US Tech Sector Best in Over 5 Years - Forrester/ITAA US Tech Sector Index Q3 2006

The health of the US tech sector improved in Q3 2006 and posted its best performance in five and a half years, based on the readings from the Forrester/ITAA US Tech Sector Index. The index rose 3.2 points compared with Q2 2006, and 6.7 points from Q3 2005. 

Q3 results were predominantly positive, with 7 of the 11 underlying measures showing gains for the quarter. However, two indicators fell substantially. 

The strongest gains were in US-based vendor profits and CIO confidence, while venture capital funding took an expected summer break. 

Among leading indicators — CIO confidence, US technology imports, venture capital funding, and Forrester's outlook for business investment in IT — results were mixed. Two of the four indicators fell for the quarter, although overall, the forward-looking results were positive.

Methodology For The US Tech Sector Index
The Forrester/ITAA US Tech Sector Index is the market’s most comprehensive view of overall IT industry economic condition. The Index is based on 11 measures of the health of the tech economy, organized under three major headings — demand indices, supply indices, and firm strength indices. All 11 are weighted evenly in the overall index score. Each measure is available quarterly. Four of the measures are government measures, four are Forrester proprietary measures, one is a hybrid Forrester/government measure, and the remaining two come from other outside sources. All indices use a 2002 quarterly average as a baseline with the exception of Forrester's analysis of large US vendor profits.

Demand Indices
These indices are designed to measure overall demand for IT hardware, software and services in the US. There are four components that fall under this heading:

  • CIO confidence. The source is Forrester’s CIO Confidence Poll, which is conducted quarterly. The poll gauges CIO optimism on five fronts: current business conditions, future business conditions, current IT spending, future IT spending, and IT spending relative to budget. 
  • Forrester's outlook for business investment in IT. Forrester’s outlook for business investment in IT is a leading indicator that forecasts the subsequent quarter’s investments in IT. 
  • US technology exports. This measure, as tracked by the US International Trade Commission, quantifies US exports in computer equipment, communications equipment, semiconductors and other electronic components, magnetic and optical media, and software publishing. 
  • US revenues for 39 large IT vendors. Each quarter Forrester tracks the North American revenue of 39 large IT vendors — regardless of nationality — as a measure of US demand for technology products and services. 

Supply Indices
These indices are designed to measure the overall health of IT service and product supply in the US. There are three components that fall under this heading:

  • Venture capital investment in IT. This measure is collected quarterly as a collaboration between the National Venture Capital Association, PricewaterhouseCoopers, and Thomson Venture Economics.
  • Total IT industry employment. This measure is tracked by the US Bureau of Labor Statistics and includes employment in computer and electronic products, ISPs, search portals, and data processing, computer systems design and related services, and software publishers. Data is seasonally adjusted with the exception of software publishers.
  • US technology imports. This measure, as tracked by the US International Trade Commission, quantifies US imports in computer equipment, communications equipment, semiconductors and other electronic components, magnetic and optical media, and software publishing. 

Firm Strength Indices
These indices are designed to measure the overall strength of US IT solution providers and examine the interplay between supply and demand. There are four components that fall under this heading:

  • Profits of 22 large US-based vendors. Each quarter Forrester tracks the profits of 22 large US IT vendors as a basic measure of IT industry health. 
  • Global revenues of 22 large US-based vendors. Each quarter Forrester tracks the global revenue of 22 large US IT vendors as a measure of global demand, but also as a measure of US firm strength relative to the rest of the world. 
  • Prices. Prices are measured by the Bureau of Economic Analysis Price Index For Information Processing Equipment and Software, which captures the prices of computers and peripheral equipment, software, and other information processing equipment and software. 
  • Stock prices. The Dow Jones tracks the US technology sector through an index of 254 leading IT companies, and this serves as a final aggregate indicator. 

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