Tech execs playing wait-and-see with IT spending

Tech execs playing wait-and-see with IT spending

Summary: Technology executives this week indicated that this week's stock market and economic volatility could impact tech spending, but also note customers are better off than in 2008.

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TOPICS: Cisco
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While this week's stock market volatility and dismal economic data threatens information technology spending executives are taking a wait-and-see approach with their outlooks. These executives also note that there are key differences between the market meltdowns in 2008 vs. 2011.

In 2008, technology spending essentially shut down in a hurry. In 2011, few executives see IT spending hitting the brakes quickly. Some projects will be completed and hiring will go on---assuming things don't become materially worse. Technology executives, speaking on earnings conference calls and various investor presentations, say the economic uncertainty may ultimately put the kibosh on spending, which closely tracks U.S. gross domestic product (GDP). For now, the outlooks from technology companies are cautious, but Armageddon isn't around the corner.

Next week, a bevy of technology companies---Dell, HP, NetApp, Intuit and Salesforce.com---all report earnings and the economy will be front and center.

Related: Market meltdown likely to hit tech spending

Qualcomm CFO William Keitel said this week that it helps to take a longer view of economic conditions. It's also worth noting that Qualcomm is in a nice position given its chips power smartphones, which are likely to see growing demand even in a downturn.

Speaking at the Oppenheimer & Co. Technology and Communications conference, Keitel said:

Maybe in times like we've got right now, it's maybe a little more difficult to step back and have a balanced view of the world. But if you try and do that today, you've still got to say that the Asia-Pacific region is going quite strong. Latin America is going strong. Japan's doing a bit better. The Middle East-Africa is going strong. Eastern Europe, coming off of a small base, is going quite strong.

So I sense a lot of emotions running these last several trading days. We're going to monitor it closely. I think, as you know, there's a pretty good correlation between GDP growth and consumer electronics. That correlation decreases a bit, but it's still there with total wireless devices. And Qualcomm has been bucking that trend because 3G has been growing as the base, as a percentage of wireless devices.

I think that trend's going to continue. More and more consumers are wanting more data capability worldwide, and that's best had on a 3G base and with a smartphone. So I think that's the more likely trend.

But having said that, like everybody else, we'll be monitoring the situation closely, and we recognize the link between GDP and our business.

Meanwhile, Keitel noted that Qualcomm's customers are also in a better spot today compared to 2008. "The balance sheets of consumers and certainly the non-financial corporate side is stronger today than it was back in 2008 and 2009. So I don't know how much of a buffer that might be," he said.

Keitel's comments about monitoring the economy and markets closely was echoed by other executives. In many respects, technology executives this week were all singing from the same hymnal.

Cisco CEO John Chambers also made similar comments following the company's fourth quarter earnings. He noted that the outlook is cautious due to market uncertainty. Nevertheless, Cisco's outlook was in line with Wall Street's diminished expectations. Cisco had its execution issues, but it's possible the company spotted a downturn before rivals.

Chambers said that Cisco's recent restructuring moves will give it an edge as competitors such as Juniper also wrestle with a slower economy.

We believe the changes we implemented, well ahead of our peers, will now be a competitive advantage for us as we go forward in this uncertain macro environment. During periods of uncertainty, customers value companies with a strong balance sheet, existing strong relationships with these customers, and one that can continue to help them with their innovation.

However, Cisco will still thrive or stumble based on the economy. "Cisco will always be affected by major economic changes, capital spending patterns and new and existing competitors," said Chambers.

The catch is that all of these executives are closely monitoring the economy because IT spending tracks GDP. "While Cisco is heading in the right direction and making solid progress toward digging itself out of a hole, we are worried that the hole just got deeper, given the growing macroeconomic uncertainty and financial market gyrations," said William Blair analyst Jason Ader.

On the positive side of the equation, some companies noted they aren't seeing any material slowdown yet and don't necessarily expect one.

Pete Ritcher, CFO of AT&T's mobility and consumer markets unit, said that the company believes it is a "GDP-plus sort of growth play."Ritcher was speaking at the Oppenheimer conference.

"The industry that we're in will be affected by the economy, but we believe that products and services that we provide are items that really helped facilitate what's going on in the economy, and that ought to have an ability to grow at even a faster rate," he said.

Verizon CFO Fran Shammo also was upbeat at the Oppenheimer conference. "We actually don't see any impact to the consumer segment during this. In the enterprise, not seen an economic impact," said Shammo. "What we are seeing is corporations want to spend money on solutions that cut their costs. Again where we are seeing the economic impact is in the small business arena."

Topic: Cisco

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7 comments
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  • We are full steam ahead in Health Care on IT spending

    In Enterprise IT for Health Care, it's a race to reach Federally mandated 'Meaningful Use' in compliance with the High Tech Act, so to get traction on using Electronic Health records, money is being allocated and spent.
    Dietrich T. Schmitz * Your Linux Advocate!
    • RE: Tech execs playing wait-and-see with IT spending

      @Dietrich T. Schmitz * Your Linux Advocate!

      Well you kinda have to be. Health Care IT is tricky in that your customer's health is in your hands. YOu can't let those systems degrade.
      The one and only, Cylon Centurion
    • Translation:

      Federal mandates are costing our business money that we'll have to recoup with higher prices.
      baggins_z
      • RE: Tech execs playing wait-and-see with IT spending

        @baggins_z
        Really?? Being able to expense (write off) nearly 100K of equipment on ones tax return should go a long way, as you are getting your equipment virtually free!!
        eargasm
      • Meaningful Use

        @baggins_z
        provides a financial offset for underwriting the cost of infrastructure to set up and utilize Electronic Health Records.

        That's approximately $45K per provider that incents using EHR.

        The hurdles we have to cross to receive those offsets is to show we are using EHR in a way that provides measurable positive patient Health Care outcomes.

        It's not a handout in the sense that it is available without conditions.

        Providers must embrace EHR and then show the derived benefits for using it to elevate the quality of Health Care.

        It's a worthy endeavor and the Government is giving a helping hand in assisting physicians who might not have the financial wherewithall to do so.
        Dietrich T. Schmitz * Your Linux Advocate!
  • Cisco's economic woes are of their own doing

    Chasing after the server business because you were being angry and spiteful about HP buying LeftHand Networks is going to impact your bottom line. Cisco needs to return to the core and stay there. It's dalliances in markets outside of its areas of expertise are a distraction and a drain on their bottom line.
    Your Non Advocate
  • What the heck would one expect from those executives?

    They're not going to bad-mouth the economy or predict doom for their particular sectors. That would be suicidal, and of course, they're going to talk up their prospects and those of similar sectors. But, I'm pretty sure that they know that eventually, all sectors, IT and everybody else, is going down for the count with the rest of the economy.<br><br>Denying that there are problems is a way to hope to keep the consumer actively spending, but below the surface, I'm pretty sure those executives are watching their spending and their bottom lines and keeping their fingers crossed.
    adornoe