Monday, January 21, 2008

Offshore nations may keep U.S. tech firms in the black


Emerging markets boost IBM, but will they recession-proof other U.S. firms?

IBM's third quarter earning statement wasn't just about numbers. It was also a defense of globalization, with the company describing the opportunities in emerging markets as equivalent to the "California Gold Rush."

And Mark Loughridge, IBM's chief financial officer, made sure that no one missed his point in the company's fourth quarter earnings call Thusday. He used the term "gold rush" three different times, adding in "virtual gold rush" and the "gold rush of the 21st Century" by countires anxious to build out their infrastructures with modern technologies. This is spending from the same countries that have also been getting U.S. tech jobs thanks to offshore outsourcing.

IBM backed its assertions with numbers, showing that 65% of its business is now overseas with emerging markets growing by double digits. In the 2006 calendar year, IBM's non-U.S. operations accounted for 60% of its revenue; IBM signed $1.4 billion in services deals last quarter in India alone. The company's fourth-quarter revenue was $28.9 billion, a 10% increase from the year ago quarter.

But will these emerging markets continue to grow, and will they avoid being dragged down by the U.S. in a downturn here? Based on its forecasts, IBM is confident of their success, and it will exceed analysts' expectation into 2010. That confidence is due to a broad range of countries such as Malaysia, Poland, South Africa, Ecuador "and dozens more around the world, with insatiable demands created by a growing middle class for public and private infrastructures to support explosive economic growth," said Loughridge on the earnings call.

In India last week, Sebastian Teunissen, adjunct professor and executive director of the Clausen Center for International Business and Policy Haas School of Business University of California, Berkeley, saw for himself the economic activity and described it in astonishing terms. Teunissen took a group of students to Bangalore and Mumbai for two weeks to expose them to that country. "I've been doing this for a number of years and I'm still blown away," he said of his annual student trips.

Teunissen visited a number of Indian firms and saw U.S.-branded tech products, PCs in particular. "There are an awful lot of people there who are really, really hungry for technology," he said. IDC numbers seem to back that. One market research firm recently reported that in last year's third quarter, the India PC market grew 25% in that quarter, with 1.8 million shipments total. Worldwide, nearly 270 million PCs were shipped for the entire year of 2007.