Wall Street Beat: IT Forecasts Slashed

trends, market, financials, economy
With CIOs reporting budget revisions, market analysts slashing expectations for tech sector growth, and companies as diverse as Yahoo, Hynix, Texas Instruments and Sony cutting sales forecasts and jobs this week, there is no bottom clearly in sight for IT.

Along with a global slowdown, the U.S. recession is having an effect on technology that is much more profound than what was expected several months ago.

"Our most recent industry checks point to 2009 IT budgets down 10 percent to 20 percent, marking a rapid deterioration from our proprietary survey of 200 CIOs in Sept. '08, which indicated weak 1 percent growth," Citibank said in a report on IT buyers in financial services. Buyers who currently have a grip on how their budgets are shaping up are typically in the financial services arena, Citibank noted in the report, issued Thursday.

Buyers who are not in financial services "have unusually low visibility" into what they'll be able to spend in the first quarter, Citibank noted. "IT buyers we spoke with may defer spending until 2H '09 to protect against further budget cuts," Citibank said.

With the first half of next year looking bleak, Forrester Research on Tuesday revised its 2009 U.S. IT spending forecast down to 1.6 percent annual growth, from its prior projection of 6.1 percent growth.

"Our U.S. tech market forecast now assumes that the ... decline in U.S. real GDP (gross domestic product) in Q3 2008 will accelerate in Q4 2008 and the first half of 2009 before a weak recovery starts in the second half," said Forrester Research Vice President Andrew Bartels in the report.

With forecasts for a positive outcome for next year getting razor-thin, even bright spots like software are dimming. Gartner forecasts that worldwide spending on enterprise software will reach US$244 billion in 2009, down from its prediction of $253 billion made in September, before the collapse of the U.S. investment banking industry.

Bracing for continued tough times, tech and consumer electronics companies around the world announced layoffs this week. Yahoo said Wednesday it is laying off about 1,500 employees, enacting a previously announced plan to cut 10 percent of its staff. Sony said Tuesday it will cut 8,000 jobs, close factories and cut electronics investment by almost 30 percent.

The hardware and components sectors of IT are getting hit the hardest, as PC purchases are typically the first thing cut when tech budgets are constrained. Several large chip manufacturers cut their forecasts this week.

Korea's Hynix, which in terms of revenue is the world's second-biggest memory chip maker after Samsung, said at the start of the week that it will cut the number of its executives by 30 percent, reduce chief executive pay by 30 percent and cut pay for other executives by 10 percent to 20 percent.

Texas Instruments cut its profit forecast for the current quarter, announcing Monday that it will report earnings of between $0.10 per share and $0.16, compared to an earlier estimate of $0.30 to $0.36.

National Semiconductor on Tuesday reported net income of $34 million for the quarter ended Nov. 23, compared to earnings of $90.6 million a year earlier. The company forecast a 30 percent drop in revenue for the current quarter.

Hard-disk maker Seagate Technology said Wednesday it expects revenue for the current quarter to be in the range of $2.3 billion to $2.6 billion, down from previous expectations of $2.85 billion to $3.05 billion.

In the networking arena, optical technology maker Ciena on Thursday said it suffered a loss of $25.4 million for the period ended Oct. 31, compared with year-earlier net income of $30.4 million, as customers delayed orders. The company forecast current-quarter sales to be $170 million to $185 million, below the $190 million consensus estimate of analysts surveyed by Thomson Reuters.

Meanwhile, fresh data appear to back up President-elect Barack Obama's belief, reiterated this week, that "things will get worse before they get better" for the U.S. economy. The four-week average of new claims for jobless benefits reached a nearly 26-year high, rising 14,250 to 540,500 for the period ending Dec. 6, the Labor Department said Thursday.

If the macro economy gets much worse, hopes for even a weak IT recovery in 2009 will fade.

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