NEW YORK — Technology companies often say their products ought to remain appealing in an economic downturn because they can save businesses money by making operations more efficient. But corporate spending apparently is being cut too forcefully for that message to get through.
Cisco Systems Inc., the first of the major technology companies to report earnings that included October, said Wednesday that orders for its computer networking equipment fell abruptly in the month. That warning echoed throughout the tech sector Thursday, with one analyst calling it the “final straw” in downgrading another tech bellwether, Hewlett-Packard Co.
October might turn out to be the worst month of the quarter, especially if credit markets revive. Daily headlines about the troubled global economy, the $700 billion bailout package and the crisis that basically dried up credit markets last month made it, in some sense, “an anomaly,” said Forrester Research analyst Andrew Bartels.
Still, it appears the fourth quarter could be even more disappointing than technology vendors already had expected. Businesses are cutting back spending by putting off equipment purchases and upgrades and laying off workers. Even software, considered a safer bet because it helps companies automate costly steps, will also likely take a hit.
“It’s inevitable that all technology companies, with varying degrees, will be running into the same thing,” said Stephen Minton, an analyst for research firm IDC. “The reaction of businesses to the economic crisis is to stop spending money.”
Technology makes up a big chunk of corporate spending. Of the total amount of money that U.S. businesses spend on fixed investments, which includes offices and factories, about 28 percent goes to computer and communications equipment and software, according to Commerce Department data analyzed by Bartels.
IDC expects very little growth in overall tech spending for the rest of the year and through most of 2009. Spending in the U.S. and Europe will likely be roughly flat, while emerging markets should continue to grow.
Products that require capital spending — such as routers, switches and computers, are expected to suffer first, Minton said.
That was reflected in Cisco’s numbers. Its profit met Wall Street’s expectations, but orders deteriorated as the quarter went on, with a 9 percent year-over-year decline in October.
Talk to us
> Give us your news tips.
> Send us a letter to the editor.
> More Herald contact information.
