Stock up as sales slide

Stock up as sales slide

Ailing sales figures and outsourcing concerns will have an immediate impact on IT spending and distribution inventory levels, according to analyst IDC.

A raft of poor quarterly results for 2000's fourth calendar quarter from the likes of Apple, HP, Microsoft, Gateway and 3Com have created uncertainty in the US economy, prompting IT departments and consumers alike to put the brakes on IT spending.

This tightening of the purse strings has already increased the market competition between vendors in Australia ten-fold, according to IDC.

In addition, the Federal Government's blunder on IT outsourcing will have an immediate impact on IT spending, according to IDC analyst Bernie Esner. He also claims the local channel is carrying surplus stock following the traditional vendor "stuffing" to boost sales at the end of the quarter.

"There was talk at the end of last year about vendors raising their prices, but all of a sudden they're dropping them just to get rid of their inventories," he said.

IDC's figures also showed that PC sales were off for the fourth calendar quarter. Apple has already reported a $US195 million net loss for its first fiscal quarter, of which 0.7 per cent is contributed by Australia. Networking equipment manufacturers Cisco and Foundry Networks are also reporting a slowdown in sales.

After reporting in November that it had badly missed its earnings goal for its fourth fiscal quarter, ended October 31, 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," Carly Fiorina, the company's president, chairman and chief executive officer (CEO), said after announcing that HP was lowering its earnings forecast for the first half of its fiscal year, which ends on April 30.

IBM however raged against the trend, posting $3.3 billion total revenue in Australia, according to IDC estimates. This represents a rise of approximately nine per cent on the company's 1999 fiscal year.

Although some sectors of the IT market such as software may fare better, the malaise is widespread. While 2000 demonstrated violent and unexpected peaks and troughs, 2001 lacks the sales drivers of the past year, such as GST and the Olympics. This means vendors will have to work harder to differentiate themselves from the mob.

With SMEs and home users watching their pennies, large corporates offer the most opportunities, Esner observes. "They haven't really been spending for the last 18 months so the opportunity exists for new sales. The hard sell is on, but a lot of people will be fighting for the same sale."

Photograph: IDC analyst Bernie Esner.

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