04 Dec Dane County tech businesses show strength despite talk of downturn
Madison, Wis. – The stock slide on Wall Street, the fallout in the housing market, and the surge in oil prices earlier this year painted a gloomy outlook – even possible recession – for 2008, but the outlook in Dane County is considerably brighter, especially the technology sector, according to the fifth annual First Business Bank Economic Survey of Dane County.
The survey, conducted by the A.C. Nielsen Center for Marketing Research at the University of Wisconsin-Madison School of Business, queried 544 businesses between September and November of 2007. The survey was sent to CEOs, CFOs, presidents or owners of Dane County businesses with five or more employees.
Despite dire predictions, the survey reports that Dane County businesses continue to prosper. Two-thirds reported unchanged or increased profitability as compared to 2006, and more than four-fifths project stability or growth in profitability with lower operating costs and more capital spending next year.
Of the 528 responding businesses, 23 or 4.4 percent of the total, were in the technology category. They, along with companies in service, manufacturing, retail and other categories, were asked about actual (2007) and projected profitability, operating costs, capital expenses, and labor growth.
The technology sector fared well in these categories, as 86 percent project increases in profitability, compared to 80 percent that actually will report a profit for 2007; 70 percent expect to increase capital expenditures next year, compared to 62 percent that actually ramped up capital spending in 2007; and 86 percent said they would add employees in 2008, compared to the 62 percent that expanded hiring this year.
A whopping 90 percent of tech firms anticipate paying higher wages next year, while 81 percent actually paid more in 2007. Perhaps as a result of that, 55 percent project an increase in operating costs, compared to 33 percent that actually saw costs increase in 2007.
Overall, expectations for 2008 reflect a more cautious attitude than last year, as fewer firms expect to do better. Despite the expectations for growth, local businesses are predicting slower growth based on their 2007 experience.
More respondents reported their performance in 2007 was below expectations, and fewer said they met expectations than ever before. For the first time in survey’s history, more businesses didn’t meet expectations than those that did, citing higher operating costs, domestic sales shortfalls, and rising gas prices.
Corey Chambas, president of First Business Financial Services, noted that the unique makeup of Dane County – which is home to UW-Madison, state, county, and city government, and a growing biotechnology industry – helps foster economic consistency.
While noting some signs of a slowdown, Scott Converse, director of technology and innovation programs for executive education at the UW-Madison School of Business, pointed to some of the underlying drivers for growth. They include such projections of higher capital expenditures and contained operating expenses.
After three years of decreased capital expenditures, businesses are predicting they’ll reverse that trend. Investment in this area reflects confidence that any slowdown occurring now will reverse its course in the near future, Converse said.
Other key overall trends include:
• Two-thirds of businesses reported same levels or increasing profitability from 2006, but there is a projected decrease in profitability for 2008.
• Firms that do business nationally and internationally fared better than those who only do business in Dane County; businesses in the technology sector performed the best.
• Labor numbers dipped slightly. While more businesses in 2007 report no change in actual number of employees from 2006, but increases in headcount are down more than last year.
• The number of firms reporting an actual increase in total operating costs as a percent of revenue has dropped once again, continuing the trend that started with the 2004 survey. In addition, the firms reporting an actual decrease in total operating costs as a percent of revenue continues to rise.
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