The new millennium is proving to be a challenging time for the computer industry and its distributor customers as they negotiate one hurdle after another.

Just as companies were recovering from frantic and costly efforts to ward off the dreaded "Millennium Bug," many of the business-to-consumer, and even business-to-business, dot-coms crashed and burned. These widely publicized failures instigated free-fall declines in the NASDAQ, which dragged many technology sector securities down with it. And while 2001 hardly began as a banner year for the economy, the already lackluster business climate received a crippling blow on September 11.

As a result, the semiconductor industry declined significantly and sales of many software products are down. Consolidation in the software sector is adding more fuel to the fire.

According to Gartner Inc., preliminary figures indicate that in 2001 the semiconductor industry experienced the most significant decline in its history. Gartner — a technology research and advisory firm based in Stamford, Conn. — reports that worldwide semiconductor revenues dropped a whopping 33 percent last year to $152 billion. Revenue slides ranging from 19 to 49 percent were experienced by all of the top 10 semiconductor vendors, Gartner reports.

In another study, Gartner says the economic slowdown also had a negative impact on sales of customer relationship management software, one of last year's "hot" software niches. CRM software revenue is expected to show a decline of eight percent for 2001 — a marked contrast to its 89 percent growth rate in 2000. The slump in CRM program sales is a bellwether for the entire software industry.

In a research report completed at the end of 2001, Gartner warned that the software industry is in for a prolonged period of consolidation and retrenchment. The report notes that as companies become more conservative in their purchasing of software products, the software industry is entering a period of consolidation likely to extend into 2003. In the last three years, according to Gartner, more than 25 percent of the nation's leading software companies have been involved in mergers, acquisitions or divestitures. And in the next three years Gartner analysts expect the pace to accelerate and reach 50 percent.

"In many cases, strong brand names will survive under a new owner where the equity justifies it," said Joanne Correia, vice president for Gartner Dataquest's Software Industry Research group.

Unsurprisingly, the one notable exception to weakening software sales is in the area of security applications. While most segments of the software industry are expected to decline, security software sales are expected to grow, although at a slower pace. Gartner reports that in 2000, worldwide security software revenue grew 25 percent, compared to an estimated 12 percent increase in 2001. Gartner expects to see 18 and 16 percent growth rates respectively in 2002 and 2003.

However, until the dust settles in the software industry, the best advice for distributors might be to avoid "Brand X" software whenever possible and stick to products from established industry leaders.

But any brand of software will allow you to send your comments or suggestions to harper.d@att.net.