Information technology spending among corporations may get off to a weak start in 2012 if recent earnings reports are any indicator.
Generally speaking, the IT spending view for 2012 is no barnburner, but solid. Gartner is projecting enterprise spending growth of 3.9 percent in 2012 from 2011 to $2.7 trillion. However, those expectations may need to be revisited based on comments from Oracle, Accenture and Red Hat. These tech vendors weren't sounding alarm bells per se, but there are signs that spending may slow.
Oracle CFO Safra Catz said earlier this week following disappointing earnings:
In the last few days of our November quarter, for the first time in a while in some regions, we saw an increase in last minute additional approvals required for previously scheduled and expected deals. As a result, we're putting in place better deal management so that we have the time and the approvals necessary to take this into account.
Analysts aren't quite buying Catz's argument that the slowdown Oracle saw was a blip.
Cowen analyst Peter Goldmacher said in a research note:
Management commented on poor close rates in 2Q as the reason for the miss but dismissed it is as an operational issue that better pipeline management would solve. Given recent disappointing tech earnings results (Accenture and Red Hat), we are less optimistic than management is on its ability to bounce back in 3Q.
Indeed, Red Hat and Accenture earnings disappointed. In Red Hat's case, the disappointment was more about growth not reaching so called whisper estimates (optimistic stretch goals).
Accenture's outlook wasn't horrible, but the wide range indicated that IT demand could get dicey on the enterprise side. Accenture topped Wall Street estimates with fiscal first quarter earnings of 96 cents a share on revenue of $7.07 billion.
However, commentary from Accenture executives presented a mixed view. Accenture CFO Pam Craig said:
At this point, we don't see a significant change in client behavior. We see that budgets may not go up very much, but we also don't hear about them going down. Cost optimization really is paramount.
Accenture CEO Pierre Nanterme said:
There continues to be volatility in the global economy, largely due to uncertainty around Europe's sovereign debt challenges. We’re carefully watching the actions that governments in Europe are taking to stabilize markets, restore confidence and create conditions that would support a return to economic growth. While Europe works on these issues, other parts of the world are exhibiting positive economic growth, especially our priority emerging markets. Moving forward, we will continue to monitor the macroeconomic environment very closely, and assess the implications for our business.
Barclays Capital analyst Darrin Peller said Accenture's view could be just a case of being conservative. He said:
While Accenture's somewhat wider-than-typical revenue guidance range for the next fiscal quarter (to account for possible delays in project starts), and maintenance of revenue guidance after a top-line beat may be more of a precaution than a evidence of material concern at this time, based on economic data points and our industry conversations, we believe shifts in the economic climate in Europe and potential impacts to client demand and confidence do warrant a level of conservatism around discretionary spend expectations.
Red Hat's fiscal third quarter was strong. The outlook was also solid, but Red Hat did see some hiccups. These hiccups don't indicate a massive slowdown, but something to watch.
Charlie Peters, CFO at Red Hat, said on an earnings conference call that the quarter was back-end loaded. That fact could mean that deals were harder to close or it could have been Thanksgiving induced. At the time, Peters' comments didn't seem to be a data point in a trend. Oracle's quarterly results may have changed that.
Our linearity of quarterly bookings historically in a good quarter is 25%-25%-50% in terms of monthly split. This quarter was more like 20%-20%-60%, a little more back-end loaded, which also might have had some small impact on revenue since we recognize revenue on a daily basis.
Later in the call, Peters said that he didn't see anything to indicate that the economy was hurting demand. "We didn't see anything that would indicate it's related to the macro side," said Peters. "When the economy is weak, we tend to do well, and when economies are strong we tend to also do well. We simply change the marketing message slightly from how to create value to how we help you save cost, and the message resonates with the customers."
The bottom line here is that tech vendors are cautious about the outlook, but appear to have reasons behind any caution. Today, executives said that operational issues are at play, but it's possible that a broader economic problem is emerging.
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