Gates Sees No Economic Recovery in 2002
Sunday February 3, 4:06 pm Eastern Time
By Eric Auchard
NEW YORK (Reuters) - Microsoft Corp. (NasdaqNM:MSFT - news) Chairman Bill Gates said on Sunday that he sees no global economic recovery this year, countering a budding groundswell of optimism tied to economic data pointing to a fast rebound.
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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.
``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, he said: ``Europe may be a little more positive,'' referring to a rebound in its overall economy.
Gates' remarks contrasted with optimistic views voiced by many delegates here this weekend.
The Conference Board argued in a recent report that the U.S. economy would lead the world economy out of recession later this year, and its gross domestic product grow 4 percent in 2003.
At the World Economic Forum, 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 it gets better, many experts have argued.
Rick Belluzzo, president and chief operating officer of Microsoft, told Reuters in an interview that Gates' comments were referring not simply to the high-tech sector, but to what Microsoft was seeing across the economy in general.
Belluzzo, who oversees day-to-day operations, including sales of Microsoft products, said he was hearing from corporate customers ``a lot of words that suggest things are kind of stable now ... but moving sideways.''
When asked to forecast when the global economy might see a return back to healthy growth, he echoed Gates, saying that, ''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 said.
Still, he distinguished what was happening in the broad economy to what Microsoft was experiencing in its own business.
``We're going to see a lot of growth'' from strong new product introductions, including its Xbox gaming console and its new Windows XP computer operating software system, Belluzzo said.
EXCESSES REMAIN IN HIGH-TECH SECTOR
In his speech, Gates contrasted the Internet stock-fueled ''mania'' on Wall Street that hit a dead-end two years ago to the current economic environment, and argued that the high-tech economy, in particular, still had further excesses to burn off.
``There are still some companies out there based on the old thinking,'' Gates said. He was referring to business models that dominated in the late 1990s that assumed a nearly unlimited supply of capital and no immediate pressure to make profits.
``The sobriety will stay, the somberness will stay. It's very healthy ... I like this period where people are forced to play by rules driven by economic sense,'' Gates said.
He said his observations were based on his vantage point as the head of a principal supplier of software to business and consumer computer markets, adding: ``We don't tend to be experts in forecasting.''
Gates noted that this only provided a partial view of the tech sector, noting that the telecoms sector of the economy, to which Microsoft is less exposed, has a longer road to recovery.
Just last week, both Global Crossing Ltd. , a provider of high-capacity undersea networks, and McLeodUSA Inc. (NasdaqNM:MCLD - news), a supplier of competitive local phone services, sought bankruptcy protection from their creditors.
Former Microsoft chief financial officer Greg Maffei left the company several years ago to head 360networks (Toronto:TSX.TO - news), another ambitious telecom start-up, which went bankrupt in 2001
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[Harry: The views in the article are close to my own view. There will be areas of growth in new products, but there are not many killer applications out there right now to drive great demand. On the consumer side flat panel displays may take off if they can get the price point of 17 inch displays below $300. (GNSS, PXLW, PHTN). On the telecom side gigabit ethernet is the technology of promise for later this year. Indications though are that price will be a major issue to deployment. Lower speed ethernet seems to gaining traction in the mean time. (Ethernet: RSTN, GIGE: MRVL, RSTN). On the wireless side it all depends on whether 3G and 2.5G services take off. I saw a lot of transmitted video on wireless handsets at CES but I can't think of a real need to the technology. The technology will drive demand for minature LCD's. (KOPN) and new handsets in general (QCOM, NOK) and the chips that go inside the handsets and base stations (QCOM, NOK). Electronic games will start to gain traction throughout the year, but big selling season is over. So except for blips in earnings as new games are release for the new platforms, the big earnings spikes will not be till next Christmas. Upgrades in PC's have been typically every three years, but given the advances in speeds and the lag in software programs that add greater value, this cycle might be slower than anticipated. In an environment of tight capital, upgrades are now necessarily the highest priority once the equipment has been written off. Most people can still get a lot done with 200 or 300 megahertz. It is the typically the restriction in the internet connection that has limited the performance of the computer systems the last few years. Someone want to comment on the biotech environment? Human gnomes were the hot subject of the day, but what about more mundane areas such as new antibiotics given the more resistant strains of germs and better therapies for an aging population.] |
