Forrester forecasts nearly 10 percent U.S. increase in 2010

This recession has been going on for more than two years, but within some enterprises, there must be some people saying, “Heck, get out the checkbook. Let’s do this,” and are spending on new information technology.

Two events this past week indicate that for IT vendors, business is looking up. One is a report from Forrester Research forecasting IT spending growth in the U.S. of 9.9 percent this year, over last; global IT spending should grow by 7.8 percent. The other is Microsoft’s earnings report of a 48 percent increase in profit on a 22 percent increase in revenue in the quarter ended June 30, beating analysts’ forecasts.

Despite a string of news for Microsoft about will-they-won’t-they make a tablet computer, the Kin flop, losing the largest valuation title to Apple and uncertainty about whether Windows Phone 7 will be a hit, enterprises are spending money on IT and spending it at the Microsoft store.

Jeffries analyst Katherine Egbert called Microsoft’s results “sizzling” and expects its Windows business to see double-digit growth for the next two years, according to an AP story in which another analyst, Sasa Zorovic of Janney Capital Markets, attributed Microsoft’s record results to Windows 7,Office 2010 and SharePoint 2010.

Ten Windows 7 licenses are sold every second, Microsoft reported, for a total of 175 million since its introduction. Already, 15 percent of the PCs in the world are running the new operating system.

In spite of what some economists may be saying about a double-dip recession and stubbornly high unemployment, enterprises also must keep their eye on the calendar. Forrester attributes the stronger growth to companies “entering an innovation cycle marked by adoption of new technologies.” Many companies adhere to a refresh cycle where they replace servers, desktops and software on a regular basis and this must be the year. And just in time, Microsoft introduces Office 2010 and other enterprise software in the latest quarter.

“Computer equipment and software will be the strongest categories, with PCs, peripherals, and storage equipment leading the computer category, and operating system software and applications setting the pace for software,” Forrester reported.

The Wall Street Journal put it more succinctly: “At some point, businesses have to buy new computers,” it reported yesterday.

Besides Microsoft, Intel also reported strong results, including a 34 percent jump in revenue. If Intel is selling more chips, that means computer makers are planning to build more computers and load them with software from companies like Microsoft. It’s nice how that all works out.

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If all the tutting, clucking, and yakking about the iPhone has made you reach for your lover’s purple pills, here’s a remedy for your malaise: Most people who have an iPhone are very happy with the service they get from AT&T.

No, this is not my conclusion. Though my sense is that the iPhone is largely a wonderful thing (even though I don’t use one) and that AT&T’s service (which I do use) is, well, not all that different from that of other providers.

The Yankee Group, people who ask people about people and things for a living, decided to find out just what iPhone users really feel about their phone service. And what they discovered was a remarkable level of comfort with AT&T.

CNN reported that The Yankee Group’s questioning elicited positive responses from 73 percent of iPhone users. As a whole, 69 percent of smartphone users say they’re happy with their service provider. So this might suggest that AT&T is performing above the average as far as iPhone users are concerned.

Oh, no one’s perfect. Not even AT&T.

However, Yankee Group analyst Carl Howe offered CNN a sobering explanation of why the often-criticized AT&T might be getting a relatively glowing review from those in the outside world: “Consumers transfer the high gloss of their Apple iPhone experience to AT&T. The iPhone creates a halo effect that rubs off.”

This seems entirely at one with the idea of human beings being prepared to put up with certain rational deficiencies when they are being emotionally satisfied. It is a phenomenon true of so many human relationships, in which an emotional uplift entirely circumvents say, a nose that is too big or a walk that is too ducklike.

AT&T, for its part, believes it really isn’t all that ugly. Company spokesman Mark Siegel told CNN: “There’s a gap between what people hear about us and what their experience is with us. We think that gap is beginning to close. It doesn’t mean we’re perfect; we still have work to do. But that’s no surprise to us, because we have a great network.”

Well, perhaps, but the sheer width of the iPhone halo is described by another statistic offered by The Yankee Group. 77 percent of iPhone users say they will buy another iPhone. Only 20 percent of Android users say they will buy another Android phone.

