BI/DW Index: Will tech lead us in the rebound?

Figure: Market scorecard as of 02/13/2009

The Business Intelligence & Data Warehouse (BI/DW) Index has been performing better than the major indexes year-to-date (YTD). Technology stocks burst and took down the market in the last recession but will likely be the leaders as we emerge from this recession. Typically consumer discretionary and financial services stocks lead us out of a bear market and a recession but this time we are in a massive deleveraging of consumer debt and unwinding of the financial instruments (bets?) that the wizards of Wall Street devised to inflate the latest and maybe greatest economic bubble.  Just as tech companies had to pay for their sins in the dot-com bubble, this time it is the consumer and financial services firms will have to pay the penance. That’s true unless the US government absolves them of their guilt and makes everyone else pay the price but either way these industries will not lead us out of the recession.

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Do not treat tech though as a monolithic industry. In the aggregate tech will be a market leader but there will be subsectors that shine and those that lag significantly. Let’s separate the wheat from the chaff.

It is much easier picking the laggards from the winners in technology. The laggards:

• Consumer-oriented products with maybe the exception of Apple.
• PC-related products or services. Upgrade cycles can easily be stretched out; with all the layoffs there is likely to be an excess inventory of PCs; and, no compelling reason to upgrade until a proven Windows 7 (sorry Vista.)
• Server-related products. Companies are more likely to consolidate servers or use virtualization to forestall new purchases. In addition, on-demand software and cloud computing may look even more compelling in this context.
• Financial services industry related products and services.
• Semiconductors and semiconductor equipment makers

The sectors likely to lead the market when it really rebounds (not a bear market bounce):

• Business intelligence, data warehousing and data integration software and services. BI was rated the top CIO priority for 2009. If you are trying to run your business, identify areas to operate better or search for revenue opportunities then these areas will be the enablers. There are “green field” opportunities in the SMB (small to medium size business) market and in many business groups or processes across the Fortune 1000. In addition, most firms that have been doing data warehousing for awhile will gain substantial business ROI from expanding its applications and use throughout their firms. Businesses may also find gains from expanding BI out to customers, partners and suppliers.

• Storage. Enterprises are accumulating ever increasing amounts of data.

• Bandwidth. Real-time communication across business operations; interchanges with suppliers; and, interacting with customers will drive the need to expand bandwidth.  Strains on existing capacity are also coming from 24×7 Blackberry access and Web 2.0. Cloud computing and on-demand software may be great ways to lower your total cost of computing (TCO) but both require greater bandwidth. And eventually the US stimulus package is supposed to create bandwidth demand.

• Enterprise applications. Not your “big bang” Fortune 500 multi-year, multi-million dollar projects but rather industry or business process specific applications, as well as, SMB applications.

• Healthcare applications. Information interchange between healthcare providers, insurers, patients and the government will continually need to improve. Whether it is a government drive for EMR (electronic medical records) or simply better master data (patient and physician identifiers; diagnostic and procedure code), the healthcare industry will be driven to improve results in a more cost effective approach.

• On-demand or SaaS (software as a service) software. As specific on-demand applications become pervasive, businesses will become willing to leveraging this approach in more mission critical applications.

Various technology subsectors will be leaders in the eventual market rebound. There will be both pure-play companies as well as the high tech titans that will benefits from these subsectors growth. Many of the firms in the BI/DW index will be likely leaders in this rebound.