Tech firms' growth, profit outlook less rosy
— -- Next week, Intel intc, Apple appl, eBay ebay and Google goog will lead the parade of tech companies reporting financial results for the quarter ended Sept. 30. The tech giants also will issue their near-term forecasts.
As the wider financial market meltdown continues to unfold, pessimism reigns. Expectations are solidifying that the tech sector will pare back revenue and profit forecasts for the fourth quarter and next year.
"Most companies are going to factor in the turmoil in the global economy when they give out their near-term forecasts, as a matter of prudence," says Sid Parakh, tech stocks analyst at McAdams Wright Ragen.
Research firm iSuppli on Thursday reinforced that notion by trimming its forecast for 2008 worldwide semiconductor revenue to $280 billion, an increase of 3.5% compared with 2007. In August, iSuppli had forecast 4% year-over-year growth.
But it could get much worse. "There is significant potential downside if economic conditions continue to worsen," says Dale Ford, iSuppli senior vice president. "The most significant area of impact is the broader effect on consumer confidence and spending if the overall economy collapses."
Tech suppliers who sell primarily to consumers, like Apple, "are likely to be a little worse off" than companies that sell mostly to corporations, Parakh says.
On Wednesday, IBM ibm cut against the emerging conventional wisdom, saying it will report strong revenue and profit growth for its third quarter — and hold steady to its financial forecast for the fourth quarter and 2009.
As a diversified global supplier of hardware and consulting services, IBM has predictable sources of income and can "shift their resources to areas of highest opportunity," says Mike Moorman, analyst at tech markets consultant ZS Associates.
Despite all of that, Big Blue's third-quarter revenue looks to fall nearly $1 billion short of Wall Street's projections. "Since IBM is a conservative company, that tells us the worst is yet to come," says Trip Chowdhry, tech industry analyst at Global Equities Research. Chowdhry says he expects corporations to cut tech spending on the order of 40% to 60% in coming months.
Tech giants such as EMC emc, Oracle orcl, Hewlett-Packard hpq and Microsoft msft each have amassed an array of global businesses that should serve as "stabilizing influences," says Charles King, analyst at Pund-IT.
Yet their ambitious plans to sell cutting-edge systems may have to be put on a back burner. Microsoft, for instance, is pushing Windows Server 2008, which requires companies to buy the latest, most powerful PCs.
If corporate IT buyers choose, instead, to "stick with their older server hardware," Microsoft and its partner hardware suppliers will feel the brunt, King says.