None of us is perfect. And we don’t expect perfection from anyone or anything in life. We merely hope for it. However, when something that is far above average grips us by our feelingful parts, we are more than a little grateful.

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Indian officials have demoed a touchscreen tablet computer with word processing, Web-browsing and video-conferencing functionality that will carry an initial price tag of about $35. University students are the target market, but it’s not a given that all of them will want such a device. “I can’t imagine a math or science or engineering major using a computer like this,” noted ITIC analyst Laura DiDio.

Human Resource Development Minister Shri Kapil Sibal unveils India’s prototype $35 computer.

“I think — assuming the device does come to market — that there will be some unexpected demographics interested in it,” he added.

In photos, the device looks much like the sleek tablet-style PCs coming on the market and typified by the iPad. It will offer such standard functionality as word processing, Web browsing and video-conferencing.

It is aimed at university students, with delivery planned for 2011.

At $35, the computer is cheaper than most digital cameras, raising the question of how India — or rather, the manufacturer it must engage — could possibly be able to pull off this feat.

How to Build a Very Cheap Computer

For starters, the device will run on a Linux operating system.

Originally, the Ministry had turned to the corporate sector for research and development, but it found support for the project “lukewarm.” It moved on to the sector where the device is intended to have its impact — the educational system — and received better responses from the universities.

Students devised a motherboard that is flexible enough for the components to change, if need be. Other innovations touch on the processor functionality. Reportedly, it won’t have a hard disk, using but will use a memory card instead.

Presumably it will be manufactured in India, which means inexpensive labor, Laura DiDio, principal of ITIC, told TechNewsWorld.

“They certainly won’t be using state-of-the-art parts either,” she said. “There also won’t be the huge markup that such retailers asApple (Nasdaq: AAPL) typically charge with their products. In theory, it is doable.”

The question is, how good will the quality be? At $35 or less, no one is expecting another iPad, but DiDio thinks these devices are intended to be disposable, although the government and manufacturer are unlikely to say so.

“At $35, I think most Indians who could afford that price in the first place would simply throw it away and get another. I doubt if there would be much service or support, or warranties accompanying their sale.”

Target Markets

With India’s immense population, there is certain to be a market there for the device. Still, it would be a mistake to assume all university students will want one — or that it will appeal only to students, DiDio said.

It can be assumed that university students in India who are financially struggling or otherwise on a tight budget would gravitate toward a cheap computer. So might the parents of younger students in middle or elementary school.

They might want to give their kids an inexpensive starter computer, DiDio noted. Another ripe possibility could be the emerging markets in Africa, where cellphones and smartphones are starting to take off.

Yet a wide swath of potential buyers won’t be interested in the device.

The North American and European export markets can be counted out, said Steven Baker, VP of industry analysis for NPD.

“It is not the kind of product that people want here,” he told TechNewsWorld. “The concept is just not exportable to these markets.”

It is also not a given that all university students will want the device, DiDio stressed.

“India churns out some of the world’s best engineers,” she pointed out. “I can’t imagine a math or science or engineering major using a computer like this.”

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Information Technology Vendor

The saying goes something like this: “If it ain’t broke, don’t fix it.” The statement is, of course, embraced as dogma by those fearful of change and by automobile owners praying for a reasonable bill of charge while waiting at the mechanic’s garage.

But many of today’s CIOs must see something broken inside their IT departments. According to a new Forrester Research report, more than half of the 178 IT executives surveyed are hatching plans to upend the status quo and institute a new IT model within three years.

The ultimate goal, these CIOs say, is to improve services, reduce costs and increase consistency of business processes and IT systems. “The appetite for restructuring is obviously high,” writes Forrester principal analyst Marc Cecere. The area with greatest priority: the applications organization.

Several New Normal macroeconomic factors—not under the control of CIOs—are driving this desire for change. “The uncertainty caused by a stubborn unemployment rate, the stock market yo-yo-ing, new financial regulations and high government spending provides a push for changing the model of IT,” writes Cecere.

