When Will IT Begin Acting Its Age? - InformationWeek

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2/1/2005
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When Will IT Begin Acting Its Age?

Microsoft last December distributed $32 billion to shareholders. That move, as we learned on Tuesday, boosted personal income in the United States by 3.7% in December. It also suggests that IT vendors are becoming more like other types of companies.

Microsoft last December distributed $32 billion to shareholders. That move, as we learned on Tuesday, boosted personal income in the United States by 3.7% in December. It also suggests that IT vendors are becoming more like other types of companies.Traditionally, Microsoft and other IT vendors reinvested profit rather than distributing earnings to investors through dividends, a practice more widely adopted in other industries. Microsoft's chief financial officer indicates that the IT sector could begin to resemble other industries in other ways, too.

Besides reinvesting profit, many IT vendors shy away from over borrowing. In an interview with McKinsey Quarterly, published by business consultant McKinsey & Co., Microsoft CFO John Connors was asked whether the high-tech industry is seriously underleveraged and whether the sector will take on more debt over the next couple of years in order to increase returns on equity.

Connors didn't think so, noting that IT vendors continue to have high price/earning ratios when compared with other industries. "The growth rate assumption priced into tech companies' stock is that tech will continue to grow faster than other industries, although the differences in growth assumptions between tech and other industries have begun to narrow," he said.

Despite startups like startups like Google, Connors said, the IT sector will likely be treated by Wall Street like other industries in the not-too-distant future. "The real question would be whether the market starts assessing technology companies the way it measures companies in other industries," he said. "So if the market starts to measure technology in terms of returns on equity, capital, and assets, you will probably see more financial engineering of technology companies to bring them in line with companies in other industries."

In other words, once analysts recognize the reality that IT is a mature industry, tech companies will start acting their age.

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