Dell, Ingram Micro fuel worries about tech spending

By Franklin Paul and Tiffany Wu


NEW YORK (Reuters) - Two of the biggest computer vendors, Dell Inc and Ingram Micro Inc, warned on Tuesday that demand was weakening, adding to worries that the crisis on Wall Street would hurt corporate and consumer spending.


While neither company mentioned the financial sector specifically, they were the first major U.S. technology companies to warn investors since a series of financial shocks in recent days. Lehman Brothers collapsed, Merrill Lynch is being taken over, and insurer American International Group is fighting for its survival.


"It sounds like things are really starting to slip everywhere. Both consumer and corporate end-demand are slowing. The question is how long it lasts," said Cross Research analyst Shannon Cross.


"Dell and others in the industry have exposure to the financials, and that impacted them," she said. "When you see these failures on Wall Street and the concerns that people have about banks, I think it does cause people to pull back a little on their spending."


Dell shares fell 11 percent and Ingram Micro dropped 2.7 percent. Other tech stocks that ended lower include computer memory chip maker Micron Technology , which fell 7.8 percent, and storage maker Seagate, which fell 8.2 percent.


One bright spot was Hewlett-Packard Co, whose shares jumped 6.8 percent after it said on Monday that it would cut 24,600 jobs, or 7.5 percent of its work force, to save costs from its purchase of computer services provider EDS.


HP, the biggest maker of personal computers, said on Tuesday it was "very confident" it can hit its current-quarter profit target and struck a generally positive stone -- in sharp contrast with smaller rival Dell's talk of a broad slowdown.


Dell said it saw a further softening in global end-user demand in the current quarter, and demand was not rebounding in September as it normally did following the summer lull. "This is not coming back the way we expected it to," Dell Chief Financial Officer Brian Gladden told an investor conference.


INGRAM CUTS FORECASTS


Ingram Micro, the world's biggest computer products distributor, cut its third-quarter profit and revenue outlook, saying economic softness in July and August was continuing into September and pressuring operating margins.


"In Europe, we are not seeing the typical September bounce-back from the summer holidays. North America seemed to be relatively stable in the summer months, but we're experiencing broad-based softness in September," Ingram Micro Chief Executive Gregory Spierkel said in a statement.


Analysts said Ingram Micro -- which distributes electronic products such as PCs, printers and cables -- was more focused on small and medium businesses, and therefore less directly vulnerable to the banking sector crisis than Dell and companies like data storage equipment maker EMC Corp.


"It's been known for some time that the financial sector is a weak sector. On the other hand, what we've seen over the last few weeks is that the weakness is accelerating," said Shebly Seyrafi, an analyst with Calyon Securities Inc.


"If you look at something like EMC, for example, they typically derive about 15 to 20 percent of revenue from the financial sector. A lot of other companies derive similar percentages. So it's a rather large sector and if the weakness there accelerates, it could bode negatively, incrementally, for the next six months."


Another company in the storage space, Seagate, said poor visibility about where the economy was heading was causing people to pull back spending plans.


"Right now people are uncertain about the credit (market), are uncertain about oil prices," Seagate Chief Executive Bill Watkins said in an interview.


Dell is "much more in tune to small businesses -- that's where they sell a lot of their stuff -- and I'm sure that market is tough," he said.


FORRESTER CUTS 2009 FORECAST


Forrester Research forecast 2009 U.S. tech spending to grow 6.1 percent, weaker than its previous estimate of 9.4 percent, as the slowdown that it had expected to hit the first half of this year was now seen hitting in the second half of 2008 or first half of 2009. Forrester raised its 2008 tech spending growth estimate to 5.4 percent from 3.4 percent.


Analysts said HP could be a safe haven in this market as it had a diverse product line and could leverage on the EDS deal.


American Technology Research analyst Shaw Wu raised his 2009 earnings estimate for HP and wrote in a note to clients, "We continue to believe HP is positioned to weather the macroeconomic storm better than most."


Separately, Cisco Systems Inc Chief Executive John Chambers affirmed the network equipment maker's long-term growth target, which it had recently fallen short of. Its shares ended up 1.9 percent.


(Additional reporting by Paul Thomasch in New York and Eric Auchard in San Francisco; Editing by Derek Caney, Gary Hill)


(c) Reuters 2008. All rights reserved. Republication or redistribution of Reuters content, including by caching, framing or similar means, is expressly prohibited without the prior written consent of Reuters. Reuters and the Reuters sphere logo are registered trademarks and trademarks of the Reuters group of companies around the world.





Enjoyed the article?

Sign-up for our free newsletter to kick off your day with the latest technology insights, or share the article with your friends and contacts on Facebook, Twitter or Google+ using the icons below.


E-mail address

Rate this blog entry:
0

John McCormick oversees a group of SourceMedia publications covering technology/cloud, financial planning/investing, health, insurance, accounting and benefits

Comments