Advances in core IT systems and software manager are also inciting change. Cecere adds: “New services and innovative new technologies and techniques provide a pull toward models that can exploit their advantages.”

For some IT shops, an upheaval will come much sooner: Nearly one-third of IT chiefs surveyed stated that there was either a “high probability” or “certainty” that they would restructure within one year.

The most critical need for IT shops is to improve their services: More than three-quarters of respondents said this was a high or highest priority. To Cecere, however, that number should have been higher. “Improving services is such an obvious choice that you have to wonder about the smug bastards who didn’t choose this,” he writes. “The frustration among senior business leaders that there must be a different way to run IT to get the flexibility and innovation they want while not going back to the pre-recession spending levels is a dilemma that fuels the interest in new models for IT.”

According to the survey respondents, the applications group is “most likely to be restructured.” Why? Cecere writes:

The importance of cost reduction, increased consistency of processes and systems, and innovation are driving the need to restructure apps groups. They are the most fragmented and have the greatest potential for cost savings through rationalization or outsourcing. Most large shops, in particular, have federated apps organizations, where decisions about systems, tools, and methodologies are made independently from other apps groups. As a result, they’ve created multiple groups that have little ability to leverage people. In addition, many of the innovations in business analytics, mobile apps and other areas will come from apps groups. These innovations need to scale in terms of numbers of users, security, and reliability. Fragmented apps groups often don’t have the capacity, the need or the expertise to scale these innovations past their own business unit.

So just what kinds of new organizational models are CIOs considering? The report highlights (and offers explanations for) several, including: business-process-based, demand-supply (DS), and plan-build-run (PBR). But, Cecere adds, the “verdict is still out” on what models will be deemed most appropriate for individual IT shops.

“Currently, we are only seeing the train’s headlight in terms of the impact of these new organizational models,” Cecere writes. “Understanding them will require time in order to cut through the fog of hype and the hopefulness from early benefits.”

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Microsoft Corp., the world’s largest software maker, reported fourth-quarter profit topped analysts’ estimates after customerspurchased more personal computers running the Windows operating system.

Net income climbed to $4.52 billion, or 51 cents a share, compared with the 46-cent average of estimates compiled by Bloomberg. Sales rose 22 percent, the most in more than two years, to $16 billion, the company said today in a statement.

Microsoft is benefitting from a recovery in spending by large businesses. The company said in late June it had sold 150 million copies of its newest Windows 7, making it the fastest- selling operating system in the Redmond, Washington-based company’s history. Global PC shipments jumped last quarter, according to research firm Gartner Inc.

“This is an indication that enterprises are spending and that Microsoft does have a product suite that’s appealing to these customers,” said Sid Parakh, an analyst at McAdams Wright Ragen in Seattle.

Microsoft rose 0.4 percent in after-hours trading to $25.95 after climbing 72 cents, or 2.9 percent, to $25.84 at 4 p.m. New York time on the Nasdaq Stock Market. The stock slid 21 percent last quarter, compared with a 12 percent drop in the Standard & Poor’s 500 Index.

Analysts had projected total sales of $15.3 billion for the fourth quarter, which ended June 30.

Net income in the fourth quarter of 2009 was $3.05 billion, or 34 cents a share, on sales of $13.1 billion. Net income in that period included legal expenses, severance costs and impairments to investments.

Operating Costs Outlook

Operating expenses for the year starting July 1 will be $26.9 billion to $27.3 billion, the company said, down from its March forecast of $27 billion to $27.5 billion. Microsoft no longer provides projections for sales and profit.

Fourth-quarter unearned revenue, a measure of multiyear contracts, was $14.8 billion. Analysts on average had estimated it would come in at $14.7 billion, according to Heather Bellini, an analyst at ISI Group in New York.

Revenue in the Windows division was $4.55 billion, above the $4.3 billion estimate of Brent Thill, an analyst at UBS AG in San Francisco. Microsoft Business Division sales, made up mostly of Office software, were $5.25 billion, compared with Thill’s $5.05 billion projection.

