In the next few weeks, several major IT vendors will announce earnings for 2000's fourth calendar quarter, and many already have warned that they will not meet initial forecasts, including Intel, Hewlett-Packard and Microsoft.
Uncertainty in the US economy is prompting companies and consumers alike to put the brakes on IT spending, such as hardware, software and services. PC sales were off for the fourth calendar quarter, according to figures from International Data Corp, while networking equipment manufacturers, such as Cisco Systems and Foundry Networks are also reporting a slowdown in sales.
"It's the slowing economy," said Chuck Hill, director of research for First Call/Thomson Financial in Boston. "The consumer is not spending. You go into a recession [as a company], you have to cut back your capital budget."
HP's case is a good example of the troubles affecting IT vendors. After reporting in November that it had badly missed its earnings goal for its fourth fiscal quarter, HP said it was on track to meet its first-quarter expectations. That is, until sales went south in December.
"December was like someone turned the lights out," said Carly Fiorina, the company's president, chairman and CEO, said in a conference call Thursday after announcing that HP was lowering its earnings forecast for the first half of its fiscal year, which ends on April 30.
During the call, she also said that many of her counterparts at other IT companies had talked about a significant sales slowdown in the latter part of 2000 during a recent meeting with President-elect George W. Bush.
Although some IT areas, such as sectors of the software market, may fare better, the malaise is widespread. The Standard & Poor's 500 revenue growth rate for the 83 companies in the technology sector stood at 42 per cent in the fourth quarter of 2000. The growth rate sits at just 3 per cent for the first quarter of 2001, Hill said.
Not only is the apparent slowdown in the US economy hitting its own companies but also those abroad, analysts say.
"The nascent Asian recovery has been stifled by the recent rapid downturn in the US," said IDC analyst Roger Kay. "[Taiwanese PC maker] Acer shut some factories, and they tightened down a lot of different stuff. IBM has cited weakness in Japan in consumer [sales] during the last quarter. So there's a number of different data points that suggest a slowdown. Asia depends to a greater degree than we do on export, and export to [the US]. If we're not buying expensive electronics, they're going to know that."
Among Asian countries, China, to a significant degree, is insulated from international trends, he added. "It's pretty much pumping along on its own steam," with local manufacturers like PC maker Legend Computer Systems continuing to clock up strong sales.
But IT companies in other developing countries in the region "can take a hit very suddenly, because they're so export-tied for hard currency earnings", Kay said.
As for Japan, it faces some of the same market saturation issues as the US, he continued. "They had lower penetration than [the US] did for a long time, but it's not a lot lower anymore."