In This Article
- Exhibit 1: In three of the past four major downturns, IT spending in the United States fell twice as much as GDP did, and it fell even more in the fourth.
- Exhibit 2: One in four high-tech companies will probably need to tap into a credit line or refinance their debt in the downturn.
- Sidebar: Cisco: Exploiting a recession’s dynamics
- Exhibit 3: Many companies enter recessions as leaders and emerge as laggards.
- Exhibit 4: Laggards that emerged from the 2000-02 recession as leaders cut employees and other SG&A expenses.
- Exhibit 5: The acquisitions of companies that emerged from the recession as leaders were more frequent and substantial than those of companies that emerged from it as laggards.
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As the global economy spirals into recession, retrenchment seems to be the order of the day for many high-tech companies. Our research, however, suggests that conventional downturn strategies many not serve them well. McKinsey analyzed the performance of nearly 700 such companies during contractions in markets around the world over the past two decades. We found that the turmoil accompanying downturns significantly reconfigures the high-tech landscape. About half of the companies that entered these downturns as leaders—the top 20 percent—ended up as laggards when the economy regained momentum. Our research underscores three essential findings for executives.
First, they should fully understand the dynamics and probable impact of the contraction. Revenue is (and will go on) declining, but the contours of the downturn will differ dramatically by subsector. Second, executives should know how liquidity issues may affect operations. As compared with other industries, the credit situation is stable in high tech. Problems are mounting along the supply chain, however—particularly among distributors and contract manufacturers—and in overseas markets. These developments could ultimately affect the operations of many companies. Third, high-tech executives should play offense, acting to strengthen the balance sheet and improve the competitive position. Our analysis shows that making obvious moves...