“It sounds like enterprises are buying Windows 7 and will roll it out at some point,” said Brendan Barnicle, an analyst at Pacific Crest Securities in Portland, Oregon, who recommends buying the shares and doesn’t own any himself. “We’ve seen more and more evidence of a recovery in enterprise spending.”

Server Revenue

Server software revenue was $4.01 billion. Thill had estimated $3.85 billion. The Online Services unit, including Bing, had sales of $565 million, compared with Thill’s $589 million prediction.

Entertainment and Devices, the unit that includes Xbox and mobile phones, came in at $1.6 billion in sales, topping Thill $1.58 billion estimate.

Global PC shipments industrywide rose 21 percent in the second quarter, Gartner said, beating the firm’s projection of 19 percent. Intel Corp., the world’s biggest chipmaker, posted record second-quarter sales and said corporate spending is strengthening.

Apple Inc., which competes with Microsoft in operating systems for computers, tablets and mobile phones, reported quarterly sales this week of $15.7 billion, topping analysts’ estimates.

Bing Gains Share

Microsoft’s Bing Internet search engine gained a point of U.S. market share during the quarter, rising to 12.7 percent, according to ComScore Inc. in Reston, Virginia. That compared with 62.6 percent for Google Inc. and 18.9 percent for Yahoo! Inc., which is switching over to using Bing’s technology.

Microsoft’s fiscal third-quarter report disappointed some investors because much of the company’s strength came from consumers rather than businesses. Unearned revenue in that period also missed the average of analysts’ estimates, suggesting corporate clients held off on signing multiyear agreements.

Information-technology spending will climb 7.8 percent worldwide in 2010, according to an estimate from Forrester Research Inc.

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Global IT Consulting Services

Microsoft released a beta of the new version of its Security Essentials antimalware software on Tuesday, sporting a few changes and enhancements.

Following version 1.0 of the free Security Essentials released in September, the folks in Redmond outfitted the 2.0 beta with an updated antimalware engine. The new engine is smarter at detecting and removing security threats and offers a better performance, according to a Microsoft blog. The software also now integrates directly with Windows Firewall and gives users the option to turn the firewall on or off.

By integrating with Internet Explorer, the Security Essentials beta provides greater protection against Web-based threats, Microsoft said. It can also watch for attacks that come via a network, though this option is only available in Windows Vista and Windows 7. Users of Windows XP can’t take advantage of this particular feature because XP lacks the necessary Windows Filtering Platform.

You can find and download the new beta at Microsoft’s Connect page where you’ll need to log in with a Windows Live account. You’ll then be directed to the download page where you choose whether to grab the 32-bit or 64-bit version.

Microsoft has promised to keep the beta current with the latest virus and spyware definitions and also provide ongoing updates to the software itself. To receive the software updates, you’ll need to subscribe to Microsoft Update and set your preferences to automatically download and install new updates, according to the company.

The beta is only for people in the U.S., Israel (English only), China (Simplified Chinese only) and Brazil (Brazilian Portuguese only). And it’s available on a first-come, first-served basis, apparently just until a certain quota has been reached.

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IT Security Services

Two top pressures drive the need for video in the workplace: the need to support remote and distributed employees and the need to reduce corporate travel. As videoconferencing has evolved into telepresence and other immersive collaboration solutions, new business video solutions must be chosen based on their value to the organization and not simply based on cost or current technology adoption.

As the enterprise progresses toward the goal of proving fully immersive and collaborative capabilities to remote individuals, it is important to realize the value of video not only as a technological achievement, but as a practical business enhancement.

By presenting the strategic value of the various forms of video in the enterprise, this document serves as a guide for the CIO to better understand the strategic pressures and strategies that lead to quantitative business value.

Challenges to Using Business Video

One of the keys to this multi-departmental usage is to be aware of the strategic challenges faced by organizations moving into a line-of-business-driven video 2.0 world. Although cost and technological complexity are still significant concerns, they are not the sole concerns of companies seeking better video solutions.

