Tech bust fears persist despite HP earnings surprise

ByABC News
November 19, 2008, 5:48 PM

— -- Hewlett-Packard shares soared 14% Tuesday, leading a tech sector rally, after the No. 1 PC-maker announced better-than-expected earnings six days early.

But technology analysts warned that the industry still might be slipping into its worst downturn since the dotcom bust of 2001. "Things are tough out there," says equity analyst Brent Bracelin with Pacific Crest Securities. HP's results "were not as bad as feared(but) this certainly isn't anything to jump up and down about."

In the current fiscal year, HP expects revenue from $127.5 billion to $130 billion, which is also a healthy gain. Most of the gain comes from EDS, Bracelin says. The numbers imply that HP's core business PCs, printers, and other computer hardware and software will decline 5 to 7% next year, he says.

But it could be worse. HP's worldwide reach, broad product line, and ability to gain market share makes it better able to weather the storm than other tech companies, says tech analyst Stephen Baker with researcher NPD. More troubling signs are everywhere.

Cisco, Intel and Sun are among big tech suppliers who have trimmed revenue and earnings projections for the coming year in anticipation of major cuts in corporate spending on tech infrastructure.

What's more, Circuit City's bankruptcy and recent cautionary guidance by Best Buy signal that the coming holiday shopping season could be a brutal one for makers of high-tech gadgetry aimed at the consumer market, says Charles King, principal analyst at IT Pund Research.

Fearing the worst

How bad could it get? Nowhere near as bad as 2001, according to three major tech research firms.

Gartner and IDC both recently projected worst case scenarios of slightly less that 3% growth rate in global tech spending for 2009, down from earlier estimates of about 6% growth.