When Is Tech Spending a Bad Idea?

Not expecting a rush of IT spending during the last three months of 2004, Hewlett-Packard Chairman and Chief Executive Officer Carly Fiorina said this week that IT buyers have become smarter and more discriminating in their IT purchasing than they were just five years ago, and that they now realize that technology spending can sometimes be a "bad thing."

Speaking to a room full of financial analysts at the Banc of America Securities Investment Conference in San Francisco, Fiorina dismissed the idea that corporate budget surpluses would drive an IT spending increase in the fourth quarter of 2004.

"For each of the last three years and certainly this year as well, there's been a lot of talk that we're going to see a fourth quarter budget flush," she said. "I just don't see it happening."

"The reason I don't see it happening is because customers have gotten a lot more sophisticated about the fact that sometimes spending money on technology is a bad thing" Fiorina said.

Bad Spending

Customers who spent without understanding the return on investment, specific benefits, or how their new technology was going to interoperate with what they already have were engaging in this kind of "bad" spending, she said.

These changes in buying habits and longer sales cycles are now a permanent component of the technology industry, prompting some analysts to be "kind of cynical right now about the technology space," Fiorina said.

Still, HP's stock remained a good buy because of the company's position in the technology industry, she said. "It is a sector where the strong are getting stronger and the big guys are going to win, and this is a bargain stock."

HP's stock has taken a beating since the company announced that it would miss Wall Street's earnings expectations by $0.07 per share last month. The shortfall was blamed on problems in the company's Enterprise Servers and Storage Group. A botched order processing and supply-chain system roll-out in July contributed to a $400 million revenue shortfall by the group.

The ordering and supply chain problems have been ironed out now, although the company continues to experience difficulties with its European sales channel, where HP has engaged in overly aggressive discounting, according to executives.

"We feel we're making good progress there and we will have a new set of terms and conditions to our channel partners in Europe as we enter the first fiscal quarter, which for us begins November 1," Fiorina said.

Fiorina gave the analysts an insight into HP's acquisition strategy over the next year. Though HP has boosted software revenues through a number of acquisitions over the past year, including Consera Software and Novadigm, it has no plans to boost its struggling consulting and integration business through an acquisition, Fiorina said.

"Customers are no longer willing to pay for very high priced bodies, and very extended engagements. The whole consulting industry has too much overpriced capacity. It's why I've consistently said I'm not going to buy a consulting firm," she said.