While more (57 percent) of the technology executives surveyed expect their companies’ headcount to increase a year from now, compared to the 2011 survey (49 percent), the executives believe that most of the growth will be at a moderate rate. When asked the size of the increase, 42 percent said one to six percent, up from 28 percent in last year’s survey. Only 15 percent anticipated a growth rate of seven percent or more, down from 21 percent last year.
The technology executives hold a similar outlook for revenue. Though more than three-fourths expect their companies’ revenue to increase over the next year, only 10 percent expect significantly higher revenue a year from now compared to 17 percent in the 2011 survey. Another 67 percent of the technology executives said their companies’ revenue will be moderately higher, up from 60 percent in last year’s survey. The group of respondents anticipating revenue to be unchanged a year from now, 20 percent, was about the same as in 2011 (21 percent). Cloud, mobile applications and the consumerization of IT are expected to be the biggest revenue growth drivers in the next one to three years.
“In tandem with the moderate employment, revenue and spending outlooks, there’s an increased focus on process and execution as technology executives are cautiously investing to implement their plans and help ensure the success of their strategies,” said Gary Matuszak, partner, global chair and U.S. leader for KPMG’s Technology, Media and Telecommunications practice. “In this year’s survey more technology executives identified process improvement as one of the top management initiatives in their companies for the next two years, while organic growth continues to be the top management initiative.”
As to where they intend to increase spending in the next year, the executives are again pointing to new products or services, acquisitions and research and development as the top priorities, though two other areas have been elevated. IT spending now ranks almost as high a priority as R&D, and geographic expansion was ranked three slots higher than last year.
In looking at capital spending as a whole, just 27 percent of the tech executives today anticipate a six percent or more increase in capital spending over the next year compared to 31 percent a year ago. Another 27 percent see a one to five percent increase, up from 22 percent in 2011.
“The outlook for capital spending, though more moderate, demonstrates that company leaders recognize the importance of investing in their growth plans to be innovative and to counter competitive pressures,” said Matuszak.
More moderate growth rates for research and development spending are also anticipated over the next year. The KPMG survey found that seven out of ten, about the same as in 2011, expect an increase in R&D spending. Yet only 29 percent see R&D spending climbing by six percent or more, compared to 36 percent in last year’s survey, while 42 percent expect a one percent to five percent increase, up from 34 percent in 2011. And there was a slight increase in the executives who said there would not be any change in R&D spending.
Barriers to Tech Sector Growth
Pricing pressures continues to be the most significant barrier over the next year, followed by staying on top of emerging technologies and lack of customer demand.
More executives this year cited labor costs, regulatory and legislative pressures, lack of qualified work force, foreign competition, and increased taxation as significant barriers to growth. Tech executives indicated security/privacy governance is the top challenge for businesses to adopt cloud, social media and mobile technologies.
Delay in U.S. Economic Recovery
Consistent with the surveys we have conducted in the past two years, technology executives again have pushed out their expectation for the U.S. economic recovery as more than two-thirds of them don’t see the economy recovering substantially until 2014 or later.
U.S. Leading Market Growth
For the second year in a row, the U.S. leads China and India as the market expected to deliver the greatest technology revenue growth over the next one to two years, and where technology companies anticipate their largest increase in employment and R&D spending. Brazil ranked third (tied with India) as the market for largest expected revenue growth, fourth in employment growth, and seventh in R&D spending.
Technology executives signaled a shift in expectations around mergers and acquisitions. While two-thirds, almost the same as last year, said it’s likely their company would be involved as a buyer in the next two years, fewer (11 percent) than in 2011 said they are likely to be involved as sellers, and more (19 percent) than a year ago said they have no plans for M&A activity.
“We are seeing some slowing in the M&A market, which could be partly due to a natural pause after a
surge in major transactions in 2010 and 2011 that reduced the number of significant targets available, and partly due to the opening up of the IPO market,” Matuszak said. “Entrepreneurs and venture capitalists have been less willing to accept acquisitions due to the high valuations being achieved in the IPO market.”
KPMG Technology Industry Business Outlook Survey
The KPMG survey was conducted in the U.S. in April 2012 and reflects the responses of 122 primarily C-level and senior executives in the technology industry. Of the 122 respondents, whose companies may be based in the U.S. or other countries, 62 percent are in companies with revenues exceeding $1 billion and 38 percent are companies with revenues in the $100 million-$1 billion range.
About KPMG LLP
KPMG LLP, the audit, tax and advisory firm (www.kpmg.com/us), is the U.S. member firm of KPMG International Cooperative (“KPMG International.”) KPMG International’s member firms have 145,000 people, including more than 8,000 partners, in 152 countries.