September 14, 2001
Computer, Gear Replacement Costs
Won't Stabilize Technology Sector
Replacing the computers and other high-tech gear destroyed in Tuesday's terrorist attacks could cost hundreds of millions of dollars, but is unlikely to rescue the tech industry from its slump.
Indeed, analysts say the tech sector could suffer along with the rest of the economy if consumers and businesses reduce spending in the wake of the attacks. As a result, there is already growing speculation that some tech companies will miss third-quarter financial targets.
"It's not going to make any PC guys rich shipping replacement PCs," said John Gantz, chief research officer of market-researcher International Data Corp., Framingham, Mass.
Mr. Gantz estimated that companies affected by the destruction of the World Trade Center twin towers and surrounding buildings could spend $250 million or more replacing tech gear. But that is a tiny fraction of the roughly $450 billion annual spending on high-tech gear.
So Mr. Gantz spent much of Thursday lowering his estimates of overall tech spending, to 3% growth this year, down from a "worst-case" estimate of 5% growth. He's lowering sights for next year as well. "We're beginning to think that what was our worst case ... now may be our best case," he said.
Communications companies also will have to spend hundreds of millions rebuilding damaged equipment. Frank Dzubeck, of consultancy Communications Network Architects, estimated that Verizon Communications, the local phone company in New York, would have to spend $200 million to $250 million to replace a switching center, wireless facilities and fiber-optic lines. A Verizon spokesman said the company didn't yet have a damage estimate.
In some cases, companies affected by Tuesday's attacks may not have to pay for every element of their replacement systems. Microsoft Corp. said corporate customers with multiyear licenses for products such as the Windows operating system and Office generally won't have to buy new licenses when they buy new computers. But smaller companies may wind up buying new software packaged with their new computers.
In a note Thursday, Morgan Stanley analyst Chuck Phillips raised the prospect that some software companies could miss third-quarter financial targets while customers are "preoccupied with other decisions."
Richard O'Brien, former corporate economist for tech company Hewlett-Packard Co., said the spending blip may be less than expected because there is a lot of surplus and used tech equipment around. "You'll never be able to measure" the spending on replacement gear, Mr. O'Brien said.
Bob Floyd, general manager of H-P's services business, agreed, saying he doesn't expect any upward blip in spending to be significant.
Some analysts expect the attacks to change the way companies buy and use tech gear. Donna Scott, a disaster-recovery expert at consulting firm Gartner Inc., said some companies may increase spending on backup systems, to make sure they can operate through future disasters. Most big companies already have extensive backups, which will help them continue operating.
Junaid Islam, a former Cisco Systems Inc. market analyst who is now chief executive officer of Network Robots Inc., a Pleasanton, Calif., start-up, said many smaller companies that now house duplicate servers in the same data center may shift backups to a separate facility, requiring additional data-transmission lines and software. Moving the backups 1,000 miles away is "a more expensive way to do redundancy," Mr. Islam said.
Meanwhile, tech companies including Microsoft, H-P, Cisco, International Business Machines Corp., Unisys Corp. and Sun Microsystems Inc. said they are pouring people and equipment into New York to help customers rebuild their businesses. Cisco and Sun each had one employee killed in the hijacked airliners.
Unisys said it already had built a 150-set trading floor in New Jersey to replace one destroyed by the attacks. In general, the company said customers have to pay for such extras.
Cisco has offered its New York offices, at Penn Station, and New Jersey offices, to clients displaced by the attacks. Bill Nuti, a senior vice president who is overseeing Cisco's response efforts, said a Goldman Sachs executive is using his office in New York, while Mr. Nuti is trapped in California.
Microsoft has offered to put its New York employees on disaster-response teams of companies that have been affected by the tragedy. So far, between 50 and 60 Microsoft customers in New York have called the company asking for help, Microsoft Senior Vice President Kevin Johnson said.
H-P said it is shipping servers, storage equipment and personal computers to customers who are requesting gear. The company said it will work to provide extra discounts to some customers if possible and is also considering donating equipment to nonprofit groups that may need it. |
