Tech Businesses See Better Times Ahead, But Are Split On How Much Better, PricewaterhouseCoopers Finds.

NEW YORK--(BUSINESS WIRE)--March 31, 1999--

Large Firms Frequently Less Ebullient Than Smaller Ones

PricewaterhouseCoopers' new quarterly "Technology Barometer"

focuses on rapidly growing technology businesses of all sizes. It

incorporates the views of 385 top industry executives: 153 CFOs and

managing directors of large, publicly held businesses, including

high tech subsidiaries and divisions, and 232 CEOs from

smaller, privately held companies.

Chiefs of go-go technology businesses are involved in an intriguing economic scenario. Overall, they foresee continuation of composite revenue growth in excess of 20 percent, improving profit margins and healthier international revenues; and are considerably more optimistic about both the U.S. and world economies. Correspondingly, their plans for major new investments and new hiring are on the upswing. What could possibly be wrong with this picture? Only that the leaders of large and smaller technology businesses are frequently divided over how good good can be. These are highlights from the latest PricewaterhouseCoopers "Technology Barometer," released today.

"Technology Barometer" businesses have set their sites on aggregate revenue growth of 24.2 percent for 1999 -- a six percent faster pace than the 22.9 percent they posted in 1998. But the large tech businesses included in this estimate are holding it down. They are expecting a gain of just 19.0 percent, five percent off their year-end mark of 20.1 percent. In contrast, their smaller counterparts are planning on a growth surge of 29.4 percent, a full fifteen percent better than their '98 increase of 25.5 percent.

"Following a strong performance in 1998, many `Technology Barometer' panelists from smaller companies are looking to raise the trajectory for 1999," comments Paul E. Weaver, global technology leader for PricewaterhouseCoopers. "The large businesses, however, tend to have more exposure in uncertain overseas markets, and are taking a more cautious stance."

Margins on the Upswing

Among all "Technology Barometer" businesses, 46 percent report increased margins over the past 12 months, compared to only 19 percent whose margins declined -- for a net of 27 percent on the plus side. Margins for the remaining 35 percent remained steady.

When it comes to margins, smaller high tech companies have been more successful in improving them than their larger counterparts. Among the smaller businesses, 43 percent had margin growth over the past year, while 14 percent had a decline -- a net of 29 percent on the upswing. In comparison, 48 percent of larger businesses saw a rise in margins, but 24 percent had a downturn -- a net of 24 percent on the up side. "Compared to their smaller counterparts, ten percent more of the larger businesses are under margin pressure," notes Mr. Weaver.

Increasing International Revenues

In what may be a positive omen, 56 percent of "Technology Barometer" international marketers increased their sales abroad in 4th quarter of 1998 (an 11-point improvement over the prior quarter). Only 11 percent of those marketing abroad reported decreasing sales (an improvement of 21 points).

Overall, international marketers are expecting 28.3 percent of their total 1999 revenues will be generated from sales abroad: large businesses are budgeting for a 34.0 percent share, while smaller companies, which have a lesser overseas presence, are projecting 20.3 percent.

Rebounding Optimism about the U.S. and Global Economies

In light of their revenue growth, improving margins, and increasing international revenues, more top high tech executives are smiling these days. Looking ahead over the next 12 months, 72 percent say they are optimistic about prospects for the U.S. economy. This is an improvement of 20 points from October, when uncertainty about impeachment and the elections dominated the news. Today only 24 percent say they are uncertain about the economy's course, and just 4 percent are pessimistic. Although there are differences, a strong majority of both small and large technology businesses are optimistic -- 75 percent and 60 percent, respectively.

The outlook for the world economy in 1999, while still mixed, has improved considerably among "Technology Barometer" international marketers. Today, 44 percent are optimistic (up 15 points from the previous period), and only 19 percent are pessimistic (an improvement of 30 points). The remaining 37 percent are uncertain. Nearly half of the smaller companies that market abroad are now positive about the world economy, 49 percent (up 31 points), compared to only 40 percent among their larger counterparts (up 5 points). "Pessimism among both small and large technology businesses has been cut in half since October," notes Mr. Weaver.

