re EMC -
Monday February 4 11:51 AM ET
Tech CEOs Take Dim View of 2002
Rebound Scenario
By Eric Auchard
NEW YORK (Reuters) - Top
high-tech executives attending the
World Economic Forum (news - web
sites) are far gloomier than Wall Street
about the economic outlook for this
year and see little hope of a rebound
until 2003.
``We've been very cautious about the
economy,'' said Michael Ruettgers,
chairman of EMC Corp., the largest
supplier of storage equipment used to
house corporate data. ``My own
feeling is that you shouldn't plan on a
strong recovery this year,'' he said at
the meeting of the world's political and
business elite.
His comments echoed sentiments of
Microsoft Corp. (Nasdaq:MSFT - news) Chairman Bill
Gates (news - web sites), who said on Sunday that he sees
no global economic recovery this year, countering a budding
groundswell of optimism tied to recent economic data
pointing to a rebound in the second half of 2002.
``I don't see any big uptick in this year. Japan certainly
won't be, and the U.S. won't be,'' Gates told an audience of
editors and reporters attending the five-day World
Economic Forum summit of political and business leaders in
New York.
On a positive note, Gates said: ``Europe may be a little
more positive,'' referring to a rebound in its overall
economy.
Gates, co-founder of the world's largest software supplier,
said that corporate capital spending cuts and a glut of excess
capacity in hard-hit sectors such as telecommunications may
keep the economy moving sideways through the rest of
2002.
Their remarks contrasted with more bullish views voiced by
some leading economists here this weekend.
Some economists have argued that Europe was making
steady progress toward recovery, but could not lead the
world out of recession by itself. Japan's economy may get
worse before getting better, many experts have said.
At the forum this weekend, Conference Board (news - web
sites) Chief Economist Gail Fosler forecast that the U.S.
economy would stage a healthy rebound out of recession
later this year, and its gross domestic product would grow
by 4.2 percent in 2003.
The mood among high-tech leaders reflects a caution borne
of the on-going hangover felt from go-go years gone by,
when a seemingly limitless supply of capital, delayed profits,
loose accounting standards and mega-mergers became the
rules of the game.
``The sobriety will stay, the somberness will stay. It's very
healthy,'' Gates said. ``I like this period where people are
forced to play by rules driven by economic sense.''
SEARCH FOR NEW HIGH-TECH DRIVERS
Analysts say that a rebound in the high-tech economy will
require more than just a rebound in the psychology of
economic well-being, it will take a new round of product
innovation to spur increased demand by businesses and
consumers.
In a recent grim report on the sector, Pip Coburn, global
technology strategist for brokerage UBS Warburg, wrote:
``Growth will be slow this year (2002) and next year prior
to the emergence of material impacts in 2004 from fresh
technologies.''
``We are concerned that the enterprise (corporate sector)
will not broadly start spending until, say, six months after
profits start to recover,'' Coburn wrote of the timing of any
tech recovery.
In an interview at the World Economic Forum, James
Morgan chairman and chief executive of Applied Materials
(Nasdaq:AMAT - news), the dominant maker of
semiconductor equipment, said that he remains concerned
at the slow pace at which major tech companies are
investing in new equipment.
Morgan described the chicken and egg conundrum that exists for his industry as for
decades, demand for new high-tech products has been driven by an inexorable
increase in the power and intelligence of electronic devices.
Underlying this magical increase has been heavy investment in sophisticated
semiconductor production equipment that squeezes ever more transistors onto each
computer chip.
``I'm still concerned,'' Morgan said, adding that a very significant investment needs to
be made by big equipment customers such as Intel Corp. (Nasdaq:INTC - news),
Taiwan's TSMC (2330.TW), and Sony Corp (news - web sites). (6758.T) and
others.
``So far they have put in pilot line ...and some limited production but they'll need to
do ... more over the next five years,'' Morgan said of purchases of Applied's latest
generation of wafer-maker and circuit-laying machinery.
The failure to reinvest in this base-building segment of the high-tech economy could
hurt the electronics industry's capacity to meet future increased demand, Morgan
opined.
But he declined comment on Applied Material's own near-term financial outlook
ahead of the release of the company's quarterly financial results, due out on Feb. 12.
SOME SIGNS OF LIFE
Rick Belluzzo, president and chief operating officer of Microsoft, told Reuters that
Gates' comments were referring not simply to the high-tech sector, but to what
Microsoft was seeing across the global economy in general.
When asked to forecast when the world's economy might see a return back to healthy
growth, he echoed Gates, saying: ``It depends on what you mean by 'back.' I think
you will start to see growth in two to three quarters.''
``In some segments it may take longer,'' he added.
Still, the news is not all glum and there are pockets of strength among high-tech
companies. The Internet is not going away and consumers' lust for new gadgets is as
strong as ever.
Some of the better performing high-tech sectors include business automation and
security software, video game equipment and software -- a Microsoft stronghold --
and isolated stand-outs like Nokia (news - web sites) (NYSE:NOK - news), the
world's biggest mobile telephone maker.
American Airlines (NYSE:AMR - news) CEO Donald Carty offers anecdotal
evidence that life is returning to the high-tech economy by noting that business travel
by employees of leading companies has begun to snap back, a precursor to further
deal-making.
``The Ciscos, Intels, Dells -- we are starting to see a higher level of business travel
than we saw in the fall,'' he told Reuters.
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