Recovery polarises IT industry

NEWS

The computer industry appears to be splitting into a market of haves and have-nots amid signs of recovery, with the strongest companies poised to reap the earliest rewards at the expense of weaker rivals. That fact of life is expected to show itself in the coming weeks as the majority of tech companies report quarterly earnings and offer their view on the current business. Although many analysts and executives say there are signs that tech spending is slowly improving, the benefits are being spread unequally. "I think things are getting a little bit better," Oracle chief executive Larry Ellison told analysts last week, but he added that the economy was only improving "for companies that people believe will be around in the future. If people don't think you'll be around, you won't be." Having pulled through three tough, lean years, technology survivors may face yet another difficult hurdle even as dollars begin trickling back into the market. While renewed spending is a welcome sign for the industry, the first wave of investment could give strong companies a golden opportunity to take market share from weaker competitors. On the hardware side, Dell has continued to gain market share, with Hewlett-Packard trying to stay close through aggressive price drops fuelled by its ongoing cost-cutting initiatives. The result is a prolonged buyer's market, with prices continuing to drop to new lows. Others, such as Gateway, seem to be having a tough time keeping up. The pressure is likely to intensify with market growth limited. Last month, IDC shaved its growth forecasts for this year and next. Although Dell and HP are fighting it out with various PC sales promotions, investors won't be hearing from those two companies, which both are in the middle of their quarters. Gateway, which is on the traditional calendar schedule, is slated to report results next week. The company is once again in the midst of shifting strategies, this time increasing its focus on consumer electronics such as flat-screen televisions and digital theatre systems, while also revamping its retail stores. Analysts expect the company to report a loss of 27 cents per share, in line with its most recent forecast. A similar divide is emerging on the processor side, where Intel has been gaining market share at the expense of rival Advanced Micro Devices. AMD has already warned of a wider-than-expected loss for the second quarter, with analysts predicting a loss of 54 cents per share, according to First Call. AMD has not turned a profit since the second quarter of 2001. Intel, meanwhile, is seen posting earnings of 13 cents per share when it reports on Tuesday. In June, the chipmaker reiterated its financial outlook, saying it expects sales of between $6.6bn (£4.05bn) and $6.8bn. At the time, Intel CFO Andy Bryant said that PC processor sales were at the high end of normal seasonal patterns, although demand for communications and wireless chips was soft. Microsoft, which makes money from each PC regardless of which company sells it or whose chip is inside, is seen posting another quarter of solid profits, with analysts pegging earnings at 24 cents per share. Analysts will be listening closely to Thursday's conference call both for an update on the PC market as well as to see if the company decides to share its massive cash horde with shareholders, either through an increased dividend or through a cash payout. The company may also offer more details on its plans to switch from giving stock options to employees to awarding actual shares. With the move, Microsoft has said it will start expensing the cost of both options and stock grants and will also restate earnings for the past two years. However, the estimated cost of options will remain a footnote in this quarterly report, as Microsoft doesn't plan to offer restated figures until it posts its next quarterly results in October. Apple, which offers the main alternative to Microsoft's Windows operating system for desktop PCs, is seen posting earnings of 3 cents per share. The company's shares have been trading at 52-week highs lately, following Apple's introduction of its iTunes Music Store as well as the announcement of the PowerMac G5, which is seen as a potential boost to slumping sales of high-end machines for the Mac maker. Earnings from IBM and Sun Microsystems should give an indication of higher-level IT infrastructure spending. IBM reports on Wednesday, with analysts expecting earnings of 98 cents per share. Sun, meanwhile is expected to report a slim 2-cent-per-share profit when it gives its report next week. Also, EMC, which recently announced plans to buy Legato Systems, reports results on Wednesday morning and is expected to have earnings of 3 cents per share, according to First Call. One factor that could help many of the companies is a slumping dollar, which should boost the impact of international sales. In an 8 July report, Goldman Sachs analyst Laura Conigliaro said that the dollar's slide during the first half of the year has helped companies such as EMC, IBM, Hewlett-Packard and Sun Microsystems. "If not for the incremental dollar weakness during the course of the March quarter, most of our major companies would have missed consensus revenue estimates," Conigliaro wrote. However, there are signs that the dollar is stabilising or even gaining, which could put pressure on companies to moderate their outlooks for the current quarter. Also, some analysts warn that Europe appears particularly weak during what is always a sluggish time. "While European business is always slow in the summer, our latest checks continue to indicate that the tone of business is worse, and IT spending on the continent is expected to decline in 2004," Conigliaro said. Oracle's executive in charge of sales for Europe, the Middle East and Africa echoed that sentiment last week. "The economy is tough," said executive vice president Sergio Giacoletto. "You have to take market share from competitors to grow." Meanwhile, Conigliaro said things in the United States are flat or improving, with Japan also stabilising after a period of weakness. The rest of Asia is also seen improving to more normal levels following an ease in the Sars outbreak. In starting his coverage of technology hardware, Prudential analyst Steven Fortuna predicted that the hardware industry is poised to do better than the market as a whole. He cautioned, though, that tech spending will be closely tied to improvements in corporate spending. Despite that fact that many companies overspent on technology in the 1990s, Fortuna said that further productivity benefits from technology can support spending of one and a half or two times overall economic growth. "We anticipate a modest recovery in IT demand beginning in the first half of 2004," Fortuna said. CNET News.com's Alorie Gilbert and Michael Kanellos contributed to this report.

See the Finance News Section for the latest financial news in the high-tech sector. Let the editors know what you think in the Mailroom.

Post your comment

In order to post a comment you need to be registered and logged in.