Key Barriers to Growth Fading 

Looking ahead over the next 12 months, only 40 percent of "Technology Barometer" chiefs are concerned about the prospect of slack market demand, an improvement of 14 points from the prior quarter. This concern has ebbed 19 points among smaller companies, to 35 percent, and 9 points for larger businesses, to 46 percent.

Scarcity of qualified workers remains the top growth barrier faced by technology business chiefs today, a concern of 62 percent. It is more of a concern for smaller than larger businesses, 69 percent versus 56 percent, respectively.

Despite the worker shortage, though, these leaders are feeling a bit less pressure for increased wages in the year ahead. Overall, only 33 percent report this as a concern, off 7 points from the previous quarter. It is more of a worry among smaller businesses, with 38 percent feeling the pinch, versus 29 percent of larger ones. "Technology Barometer" chiefs are budgeting for an average 4.6 percent salary increase for their typical hourly workers in 1999-- 4.4 percent among large businesses, and 4.8 percent for smaller ones. "Productivity gains from information technology may be relieving some of the salary pressure for these businesses," comments Mr. Weaver.

Strong Plans for New Investments and New Hiring

Plans for major new investments have increased in view of what appears to be an improving business and economic climate. Overall, 59 percent of "Technology Barometer" businesses have plans for major new investments in the year ahead, a gain of 9 points over the previous quarter. More small than large businesses are planning new investments: 61 percent versus 57 percent, respectively. But there is a far greater increase in large businesses planning new investments, 15 points, compared to 2 points.

Projected levels of annual spending for these investments are also on the rebound, to 13.0 percent of revenues, from 10.7 percent in the prior quarter. Large technology businesses again reflect the greatest change, up three points to 13.4 percent of revenues, compared to a gain of 2.5 points, to 12.7 percent for small companies. "The increasing numbers of large businesses that are investing and the depth of their budget commitment is a very positive sign for the longer term health of our economy," notes Mr. Weaver.

The categories of major new investments continue to be led by information technology, planned by 62 percent. This is followed by new product development, 54 percent; research & development, 44 percent; sales promotion, 43 percent; and advertising, 33 percent.

Prospective investments in business acquisitions showed the largest decline, planned by 31 percent, off 15 points. "This may be related in part to an escalation in the price of quality businesses, as well as concern about change in a method of accounting for acquisitions," notes Mr. Weaver.

Plans for new hirings have also increased substantially. Overall, 75 percent plan to add new workers in the year ahead. This includes 67 percent of large technology businesses, up 4 points, and a steady 83 percent of smaller companies. As a group, only 6 percent plan to reduce employees, and 19 percent say they will stand pat.

The total number of planned hirings for 1999 has risen to 6.3 percent of the composite "Technology Barometer" workforce-- 6.0 percent full-time employees and 0.3 percent full-time-equivalent part-timers. Hiring plans have risen from 5.5 percent of workforce at mid-year '98, a 15 percent increase. Much of this gain has come from larger technology businesses, up from 4.8 percent additions at mid-year to 5.3 percent today, a 10 percent gain. Small high tech businesses also increased their new hiring plans to 16.8 percent of workforce, a 4 percent gain--but based primarily on a strategy of adding part-timers (3.7 percent).

PricewaterhouseCoopers' "Technology Barometer" is developed and compiled with assistance from the opinion and economic research firm of Business Science International.

PricewaterhouseCoopers, (www.pwcglobal.com) world's largest professional services organization, helps its clients build value, manage risk and improve their performance.

Drawing on the talents of more than 150,000 people in 150 countries, PricewaterhouseCoopers provides a full range of business advisory services to leading global, national and local companies and to public institutions. These services include audit, accounting and tax advice; management, information technology and human resource consulting; financial advisory services including mergers & acquisitions, business recovery, project finance and litigation support; business process outsourcing services; and legal services through a global network of affiliated law firms.

PricewaterhouseCoopers refers to the U.S. firm of PricewaterhouseCoopers LLP and other members of the worldwide PricewaterhouseCoopers organizations.

Note to Editors: The name PricewaterhouseCoopers is one word, with upper case P, upper case C, and all other letters in lower case.

If you have a question about this "Technology Barometer" survey, please contact Pete Collins, survey director, at 212-259-4496, or [e-mail]

For more information about Barometer surveys, including recent economic trend data and topical issues, visit our web site: www.barometersurveys.com