Big tech: A shelter in the storm

(Fortune Magazine) -- Technology is different. Despite pervasive economic uncertainty, that's the message that many of the industry's big firms are sending in their latest earnings reports. We may be buying fewer Starbucks mocha lattes and shipping fewer packages through UPS. But tech sales - from gadgets to high-end services - are thriving.

Not every tech company is booming, of course. But those that are, like Apple (APPL), Autodesk, EMC, Google (GOOG, Fortune 500), IBM, Intel (INTC, Fortune 500), Microsoft and Qualcomm, have a couple of traits in common.

First, they're all running truly global operations, most with special emphasis on developing countries where economic growth remains strong. At IBM (IBM, Fortune 500), CEO Sam Palmisano late last year announced intentions to invest $1.6 billion in 50 developing countries, and that's not including Brazil, Russia, India, and China. Though Google's U.S. growth slowed last quarter, international sales more than compensated, goosing overall revenues by 42% over the year before. At storage giant EMC, international sales jumped 21%. Many top tech executives who travel constantly remain undaunted about the domestic plateau. Says Michael Dell: "Our customers all say some version of the same thing - Asia's going gangbusters, the Middle East is really good, Europe's good, and the U.S. not so much." Adds Carol Bartz, chairman of design-software leader Autodesk (ADSK): "Shareholders panic because the U.S. is slow. But that's ridiculous. I was just in Eastern Europe, and it's crazy, the growth we're seeing there."

Second, the other dynamic boosting these companies is the general attitude toward technology. It no longer represents discretionary spending. You may forgo buying a new, all-titanium performance refrigerator, but you can't go without your DSL connection or your mobile phone. According to a new survey by NPD Group, U.S. consumers will cut spending on home furnishings, clothing, and restaurants before they'll stop buying consumer electronics like videogames. AT&T's profits were up 22% on strength in cellphones, including those coveted iPhones. Verizon likewise jumped 9%.

On the enterprise side, more companies realize that in a downturn, investing in technology can be a money saver. VMware leads the industry in virtualization software, which allows customers to save energy and buy fewer servers. The company is a cost-cutting machine; revenues soared 71% in the first quarter.

Some may worry that this U.S. downturn could be like the one that followed the dot-com bust, when companies stopped buying technology. But IBM treasurer Jesse Green disputes the comparison. "From 2001 to 2004, there was tremendous overcapacity in IT," he says. "Everybody had just done Y2K and been through the bubble. They already had huge new systems installed. That's not true this time. Companies still have to invest to improve their business."

The big opportunity for the IT industry is that the world remains essentially unwired. While 71% of Americans are connected to the Net, that number is only 20% worldwide, according to a report by J.P. Morgan Internet analyst Imran Khan. But the disparity is shrinking. Net connectedness has averaged more than 20% compound growth in the past seven years.

This desire to get wired will have real ripple effects. In the U.S. we have 80 PCs in use per 100 people. Worldwide it's only 13 per 100. Italians and Israelis may have more than 100 cellphones per 100 people, but worldwide the number is only 13 per 100, and subscriptions grew 27% last year, according to Khan. Says Microsoft (MSFT, Fortune 500) chairman Bill Gates of his company: "We've had monster growth internationally, and a lot is still in front of us. Yes, China is going to be big. But Russia and India are actually, for us, even bigger stories."

And let's not forget the contribution of Moore's law to technology's resilience. The chips inside all digital devices grow exponentially more powerful over time. That drives down the price of computing power while inspiring greater innovation. In recent years we've seen breakthrough gadgets like the iPhone and the rise of new web applications like social networking. Businesses are equally excited about virtualization and software-as-a-service. Unless we enter a sustained global downturn, innovations like those will probably keep the tech industry healthy and growing.