Earnings reports and market surveys this week show that the recession is hurting even tech highflyers like Hewlett-Packard and Apple, while sectors that were once thought to provide growth potential, such as mobile services, are also being stunted.
One bright spot was HP’s services unit, which accounted for about 30 percent of the vendor’s profit. HP said Wednesday that net income for the quarter ending Jan. 31 was US$1.9 billion, down from $2.1 billion a year ago. HP’s total revenue managed to rise by 1 percent, but sales for HP’s Personal Systems Group declined 19 percent, while the Enterprise Storage and Servers group reported revenue down 18 percent.
PC purchases are typically the first budget items to be postponed in hard times, and HP’s purchase of services company EDS is looking like a great way to round out its portfolio of offerings.
HP has been a shining star this past year, regularly turning in good results, so even though services buoyed its profits, the lack of overall sales growth disappointed investors. HP shares closed at $31.39 Thursday, down by $2.69 or about 8 percent.
HP CEO Mark Hurd on a conference call mentioned that the services market can be “countercyclical” as users, faced with internal cuts, look to outsource some of their operations. But not all services companies are doing well. Services and consulting companies with management problems are having just as much trouble as other vendors.
BearingPoint, the former information-technology consulting arm of accounting firm KMPG, filed Wednesday for Chapter 11 bankruptcy protection for it U.S. operations, with a plan to swap bonds and debt for equity in a reorganized company.
Meanwhile, India’s Satyam Computer Services said Thursday it will go ahead with a range of cost-cutting measures to survive the recession, after company founder B. Ramalinga Raju sparked a company crisis in January when he acknowledged that profits had been overstated for several years.
Another tech star was tarnished this week when market-research firm NPD said unit sales of Apple computers dropped 6 percent in U.S. retail in January compared to January last year. It was the first such decline in three years, NPD said. The market research firm suggested that Apple’s premium pricing could, finally, be hurting the company as cost-conscious consumers hunt for bargains. In January, Apple said that Mac sales for its first fiscal quarter hit 2.5 million, a 9 percent jump from the year-earlier period.
Apple shares closed Thursday at $90.64, down by $3.73 or about 4 percent.
Shares of other component and hardware makers also suffered this week. Shareholder approval Wednesday of Advanced Micro Devices’ plan to split off its manufacturing arm was met with investor indifference, even though the spinoff is widely thought to be crucial to the vendor’s survival. AMD shares closed at $2.12 Thursday, down by $.08 or 3.6 percent.
Though many IT investors were hoping that wireless services would fare well even in tough times, it hasn’t turned out to be the case for Sprint Nextel, which released a quarterly report Thursday. The company said it suffered a loss of $1.6 billion for its fourth quarter, as it lost 1.2 million wireless subscribers.
However, expectations for Sprint were so low that the company’s loss, excluding one-time items, was better than Wall Street forecasts. Sprint’s CEO also said on a conference call that despite the loss, the company has enough cash to meet debt through next year.
“In tough economic times, we’re generating substantial cash and reducing costs to ensure we remain financially sound,” CEO Dan Hesse said in a press release.
Sprint shares closed Thursday at $3.25, up by $0.54 or 20 percent, in what was a poor day for tech companies on the market. Stocks in a range of sectors fell as investors eyed fresh reports about job-market weakness, and questions about the U.S. bank bailout plans pushed financial company shares to a 17-year low.
The tech-heavy Nasdaq declined by 25 points to 1442, while the broader Dow index declined 89 to 7465 Thursday. Slices of the IT market such as services may run counter to the overall business cycle, but overall, the fate of IT seems as linked to the macro economy as ever before.