Tech spending forecast shows no signs of upturn
BY DAVID A. SYLVESTER
Posted at 1:18 a.m. PDT Tuesday, Aug. 7, 2001
Mercury News
More evidence surfaced Monday that the tech economy is scraping along an unceremonious bottom without any clear signs of a strong upturn soon.
A new survey of 250 chief information officers at major corporations reported they stopped slashing their annual budgets for technology in July for the second month in a row. Instead, they expect their tech spending to grow at a modest, but stable, 6 percent rate over the next 12 months.
That's the same as their estimate in June, but dramatically lower than last year's growth rates of 15 percent to 20 percent, according to the survey by Deutsche Banc Alex. Brown Securities and CIO Magazine.
``The tech wreck may be over, but it's going to take some time to clean up the mess left behind so the next convoy of tech spending can come down the road,'' said Edward Yardeni, chief investment strategist at Deutsche Banc.
The estimate falls in line with a similar survey done in mid-July at Merrill Lynch showing that tech budgets would increase by about 4 percent this year.
In Europe, a major market for valley tech companies, the outlook has worsened considerably. More than half of the chief information officers surveyed are now expecting to spend less than 5 percent and almost a third are still expecting to cut their tech budgets, the Merrill Lynch data shows.
``There's no light to the end of the tunnel yet,'' said Steven Milunovich, chief tech strategist at Merrill Lynch.
Unless there is a dramatic turnaround soon, these surveys would confirm the most pessimistic predictions of economists earlier this year. The big guessing game was whether the economy would have a ``V'' recovery, perhaps a one-quarter drop with quick return to growth -- or a ``U'' recovery, which entails a protracted slowdown. A few predicted an ``L'' downturn, in which the economy sinks and then fails to launch a convincing recovery for some time.
Demand stays low
Whatever happens to the U.S. economy, the tech world looks more and more like demand has fallen off a cliff and stayed there.
``The tech world looks like it's having an ``L'' in its growth rate,'' said Yardeni.
The weak demand for tech products has hit semiconductor companies particularly hard. Jonathan Joseph, chip analyst at Salomon Smith Barney, calculates that chips are now in their worst recession in 30 years, even worse than the downturn in late 1985. In June, shipments were 31 percent less than they were a year ago, breaking the previous record of a 26 percent decline in October 1985, he said.
Poor market conditions are one reason Intel is now widely expected to cut prices for its popular Pentium microprocessors to stimulate demand. The news cut Intel's stock price by $1.40 a share Monday, more than 4 percent, to close at $30.28. Intel rival Advanced Micro Devices fell $1.63 to $17.62.
The extent of the tech decline also turned up in new layoff statistics. Outplacement firm Challenger, Gray & Christmas said Monday that telecommunications, computer, electronic and industrial companies led the record number of job layoffs announced in July. Total U.S. job cuts announced in July hit 205,975, up from 124,852 in June, the firm said. Almost half of these cuts came from makers of telecommunications, computer and electronics products.
Stocks fall
Stocks slumped on the bad economic news. The tech-heavy Nasdaq composite index fell 32.07 points, or 1.55 percent, to 2,034.26.
The blue-chip Dow Jones industrial average slumped 111.47 points, or 1.06 percent, to 10,401.31, and the broader Standard & Poor's 500 index fell 13.87 points, or 1.14 percent, to 1,200.48.
``Job cuts tell us as much about the economy's future as they do about the present. Companies are looking at their staffing needs for the balance of 2001 and the numbers do not present a very positive picture,'' John Challenger, chief executive of Challenger, Gray & Christmas, told Reuters.
Mercury News wire services contributed to this report.
__________
Contact David A. Sylvester at dsylvester@sjmercury.com |
