Adam Gifford: Positive stories lurk in figures that show decline of IT exports

As a headline it sounds bad - that a 15 per cent fall in IT exports cast doubt on plans by the Government and industry for a high-tech future.

But the data unearthed by the annual Statistics New Zealand survey doesn't fit with what I hear from software and electronics companies. Is it a case of Statistics being too busy counting the trees to see the forest, or is something else going on?

Total IT export sales, which peaked at $967 million in 2002, were down to $576 million.

Most of the decline was in communications hardware and cables, which plunged 42 per cent. In the past two years, that category has fallen from $432 million to $151 million.

Software sales dropped 4.6 per cent from $114 million to $108 million. Services increased 1 per cent to $248 million.

Depending on respondents' balance dates, the survey includes data from both the 2003 and March 2004 financial years. That means it looks back into a particularly tough time for the industry.

Worldwide, the telecommunications industry was in poor health. The dotcom crash came as a blow to many large telcos, and their spending on new equipment was curtailed.

International Data Corp country manager Graeme Muller believes the decline may be in part due to some companies shifting their low-margin manufacturing to places such as China and Malaysia, in line with worldwide trends, while keeping higher value research and development here.

The slight decline in returns for software exports is more than accounted for by the exchange rate, with the dollar appreciating 25.05 per cent in 2003 and a further 9.7 per cent during 2004.

There are other more subtle shifts to do with the maturing of some of our software companies.

Exporting software companies often develop complicated financial structures as they move overseas and attract foreign investment, either through sales or equity, or mergers or partial mergers with partners and distributors.

That means their earnings profile shifts from year to year, as some of the revenue gets left in foreign subsidiaries, or the parent shifts overseas.

The refusal by Telecom to provide proper broadband, or the Government to make it do so, also affects software development.

New Zealand software companies received a boost from early deregulation of the electricity industry, which is now being translated into export sales of utility billing, network management and other energy-related software.

There is a similar story in the health sector, which was spurred by early adoption of electronic patient records. But we could be left behind in the market for broadband applications because local customers aren't asking for them to be developed.

There are other changes in the industry affecting sales of both, and related services. Projects tend to be shorter, and the per-seat cost of many market-leading enterprise software products has dropped.

Despite this, revenue from services exports is increasing after the post-Y2K slowdown.

"That is where we want to go," Muller says, pointing to the higher margins to be gained from services than from commodity hardware or software.

Again, services data can be hard to interpret, such as the reasons for a $100 million blip in services exports back in 2002 - that kind of income didn't show up in the results of any of the main services companies.

There is also a lot of industry conjecture about how and where the multinationals report services income. Many multinationals develop software here and make it available within their group, but there are disparities about how different organisations treat that.

Statistics is aware many of its numbers don't cast much light, and is making changes.

Spokesman Gareth Meech says future surveys will offer more examples, so companies are better able to match their income with the appropriate category.

It will also ask some attitudinal questions, such as what companies feel are barriers to growth.

Some of the categories will be altered to get them in line with similar international surveys.

Meech says Statistics is planning four new surveys to give policymakers a better understanding of trends in information and telecommunications technology.

The first new survey, which will go out in August, will quiz internet service providers on how their subscriber base breaks down into business and residential customers, what modes of connection and speeds they sign up for, and how much use is made of spam filters and anti-virus software.

In August next year, Statistics will send out questionnaires on ICT usage by business and Government bodies, and in September 2006 it will survey household use of such technology.

Jim O'Neill, executive director of the Information Technology Association of New Zealand welcomes the changes, but says Statistics can go further.

"We would like statistics on how ICT affects productivity," O'Neill says.

He says Itanz's own research has indicated New Zealand software and services firms are more productive then their counterparts overseas.

Part of the shift to a knowledge economy requires having more knowledge about the economy and any effort by Statistics to make its surveys more useful should be applauded.