IT infrastructure overheads.

Security may also improve under Cloud computing and should enable the world wide IT community to communicate more efficiently than is possible under current IT structures.

Mobile computing is lead by companies looking to find better ways to serve customers on a personal and corporate level, allowing for more to be done on the go. Apple has been the most significant player in this arena with the creation of the iPad. Apple is expected to sell 60 million units in 2012 according to ISI Group in San Francisco. Corporate customers are expected to be a significant contributor to that number, as businesses worry they may miss out on having a fully productive and efficient workforce. Companies will also be conscious of the need to retain and attract talent who have grown up with mobile technology (digital natives) and who expect to be able to use it at work.

Mobile phone usage and data have proved fairly defensive in recent years.

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More on Mindful Money:

Mobile technology: What the west can learn from the rest

Can the UK become the ‘technology hub of Europe'?

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