Poor reports suggests IT buying still tepid

Those awaiting a rebound in the IT market found little comfort in this week’s earnings announcements from many of the industry’s biggest vendors, suggesting that spending on large IT projects at many corporations is still on hold.

Vendor after vendor said buying is down among customers, with little indication of a rebound any time soon. Microsoft Corp. lowered its revenue expectations for its coming fiscal year, while IBM Corp. detailed the staff- and cost-cutting steps it’s taking to keep its operating expenses in line with reduced customer demand. Sun Microsystems Inc. (SUNW) returned to profitability after three quarters in the red but said it anticipates a loss again next quarter — news that prompted a 27 per cent drop Friday in its share price.

Research firms IDC and Gartner Inc. released reports documenting a continuing slide in PC sales. Gateway Inc. offered its own evidence of a stagnant PC market, posting a US$61 million net loss for the quarter and an 18 per cent decline in unit sales from a year ago.

Hardware vendors were particularly hard hit during the quarter. Chip maker Transmeta Corp. announced plans to lay off 40 per cent of its staff after posting a pro forma net loss of $24.7 million, more than three times its net revenue, and cancelled plans for a new processor. Advanced Micro Devices Inc. posted its biggest net loss since 1999 and forecast further losses next quarter. IBM said it is shifting its focus away from hardware, a sector it sees commoditizing, and toward the “higher profit opportunity” of software and services.

But software makers are also struggling to find buyers in the tough economy. Growth in enterprise software application markets, for software such as ERP (enterprise resource planning) and CRM (customer relationship packages) packages, has come to a “screeching halt,” Gartner reported in a study released Wednesday. Forrester Research Inc. backed up that conclusion with its own report predicting a 5 per cent decline in the CRM market in 2002.

CRM vendor Siebel Systems Inc. missed analyst expectations and announced plans to lay off nearly 1,200, while ERP leader SAP AG also missed expectations, slashed its forecast and implemented cost cutting measures its executives termed drastic.

Concerns about a continued IT slump helped send the Dow Jones industrial average skidding Friday to its lowest level since 1998, as investors reacted to a week of financial reports that were absent of hoped-for promising signs.

“There is little evidence that demand is going to substantially improve anytime soon,” Morningstar Inc. analyst Joseph Beaulieu wrote in a Friday briefing.

Tech companies scheduled to report their financial results next week include AOL Time Warner Inc. (AOLTW), Amazon.com Inc., EDS Corp. and Computer Associates International Inc. (CA). After this week’s disappointments, Wall Street is already backing away from potentially troubled companies.

AOLTW crashed to a new 52-week low Friday on news of the planned departure of Robert Pittman, the company’s chief operating office and interim head of its struggling America Online Inc. unit, and questions about its revenue accounting raised in a pair of Washington Post articles.

Shares of CA (CA) also hit a new 52-week low, dropping 15 per cent Friday at the end of a week in which the company replaced four board members began gearing up for its second annual proxy fight with a shareholder seeking to oust the company’s management.

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Jim Love, Chief Content Officer, IT World Canada

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