Health of US Tech Sector at Highest Level in Five Years on Global Demand

The Forrester/ITAA Tech Sector Index — which measures the health of the US technology industry — reached its highest level in five and a half years in Q4 2006, rising two points to 128.8, according to Forrester Research, Inc. and the Information Technology Association of America (ITAA). 

Net income for the 22 major US tech vendors that Forrester monitors reached $13.2 billion, the highest quarterly level since Forrester began tracking. But foreign sales — not domestic demand — is driving vendor revenues and profits.

The Index is based on 11 indices measuring IT demand, IT supply, and the financial strength of US-based vendors. All of the indices are weighted evenly in the overall Index score, which uses a 2002 quarterly average of 100 as the baseline. In Q4 2006, seven of the 11 indices were up. The two point increase in the Index compares with a 3.7-point gain in Q3. Highlights include:

  • As indicated above, vendor financial performance was the primary driver lifting the Index. The stock price component of the Index jumped 16.2 points, reflecting the broad rise in the stock market at the end of last year. The vendor profit component of the Index grew 10.9 points for the quarter.
  • US demand for tech products and services grew 2.5 points, based in part on continued optimism of spending forecasts by CIOs surveyed by Forrester.
  • IT industry employment edged up slightly, gaining 11,700 tech sector jobs. Employment now stands at the highest level since the close of 2002.
  • After falling 9.4 points in Q3, venture capital investment plunged an additional 20.8 points in Q4 — a quarter-on-quarter drop of $711 million.

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