Intel Corp, Microsoft Corp and the technology companies that so far have escaped the credit crisis relatively unscathed will lose out on as much as $170 billion in sales next year as the crunch catches up with them.
Corporate spending on computers, software and communications equipment may be little changed or fall as much as 5 percent next year as the lending freeze spooks clients, said Jane Snorek, an analyst at First American Funds in Minneapolis who has followed the industry for 13 years.
It would be the first decline in the $3.41 trillion market since 2001 after the dot-com bubble burst. "Business kind of stopped dead in the last two weeks," said Snorek, whose firm owns Microsoft and Intel stock among more than $100 billion in assets. "People are pushing off orders and saying, 'I have no idea if we're going to have a global meltdown, so I'm not going to buy anything right now.'"
While consumer spending growth slowed this year as the economy slumped, corporate budgets stayed fairly constant until now.
Snorek said the collapse of financial-services customers, who account for a quarter of technology outlays, and a subsequent surge in interest rates persuaded clients to pare back. More data will emerge tomorrow when Intel, whose chips run more than three-quarters of the world's personal computers, kicks off two weeks of third-quarter reports from technology companies. Software maker SAP AG said last week orders froze in September, and a Forrester Research Inc survey found clients pressing outsourcing and services providers to renegotiate at lower rates.
In 2001, technology spending sank 7 percent, according to UBS AG. The reason Snorek estimates that next year's slump won't be as bad as that is that companies have less inventory built now than they did in 2000 and 2001.
Tallest midget
As the Dow Jones Industrial Average fell below 8,500 last week and took safe havens in technology with it, shareholders were left with few winners. The Standard & Poor's 500 Information Technology Index dropped 25 percent in the past month.
UBS AG's Heather Bellini in New York said she rates Microsoft and Oracle Corp buys because she needs to give clients something to invest in. "It's like looking for the tallest midget," said Bellini, ranked the top software analyst by Institutional Investor.
She said clients have questioned some of her downgrades and predictions of hard times ahead. "I had one client say to me, 'What? Did people just stop buying software in the last two weeks of the quarter?' I said, 'Yes, they did.'"
Researcher iSuppli Corp in El Segundo, California, cut its forecast for 2008 global semiconductor revenue growth to 3.5 percent last week from 4 percent, saying the industry faces "significant potential downside" if the economic slump deepens.
Intel may post its lowest sales increase in six quarters, reporting 2 percent growth to $10.3 billion, according to the average of 30 analysts' estimates compiled by Bloomberg. Profit probably rose to 34 cents a share, the survey found. "We're seeing the beginning of the end," said JPMorgan Chase semiconductor analyst Chris Danely in San Francisco. "For the fourth quarter, I think they'll guide lower. Then the first quarter is a total disaster."
He lowered his profit estimates for Santa Clara, California-based Intel to $1.27 per share for 2008 from $1.29, and reduced sales and earnings targets for next year. The outlook for PC purchases is dimming. Boise, Idaho-based Micron Technology Inc, the largest US maker of memory chips, said this month that fourth-quarter PC shipments may be little changed from the previous period. | |
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