A decade ago, fearing a Y2K calamity, governments and companies worldwide spent more than $200 billion in information technology (IT) equipment upgrades before the calendar turned on the year 2000.
The effective life span of most computer equipment is usually three to four years.
According to industry experts, the Great Recession forced many companies to delay much needed upgrades in 2008 and 2009.
That delay created a glut of pent-up demand for companies that are now finally upgrading their IT equipment.
“One of the biggest things we’ve seen this year is similar to the situation companies were in back in 1999 preparing for Y2K,” said Paul Reidl, chief executive officer of Milwaukee-based River Run Computers Inc. “Last year, companies who probably needed to upgrade their servers and their other equipment chose to push that off until this year. Now it’s more of a ‘have to’ situation for them. Those servers are four or five years old, and we see an influx in business because of that situation. In some cases, it isn’t about whether the client wants to do it. It’s to the point now where they have to in order to sustain the lifeblood of their business.”
According to the 2010 Report on IT Spending from Gartner Inc., a leading information technology research and advisory company, worldwide technology spending is expected to increase to more than $2 trillion this year.
Worldwide personal computer shipments climbed nearly 30 percent in the first quarter of this year, according to Gartner. Intel, the world’s largest computer chip manufacturer, also reported the highest first-quarter sales and profit in its history.
Other factors driving the rising IT sales include the expanding use of mobile phone applications, the emergence of tablet computers such as the Apple i-Pad, the Microsoft Windows 7 replacement of the Windows XP computer systems and the demand for better equipment in the health care industry.
“It’s a cyclical concern, definitely,” Reidl said. “Some are past their upgrade period because they were supposed to upgrade in 2009, while others are seeing their equipment hit expiration dates this year. We’re seeing an influx of hardware upgrades because both groups of people are either choosing or being forced to do those upgrades now.”
Doing more with less
The recession caused thousands of Wisconsin companies across all industries to cut budgets and staff.
In the aftermath, many companies have been forced to do more with less people and are turning to technology to make their remaining employees more productive, rather than hiring more people.
According to Ed Chaltry, chief technology officer of Brookfield-based Centare Group Ltd., a technology company that specializes in software application development, systems integration and business intelligence, the top way to make current employees more efficient is to invest internally in upgraded technology, software systems and mobile applications.
“We started out the year a little shaky,” Chaltry said. “But over the past few months, we’ve seen a growth in our business that can be attributed to the fact that companies need to function with a reduced staff. Our mobile development practice is our fastest-growing area this year, and we see significant money being invested in those areas to make employees and a company more efficient internally.”
Centare Group has had a record year in terms of revenue and has added 15 new employees to its staff in 2010.
“We are having an extremely good year already,” Chaltry said. “We’ve already surpassed our revenue numbers for all of 2009, and we’ve added an additional 15 high-paying technical positions to our company and plan to do even more in 2011.”
The leasing option
In addition to doing more with less, many firms are upgrading their equipment and outsourcing many of their technology needs and functions, said Dan Barnes, president and chief executive officer of KD Interactive Hosted Business Services in Watertown.
“The hard cost of technology is really changing, and I expect it will take an even more gigantic leap in the next five to seven years,” Barnes said. “Outsourcing their managed IT responsibilities gives them a flexible, scalable option and also allows them to focus on their core expertise.”
Rexx Igunbor, president and chief executive officer of PC LAN Services in Milwaukee, also has seen a growth in demand for leasing IT equipment.
“We are steadily growing, but a lot of companies are still dragging their feet a little when it comes to making that investment,” Igunbor said. “So we’ve suggested leasing equipment as an option for many of our clients who may need a little bit longer time period to restore their confidence in the market.
“A significant portion of our increased business came from the fact that Microsoft is not supporting the older versions of its processing software,” Igunbor said. “Companies and individuals alike aren’t going to be able to purchase Microsoft XP for their PC’s, and everyone is transitioning to Windows 7. New machines and more upgrades are necessary for those systems to function properly.”
Igunbor started his business in New York and recently opened a Chicago office.
“We’re expanding too. Our business is growing, and we can see that more and more people are becoming fiscally confident in the marketplace,” he said.
PC LAN Services also is seeing rising demand for IT equipment in the health care industry, due to requirements of health care reform and the transition to electronic medical records, Igunbor said.
Chris Wiser, chief executive officer of Wauwatosa-based TechSquad, also has seen a boost in his business due to the health care reforms.
Gartner researchers predict a 3.5-percent increase in worldwide IT spending for 2011.
“We’re seeing and expecting continued spending next year to be at least at the level they are today,” Chaltry said. “We also expect more firms to come in asking for assistance in their software programming and development efforts until they find adequate replacements for staff they let go during the recession.”
KD Interactive is adding to its workforce and is looking to make acquisitions of firms outside of the southeastern Wisconsin market, Barnes said.
“We’re excited about the opportunities we’ve been seeing, as well as the opportunities that are out there,” Barnes said. “We just wish the rest of the economy was doing well right along with us. That would make it much more rewarding on our end.”
