KPMG says telecom boom will rumble on

KPMG doesn't forecast the IT industry turning around until after 2009, Gary Matuszak, the firm's global chair of its information, communications and entertainment unit, told a gathering in Hong Kong last Friday.


He said that IT companies were now being hit -- nine months after the S&P 500 first were impacted -- a trend that has played out in most past recessions.


The bright spot could be the consumer market with solid growth expected throughout 2009.  The Consumer Electronics Association is predicting 3.5% growth in Q4 while the SIA forecasts growth of 21% for CE products and 19% for cellphones.


Sales of semiconductors and PC hardware are expected to decline 5% next year.


Despite doom and gloom in the US and Europe, KPMG sees emerging markets - fuelled in large part by China and India - growing at 10% this year and 7% next year, after increasing 12% in 2007.


The good news for telecom is that the sector is expected to continue its strong growth, with 10% annual growth through 2013. The caveat is that the larger operators are likely to thrive while smaller ones struggle.


Matuszak said the IPO market will remain extremely tight. But valuations have come down as much as 60%, making many companies much more attractive. He said this will increase M&A opportunities, with more deals likely next year. But the size of the deals will shrink.


"The question is, when is the valuation right‾ You have to be careful not to wait too long. But even at these valuations, you have to be careful and do careful due diligence," he said.


He noted that a big difference from three to four years back is that US firms are more comfortable making investments in developing markets, particularly China.