You can also log in with Facebook. Log in or create your ZDNet UK account below

By signing up for this service, you indicate that you agree to our Terms and Conditions and have read and understood our Privacy Policy. Questions about membership? Find the answers in the Community FAQ

ZDNet UK Live

@Jack, > Works really well for thieves.... Nice attempt to deflect the argument by tossing in a point that's totally irrelevant, even it were...

58 minutes ago by BrownieBoy on AMD Ultrathins to challenge Intel Ultrabooks

Make that 13 people now - I got refused today at Manchester airport. I thought I was up to date on this legislation - I knew of the EU ruling from...

4 hours ago by bootlegger on UK airport body scans will not be opt out

Don't forget to check out apps like GoodReader or SlideShark either, they're indispensible for people on the go in presentation situations. Best...

7 hours ago by tinycg on Four top iPad apps for people on the move

Well it seems there is something a number of us agree on. Why is the Ubuntu Unity launcher so ugly? I thought perhaps it was something to do with...

11 hours ago by TerryRK on A tale of two distros: Ubuntu and Linux Mint

Duplicate comments are not made intentionally. Its very good to know that now you are keeping check on this problem because sometimes a commenter...

21 hours ago by Freebies202 on Microsoft fixes blog comments, speeds up blogs with open source

"the very significant number of users" and "many (most) of us" - you have no evidence for these statements. It is a fact that most users are saying...

1 day ago by kevinmchapman on A tale of two distros: Ubuntu and Linux Mint

Another grammar faux pas is the improper use of "you". When sitting down down in a restaurant, for example, I get cringe when the waitress...

1 day ago by Marg Menzies Harrison via Facebook on 10 flagrant grammar mistakes that make you look stupid

And NOW, folks, for Canonical's next trick... Kubuntu is late. Here's a pencil. Draw your own conclusions. cf.:...

1 day ago by zdnetukuser on Linux Minterface

@kevinmchapman. The discussion here reflects the very significant number of users who really do like the traditional menu system and who wish to...

1 day ago by Moley on A tale of two distros: Ubuntu and Linux Mint

Er, no... It is an efficient means of finding the application/file/setting you need in one place. The icons are a simply a fallback for when you...

1 day ago by kevinmchapman on A tale of two distros: Ubuntu and Linux Mint

Isn't the provision of a text based search an admission by the developers that the mass of icons approach does not work? I don't need to use a...

1 day ago by TerryRK on A tale of two distros: Ubuntu and Linux Mint

"Unity and GNOME 3 both abandon the old text-based cascading menus in favour of a graphical icon-driven system." Point truly missed. Both use a...

2 days ago by kevinmchapman on A tale of two distros: Ubuntu and Linux Mint

whs001 - Thank you, I'm glad you liked the article. I absolutely agree with you on your first point. I should perhaps have made it clearer that...

2 days ago by TerryRK on A tale of two distros: Ubuntu and Linux Mint

If we allow corporate interest to dictate the way our government circumvents due process against foreign entities then we should accept the same...

2 days ago by Dennis Nilsson via Facebook on ACTA stumbles in Germany

I totally dislike pirating of works, I fear that artists will be deterred from creating works if they think that they are going to get ripped off....

2 days ago by GHar123 on ACTA stumbles in Germany

How dare film makers, artists or anybody that invests in creativity stop us pirating their works for free. I want to be able to walk into my local...

2 days ago by JCB33 on ACTA stumbles in Germany

@GrueMaster. I prefer horses for courses rather than one size fits all. I, and I suspect most other computer users, do not really wish to have...

2 days ago by Moley on A tale of two distros: Ubuntu and Linux Mint

The product that scares me every time I have to use it is the Office 2007 version of Excel. The first bug that I found was applying the median...

2 days ago by greycynic on Ten flawed products that derail productivity

Nice review and very informative. One thing I'd like to add (in reply to whs001's 1st question), the main reason to have the same interface from...

2 days ago by GrueMaster on A tale of two distros: Ubuntu and Linux Mint

I'be been using Mint 12 since the RC came out, and I am far more happy with the Cinnamon, the Mate, and, yes (with extensions), theGnome 3...

2 days ago by Frederick Wrigley via Facebook on A tale of two distros: Ubuntu and Linux Mint

Featured white papers

Latest jobs

Recovery polarises IT industry

Daily Newsletters

Topics

Related stories

Survey: Bleak year ahead for IT spending

Chipmakers' capital spend signposts recovery

Heart of England NHS begins massive digitisation plan

Hard-drive woes hit PC shipments in fourth quarter

Post your comment

ZDNet UK Live

Latest in IT Strategy

Heart of England NHS begins massive digitisation plan

Hard-drive woes hit PC shipments in fourth quarter

Featured white papers

Latest jobs

PHP Web Developer - html, css, javascript

Java Developer, Online Gaming, London

Quant Dev, Hedge Fund, FX, Excel VBA

Inside ZDNet UK

A tale of two distros: Ubuntu and Linux Mint

2012 Predictions: VCE FastPath, VI SAN Probe & Hadoop

BlackBerry Bold 9790

Make faster, smarter decisions using BI

Ten factors that make Ubuntu 11.10 a hit

Toshiba Portégé Z830-10P Review

BT's archive: Pictures from the vault

News & Analysis

Reviews

Blogs

Resources

About Us

Member Services

Special Features

Advertising Features

ZDNet UK / News and Analysis / Business of IT / IT Strategy

Recovery polarises IT industry

Daily Newsletters

Topics

Related stories

Post your comment

Get ZDNet UK's daily newsletter

Enter your email address to sign up

ZDNet UK Live

Latest in IT Strategy

Featured white papers

Latest jobs

Inside ZDNet UK

Resources

About Us

Member Services

Special Features

Advertising Features