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Technology industry faces contraction

An expert says it is the best time for strong companies to become stronger. (REUTERS)

By Nancy Sudheer

Technology industry will face contraction this year with customer segments struggling to survive face consolidation and reduce capital expenditure, said an Avaya's senior official.

Avaya is the global leader in enterprise telephony and call centre technology.

Todd Abbot, senior vice-president of global sales and president of field operations, told Emirates Business on his recent trip to Dubai that the resetting of the global economy will result in contraction of the overall market of at least 20 per cent on a global level.

He said: "The Middle East is growing as the global economy slows down and it will take a full year to settle down by the fourth quarter of 2009 or next year. The environment today is an opportunity for strong companies to get stronger and companies who are not in a position of strength will get weaker. There is an opportunity for customers to leverage on technology to conduct business to improve their competitiveness. Economic and technology transfer will happen at this point of time in the economy."

On customer consolidation, Abbot said there is a lot of consolidation in the financial and retail sector.

"There are companies that will not survive as capital expenditures are cut down completely, which is related directly to the market contraction. The public sector is the only one not affected as every other industry consolidates on capital expenditure, and reduces budgets. Combination of these factors will contract the market to 20 per cent year-on-year basis."

He also went on to say that there will be customer segments who will not exist any more for technology vendors. As industries and customers go bankrupt, especially in Europe and the United States, and businesses shutting down in China will resize the entire market. Abbot stressed on the fact that technology companies competing and targeting to be in the top three position will have to invest in innovation and R&D.

"Every industry has one or two main players and they will have to innovate and fund R&D. This is mainly as the difference in profit margins is not much among the top three and therefore if you don't innovate its easy to loose your top position. The other companies who are not in the top three cannot innovate and will come out as a weaker company."

In the unified communications space there are a lot of new companies who are struggling to compete, and with market consolidation players like Avaya will see opportunities in acquisitions," he said.