Currently, the top challenge for business video is the lack of an organized strategy for integrating video into the business. Although a number of organizations struggle with lack of adoption or the difficulty to use video endpoints, the struggle has shifted from technology use to making a proper business case for video.

As videoconferencing has evolved into telepresence and other immersive collaboration solutions, and streaming video is quickly transforming into a combination of content management and social feedback, new business video solutions must be chosen based on their value to the organization and not simply based on cost or current technology adoption.

These strategies speak to the need for B2B collaboration, internal cost and procurement control, and internal collaboration and critical paths. Each of these strategies affects corporate departments differently.

The top two pressures described in Figure 3 are indicative of the Video 1.0 world that has been illustrated. Although these are the dominant pressures associated with video, they focus on current operational challenges and cost reduction rather than on the value-added experiences that video can provide. These two pressures ended up being the top pressures both for all respondents and specifically for Best-in-Class companies, so the choice of pressures was not a significant differentiator to achieving success. However, their execution on secondary pressures was vital to meeting business demands of the organization.

The secondary pressures each demonstrate new value propositions that are emerging from various areas of the enterprise. As video becomes a part of the marketing, learning and development, sales, and product innovation environments, it has started to become a necessary tool to drive innovation and differentiation. To do so, these video solutions must progress past Video 1.0 to an integrated strategy of Video 2.0.

Video 2.0 treats videoconferencing not only as a means of communication, but also as a collaboration channel associated with content-sharing, unified communications and recorded assets that can be accessed by all employees. Video content and usage need to become assets stored in content management systems and delivered via content delivery networks that provide and reuse timely information in a dependable manner. Remote and distributed employees need video content to make resources and services in headquartered locations available.

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Information Technology Professional Services

INCREASINGLY DESPERATE Microsoft has resorted to giving away Windows phones to its employees in order to boostawareness.

The phones, which will run the firm’s upcoming Windows Phone 7 operating system (OS), are being offered to employees at no charge. Microsoft will be hoping that by buying up a large number of the phones to throw at its employees, it can mitigate the chance of relatively weak sales to its own staff compared to Apple’s Iphone and numerous Android devices.

It’s not surprising that a company offers its employees phones running its software. Apple offered something similar to those who had worked for the cappuccino company for more than year. However, the popularity of the Iphone among Microsoft’s employees must be a source of embarrassment to the firm, which has seen its Windows Mobile smartphone OS all but eradicated from the market.

Windows Phone 7 was initially shown off at Mobile World Congress in February andrecently reached what the Vole called a “very significant milestone”, with Microsoft ready to wheel out a technical preview. The software is not quite ready for prime time yet though, as the release is a closed beta, most probably aimed at developers.

Employees have not been told what phones they will receive or when they will get them, only that it will run the firm’s latest and perhaps greatest smartphone OS. This tallies with the fact that neither the firm nor any handset manufacturers have chimed in with a release date for Windows Phone 7.

By dangling the carrot of a free phone, Microsoft must be hoping that its army of Voles will ditch other devices and help it claw back market share in the smartphone market.

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IT Services

In their most recent report on the status of broadband internet in the US, the FCC has finally admitted “broadband is not beingdeployed to all Americans in a reasonable and timely fashion.”

Although this is the sixth Broadband Deployment Report to be issued by the agency since 1999, it is the first to reach this conclusion. Previous reports have been widely criticized for both the benchmark by which broadband was defined and the methodology for determining service areas.

For example, in the last report, from 2008, 200kbps downstream (download) speed was still considered broadband. Additionally, a single address capable of broadband service was equated to the entire zip code being served.

In the current report notes, “Our examination of overall Internet traffic patterns reveals that consumers increasingly are using their broadband connections to view high-quality video, and want to be able to do
so while still using basic functions such as email and web browsing.”

In order to more accurately reflect that reality the standard for broadband has been raised to 4Mbps downstream and 1Mbps upstream. Service areas were based on numbers from the National Broadband Plan, published earlier this year.

Using the new metrics resulted in a determination that 14 million Americans live in areas where broadband internet service isn’t offered.

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