Tech demand may see mixed picture for next year
Reporter's Notebook: Analyst says IT budgets might still get small increase
By Rex Crum, MarketWatch
Last update: 5:14 p.m. EDT Oct. 14, 2008ORLANDO, Fla. (MarketWatch) -- Cisco Systems Inc. Chief Executive John Chambers told a huge crowd Tuesday at the Gartner ITxpo that there won't be any cutbacks at his company, despite industry concerns of lower tech spending.
Chambers said Cisco (CSCOCisco Systems, Inc
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CSCO) still intends to increase its own expenditures by 10% this year to pursue initiatives beyond its traditional networking products. The company expects to expand its offerings in everything from collaborative-communication technologies such as video and voice services, to server virtualization and so-called cloud computing. See full story.
The market for IT spending increases will depend largely on the companies themselves and their basic philosophy about their technology needs, according to Chambers. "In some companies and organizations, IT is viewed as just an expense to be cut," he said.
Sector still basking in Monday's gains
Chambers addressed the conference crowd a day after huge gains in the tech sector helped give the Nasdaq Composite Index ($COMPQNasdaq Composite Index
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$COMPQ) its second-largest-ever point gain. Still, technology leaders and analysts meeting at the Florida conference say they see a mixed outlook for their industry.
Earlier in the day, Peter Sondergaard, Gartner's head of global research, said concerns about the wild market swings are likely to be reflected in next year's IT budgets and overall demand for new technology products.
He added that technology budgets are on track for a 3.1% increase this year, with total spending in a "best case" scenario set to rise 8.9% over 2007. However, Sondergaard pointed out that the expectations for 2009 are most likely for budgets to either remain flat or rise up to 2.3% from this year.
A broader recession would probably not have as great an impact on IT budgets as did the last two economic contractions in 2001 and 1991-92, according to Sondergaard, because the nature of technology in the enterprise has changed.
"IT has become so imbedded in these organizations' business processes that they can't eliminate or do without many of the systems they have in place," he said.
IT providers' global diversity will have an even greater bearing on their ability to weather the economic uncertainties of next year. Sondergaard also said the markets in Asia are still set for substantial growth, while there is high risk of contraction in Western Europe.
Tuesday: iPhone 'phenomenon' leads mobility interest
The impact of Apple Inc.'s (AAPLApple Inc
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AAPL) iPhone on the consumer market is not a surprise, Gartner mobile-technology analyst Ken Dulaney said, but enterprises are starting to see more demand for the smart phone -- even with the long-established presence of devices that have been better suited for the business environment.
"The top-rated question we get is, 'Where is Apple headed?' " Dulaney reported. "It's a phenomenon, no doubt."
While the iPhone is well-established for the consumer market, he doesn't expect it will come with "deep application support" for enterprise customers. Apple can also be a "difficult vendor for enterprises to work with," and Dulaney added that he expects Apple to launch more attacks against Microsoft in the consumer market.
Even though rivals such as Research In Motion Ltd. (RIMMResearch in Motion Limited
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RIMM) and Nokia Corp. (NOKNokia Corp
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NOK) have longer relationships with corporate customers, those enterprises will probably have to accede to the wishes of their employees who use the iPhone for their personal use, according to Dulaney.
"Most people are pleased with it. You may try to keep it out of your shop, but once someone gets into an Apple product, they are usually hooked."
Monday: Market skyrockets
While the strong surge in the equity markets Monday may enliven the mood, a gathering of the world's largest technology companies this week still faces a sobering outlook for the sector amid a weakening global economy.
The Gartner ITxpo conference, kicking off Tuesday in Orlando, comes on the heels of a bruising week of sell-offs on technology stocks sparked mostly by uncertainty about the health of the global credit markets.
The annual conference, held at the Walt Disney World Resort, will include presentations on Tuesday by Cisco Chief Executive John Chambers, with Microsoft Corp. (MSFTMicrosoft Corporation
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MSFT) Chief Executive Steve Ballmer on deck for Thursday. Typically, the conference has been a pleasant affair where tech leaders gather to discuss new advances in technology and the outlook for their companies' growth.
And even though tech stocks got a strong boost Monday -- with the Nasdaq turning in its second-best performance on record -- analysts are still wary of the outlook for the industry going into next year. Third-quarter earnings season for the sector gets underway this week, kicked off by chip giant Intel (INTCIntel Corporation
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INTC) on Tuesday, with IBM (IBMInternational Business Machines
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IBM) slated to report its own results on Thursday.
"Companies that do meet September-quarter estimates are likely to have done so by pulling in year-end orders," Ashok Kumar of Collins Stewart wrote in a note to clients Monday. "The next six months are likely to be kitchen-sink quarters."
The shadow of the worldwide credit crisis and the role of international governments in bailing out the troubled financial industry are likely to weigh on tech leaders' minds. Reports of slowing sales deals have already begun to surface, and several analysts already have come out with new views on the sector that range from cautiously positive to decisively pessimistic.
On Monday, Bernstein Research analyst Toni Sacconaghi raised his rating on Apple to outperform from market perform. In a research note, Sacconaghi said, in effect, that enough is enough with regard to the sell-off in Apple's stock, which has shaved about 40% off the shares over the last six weeks. See related story.
Cisco also scored an upgrade. JMP Securities analyst Samuel Wilson called the company a "survivor" and predicted that the networking giant would be able to strengthen its business during the economic slowdown. See full story.
A more pessimistic view came from Deutsche Bank analyst Chris Whitmore. In a note to clients, Whitmore said the PC market, which has been showing strong quarterly growth for more than a year, is likely to see a slowdown due to the residual effects of the financial-industry crisis.
"We expect the frozen credit market and deteriorating macro outlook to translate into weakening PC demand" owing to the discretionary nature of PC upgrades in the developed world. Whitmore slashed his 2009 PC growth forecast to 6% over 2008's levels, from his prior estimate for growth of 11.5%.
Analysts also expressed some of the same views about the software sector and how it could be impacted by what's been going on in the credit markets.
FBR Capital Markets analyst David Hilal said in a research note that even if the credit situation gets resolved, software giants such as Microsoft, Oracle Corp. (ORCLOracle Corporation
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ORCL) and Adobe Systems Inc. (ADBEAdobe Systems Incorporated
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ADBE) could soon see their sales affected by tightening IT budgets, along with the recent rise of the U.S. dollar on international currency markets.
Rex Crum is a reporter for MarketWatch in San Francisco. |
