Technology Shows Few Signs of Rebound
By JUSTIN POPE
AP Business Writer
biz.yahoo.com
EMC, IBM Reports Show Business Technology Spending Still Slumping
BOSTON (AP) -- With double-digit drops in first-quarter revenue, data storage company EMC and computer giant IBM inspired little confidence that corporate technology spending is rebounding.
Hopkinton-based EMC said Thursday it lost $77 million, or 3 cents per share, in the first quarter, in contrast to a profit of $399 million, or 18 cents per share, a year ago. Revenues fell 14 percent.
The news came a day after IBM Corp. reported a 31-percent drop in first-quarter earnings, in line with the reduced expectations it laid out last week in a rare earnings warning.
IBM, which makes a wide array of computer products, and to a lesser extent EMC, which makes the hardware and software that manage large chunks of data for mostly corporate customers, are viewed as proxies for business technology spending.
Also on Thursday, research firm IDC reported that worldwide PC sales fell 2.7 percent for the first quarter to 31.4 million. The firm did not divide the figures between consumer and business sales, but Roger Kay, IDC director of client computing, said traditionally 30 to 40 percent of PC sales are for business.
Investors liked the news that EMC had reached a $200 million savings target a quarter early and bid up shares 60 cents, or 6 percent, to $11 in trading Thursday afternoon on the New York Stock Exchange, but it fell 32 cents in extended trading.
Shares of IBM were up $4.14, or 5 percent, to close at $88.95 after the company said there were signs business was stabilizing. In extended trading, however, shares were down $1.24.
Still, investors are still judging technology companies on how well they adjust to poor market conditions. They're still waiting for solid evidence that the conditions themselves are improving.
"The real conflict I think in investors' minds is all the signs are pointing to economic improvement, but we're not seeing it in IT spending," said Dan Renouard, vice president at Robert W. Baird & Co.
There had been some optimism at the end of last year about a turn in tech spending, but that seems to have evaporated.
A Merrill Lynch survey of chief information officers last week predicted growth of just 1 percent corporate IT budgets this year, down from predictions of 5 percent growth three months ago. Forty-six percent of IT managers didn't expect their budgets to go up until next year, more than double the number who expected that three months ago.
"It's clear that most of the momentum coming out of Q4 has dissipated for the tech sector," EMC chief financial officer Bill Teuber told investors on a conference call.
Still, global IT spending is expected to grow 3 percent this year to $1.24 trillion, after growth of just 0.2 percent last year, according to a report issued last week by Aberdeen Group.
Chief executive Joe Tucci and other EMC executives said Thursday customers continue to buy small upgrades instead of new systems, and are pushing existing capacity to its limits. Eighteen months ago, EMC customers were using 40-50 percent of their data storage capacity; now it's 70-80 percent.
"It's still brutal out there," Tucci said "There is simply too much capacity chasing too few deals."
EMC revenues from storage systems fell 12 percent from $842 million to $742 million in the first quarter. Software revenues plunged 20 percent from $352 million to $282 million.
"In my opinion this is the toughest cap spending for IT I have seen in my 30-plus year career," Tucci said.
EMC also faces a new challenge from an agreement announced Tuesday between rivals IBM and Hitachi to collaborate on data storage.
Other companies that are only partially dependent on business spending, like chip makers, have also said this week that they haven't seen the light at the end of the tunnel.
Shares of chip maker Advanced Micro Devices Inc. (NYSE:AMD - news) fell $2.22, or 15 percent, Thursday to $12.60, after the company announced a first-quarter loss that was smaller than analysts expected but gave a lukewarm outlook. Despite a stable earnings report earlier this week from Intel Corp., Chief Financial Officer Andy Bryant said the company still sees no evidence of a broad recovery.
"What we're seeing right now is seasonality," he said Tuesday. "We are not seeing any kind of recovery yet."
Michael, I was truly surprised to see the MSFT upgrade today. Amazing.
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