Expectations for tech recovery pushed back

By Brian Bergstein, The Associated Press
Saturday June 22, 2002

Nasdaq index fell to lowest level of the year on Friday 


SAN JOSE — When the dust cleared last year from the dot-com meltdown, many in the technology industry hoped for recovery by now. Later, with indicators still flagging, the talk was of a late 2002 rebound. 

But here at the half-year mark, with earnings warnings from the likes of Intel Corp., Apple Computer Inc. and Oracle Corp., the tech sector might soon be adopting the attitude of baseball fans whose teams drop out of the pennant race: Wait ’til next year. 

Investors certainly are pessimistic. The tech-heavy Nasdaq Stock Market index fell to its lowest level of the year Friday and is down 26 percent in 2002. 

The reasons are clear. Many corporations are getting by without upgrading their existing technology, especially computers and other hardware. 

The businesses that are making purchases have been getting bargain prices and demanding more proof that new technologies will save them time and money in the long run. 

“There’s just so much resistance to spending,” said Michelle Johnson, head of solutions marketing for Volera Inc., a subsidiary of Novell Inc. that helps companies manage content on their networks. “If it’s a new technology the CTO (chief technology officer) or CEO hasn’t seen before, it’s called into question.” 

As a result, she said, the stance many corporate technology directors take is: “We’ll spend on stuff we have to do — all that newfangled stuff I’d like to do, I’ll hold off on.” 

The overall economy is recovering from last year’s recession, but many big businesses assembled their 2002 technology budgets last summer, when doubts were higher. That means “projects for this year are locked and loaded,” and many new purchases must wait, said Al Case, a senior vice president at Gartner Inc. who directs surveys about corporate technology spending. He predicts an improvement in the second half of 2003. 

Last month, Gartner forecast that information-technology spending would increase a slim 1.5 percent this year. Another research firm, Giga Information Group, predicted spending would stay flat. 

Not surprisingly, several sectors are slumping. 

Oracle, a business software giant, beat analysts’ forecasts with its quarterly earnings Tuesday but warned that the next set of results would be below expectations. Adobe Systems Inc., a leading maker of publishing software, also lowered sales and profit targets this month. 

Continued cost-slashing in the troubled telecommunications industry is creating headaches for network equipment providers that grew fat in the 1990s Internet mania. Weak results are expected this quarter at Juniper Networks Inc., Ciena Corp. and JDS Uniphase Corp. 

Big companies aren’t the only ones being stingy — consumers are, too. Expectations of tepid PC sales during the upcoming back-to-school season are translating into weak sales for chip-making giants Intel and Advanced Micro Devices Inc. 

AMD executives still hope PC demand will rise in the second half, and said sales of flash memory for consumer electronics devices are improving. But their earnings warning Tuesday was so severe that Wall Street analysts ripped up earlier projections that AMD would lose 9 cents per share this quarter and now predict a loss of 36 cents per share. 

At Apple, which generates about 40 percent of its sales from the education market, school sales do not yet appear to be a “major area of weakness,” said chief financial officer Fred Anderson. But Apple’s traditional revenue boost from the June “Dads and Grads” season did not materialize this year, he noted. 

Amid the doom and gloom, there are varying estimates of when the industry might begin to recover. 

Intel, for example, could see consumer and corporate sales pick up in the fourth quarter if the economy keeps stabilizing, said analyst Ashok Kumar of U.S. Bancorp Piper Jaffray. But he also pointed out that AMD and Intel are both expected to release new chips in first quarter 2003, which could give customers reason to hold off at least until then. 

Another analyst, Salomon Smith Barney’s Richard Gardner, said in a report Friday that PC demand probably isn’t as bad as Intel and AMD suggest. He upgraded his rating for shares of Dell Computer Corp. 

Hicks, Muse, Tate & Furst, a Dallas-based private investment firm with 200 employees, has increased its technology spending by 15 percent over last year, and probably will see a 10 to 12 percent rise next year. 

But Matthew Ramsey, who serves as the firm’s chief information officer through a contract with an outside company called Hostnet, said he has been holding off on investing in new technologies whose benefits are less than certain, especially new network capacity and so-called customer-relationship management software. 

With other corporate buyers exercising similar skepticism, he said, the information technology sector “might not even be bottomed out yet.”