Several corporate outlooks disappointed last week, most notably from Cisco
Systems, suggesting that investors will have to settle for a "revenue lite"
menu at least for the fourth quarter. While the consumer's recent stinginess
on PCs and other items has been attributed to a mixed economic landscape amid
high oil prices and a still fragile labor situation, reluctance of
corporations to spend on new technology seems based on other issues. One could
say that technology is the victim of its own success, as companies are still
wringing out a lot of new applications from their IT purchases made in the
90s, and thus, do not feel the need to buy new hardware and software. Forrest
Research predicts in The Wall Street Journal that such a "digestion" process
will extend until 2008. Further, no "revolutionary" technology has come to the
fore since the 90s. Greater competition has also reduced prices in some tech
areas. Anecdotal evidence suggests that many companies have the extra cash,
but often use it for acquisitions or stock buybacks, thus negating the idea
that the IT capex dry-out is mainly due to fundamentals. The most recent
Goldman Sachs survey of 100 large corporate tech buyers found that 14% expect
spending to drop by 10% or more, compared with only 5% in the June survey.
"It's not bleak, it's just dull," commented Goldman's Laura Conigliaro in WSJ.
In other statistics, Merrill Lynch found that orders for tech gear rose 4% in
September and have been slowing. Further, the WSJ reported that inventories of
basic components such as chips have increased for three consecutive quarters,
and that the Semiconductor Industry Association also forecast that chip sales
wouldn't grow at all next year. In sum, pessimism could eventually settle in,
and companies may have to make great efforts to differentiate themselves amid
a lackluster lot in order to end up on investors' Christmas wish lists.
High-Tech Monday Update is provided courtesy of Thomson Financial. This
information is believed to be true and accurate; we take no responsibility for
inaccurate information and reserve the right to update our reports. For more
information, please visit our web site at http://www.thomson.com/financial.
SOURCE Thomson Financial
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