Technology Hardware Spending: Accelerating Weakness

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While neither Ingram Micro or Dell mentioned the financial sector specifically, they were the first major technology companies to warn investors. Lehman Brothers collapsed, Merrill Lynch is being taken over, and insurer American International Group is fighting for its survival. Is more downturn on technology spending to come?


Analysts said Ingram Micro -- which distributes electronic products such as PC components, printers and cables -- was more focused on small and medium businesses, and therefore less directly vulnerable to the banking sector crisis than Dell and companies like data storage equipment maker EMC Corp (EMC.N: Quote, Profile, Research, Stock Buzz).

"It's been known for sometime that the financial sector is a weak sector. On the other hand, what we've seen over the last few weeks is that the weakness is accelerating," said Shebly Seyrafi, an analyst with Calyon Securities Inc.

"If you look at something like EMC, for example, they typically derive about 15 to 20 percent of revenue from the financial sector. A lot of other companies derive similar percentages. So it's a rather large sector and if the weakness there accelerates, it could bode negatively, incrementally, for the next six months."

Another company in the storage space, Seagate Technology (STX.N: Quote, Profile, Research, Stock Buzz), said poor visibility about where the economy was heading was causing people to pull back spending plans.

"Right now people are uncertain about the credit (market), are uncertain about oil prices," Seagate Chief Executive Bill Watkins told Reuters in an interview.

Dell is "much more in tune to small businesses -- that's where they sell a lot of their stuff -- and I'm sure that market is tough," he said, noting that more consumer-focused companies like Apple Inc (AAPL.O: Quote, Profile, Research, Stock Buzz) could do better.

Analysts also said that Dell's news might not be so negative for its biggest rival HP.

"We think HP is well positioned to outperform given its diverse product line up and ability to leverage the EDS channel for incremental sales," said Cross.

HP said on Monday it would cut 24,600 jobs, or 7.5 percent of its workforce, seeking to realize cost savings from its acquisition of computer services provider Electronic Data Systems Corp.

(Additional reporting by Paul Thomasch; Editing by Derek Caney)

This article was originally published on 2008-09-16
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