Tech's economy careens into the great unknown

Tech's economy careens into the great unknown

Summary: Trying to figure out where the information technology economy is going? Your guess is as good as mine.

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TOPICS: CXO, Banking
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Trying to figure out where the information technology economy is going? Your guess is as good as mine. Or Steve Ballmer's. Or Steve Job's. Or Paul Otellini's. Or EMC's Joe Tucci's. Or Jeff Bezos'. The one trend that's emerging from a bevy of financial reports is that companies have no visibility into demand.

And on a Friday morning when you learn new terms like "limit down," which means that the stock futures can't fall any lower before the market opens, that lack of visibility is critical. How bad is it?

Intel plans to give an update in mid-quarter update because the fourth quarter is so murky. Microsoft says we'll have either a mild recession or steep one. Amazon provides a range of possibilities that make you wonder why the company bothered to give guidance at all. And even Apple is having trouble getting a read on the economy.

Simply put, no one knows whether consumers will show up, CIOs will freeze and whether information technology spending is totally expendable. For the IT worker that uncertainty has been seen before--2001 to 2003--but this time may indeed be different. The globe is deleveraging and the ramifications are huge. We're all flying blind.

Also see: State of the enterprise tech economy

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Here's a look at the Powershares QQQ Trust, a proxy for the tech-heavy Nasdaq, year to date through premarket trading:

qqqq.png

Let's sample how blind we really are about the tech economy:

Microsoft CFO Chris Liddell:

We've widened our forecast range in the second half of our fiscal year as variability in the market demand clearly becomes more pronounced. The forecast also reflects continuation of the trends we saw in the first quarter, and assumes the following. Traditional mature market PC units will grow in the low single-digits, but with high potential variability. Emerging markets units will continue to grow mid to high teens.

We're not economic forecasters, and there is a high degree of uncertainty in outlook based on the state of the economy. As a result we've adjusted our guidance approach as follows. At the top end we're assuming a mild recession, and a relatively modest growth rate for all IT-based products. While at the bottom end we're assuming a deeper recession in the economy an end-season lower growth for IT.

Intel CEO Paul Otellini:

It’s clear that the financial crisis may impact our business but the extent of that is difficult to quantify. As a result, we’ve made two changes for this quarter -- one, our outlook has a wider range than normal, reflecting our view of the boundaries of the risks, and two, we’ve decided to provide a formal mid-quarter update scheduled for December 4th to allow us to give you additional information about the state of Q4 business trends as the business and financial conditions unfold.

EMC CEO Joe Tucci:

In the last three weeks of September we did see some slowdown in the SMB and commercial markets which was mostly caused by an air of caution on the part of our customers. This was also coupled with a tightening of the credit markets. We saw a few large IT products get postponed by our large enterprise customers and we did feel the impact as several large financial institutions paused some of their IT spending as they are going through a wave of consolidation. We are seeing some signs of a slowdown in IT spending in many parts of the world. I believe the slowdown will continue into 2009.

Apple CEO Steve Jobs:

So now let’s turn to the economy, to the broader market conditions resulting from the global economic slowdown and credit crisis. First, let me say that we are not economists. Your next-door neighbor can likely predict what is going to happen as accurately as we can.

Amazon CFO Thomas Szkutak:

Incorporated into our guidance are the order trends that we have seen to date and what we believe today to be appropriately conservative assumptions. We experienced slower rates of growth towards the end of the third quarter, coinciding with disruptions in the global financial markets. While guidance takes into account these growth rates, our results are inherently unpredictable.

And on and on. In fact, any company that tells you they can predict demand is lying. That fact is why the tech ecosystem--buyers, large vendors, start-ups and venture backed outfits going through their first downturn--is frozen.

It would be swell to have five handy tips on how to navigate this crisis, but it's not that easy. Frankly, those little tips have become too trite. The tech sector, which is in a much better position than the last downturn, is venturing into the unknown.

Topics: CXO, Banking

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8 comments
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  • So much of IT, SOA, social networking,...

    just to mention two, can't really prove a ROI. Those responsible for spending the IT budget are being pressured to show something but they can't. These are the IT sectors that are going to get hit first.

    Computers were meant to do three things, data input, manipulate that data and then output the results. Anything more than this takes a stretch of the imagination to show a real economic benefit to the company. And with the preoccupation to make IT do more, the core functionality of IT is even suffering.

    IT has become its own worst enemy. Companies are tired of throwing their money after pie in the sky projects. Now with the economy in shambles it's these projects that will suffer. Companies have to take their data, manipulate it and then interpret the results. Beyond that they will be hard pressed to throw tight money.
    bjbrock
    • ROI isn't always dollars and cents

      I disagree bjbrock - companies (meaning the executives) looking at pure numbers or data to make strategic decisions is one thing - this is risk mitigation, corporate direction, shareholder value, expanding sales/distribution channels, etc - but for a company to be truly productive and retain knowledge...tools like corporate social networking NEED to be embraced. Business is conducted on a day to day basis by the average knowledge worker who needs and wants access to tools that will assist them in doing their job - not just in crunching data for the executives. The NetGen is/will bring these tools into the workplace whether it is sanctioned or not - so companies better embrace it rather than hope the social networking trend goes away.
      True corporate social networking suites (meaning not point solutions or mash-ups) are developed around the principles of business - not a consumer. The intent is to alleviate pressures on IT by letting the end users (meaning the people doing the actual work of the company) collaborate and share knowledge to solve business problems while IT can focus on solving their business problems - legacy IT applications and infrastructure, SPAM, security, email, etc..
      Looking at corporate social networking and assigning an ROI is not the way of the world today - that's old school thinking. Allowing branches, departments or project teams to collaborate and share knowledge together while building an archive and solving their unique business problem or goals is priceless! Waiting for the executives or IT to buy-in or believing/understanding each branch/department or project groups business problem is not scalable and applies an attitude that one solution fits all.
      ynanasi
  • Why Put Ballmer's Ugly Mug Up??

    The only thing careening into his mouth is the buffet line at Golden Corral.
    itanalyst2@...
  • How bad is it? No one knows! Waste of time

    This blog post is a waste of time telling us no one knows how bad it is. It's S.O.P. for companies to talk up the worst case scenario so they can beat estimates for next quarter's stock and keep the price realistic. If they said what they thought would really happen, there would be a 25% premium to the stock price over what they said it would be and everyone would be disappointed that the results were really what they said they would be and selling like mad when the quarter's results came out.
    scott1329
    • Will the world explode tomorrow?

      No one knows.

      Will I trip over my shoelaces today?
      No one knows.

      Will I win the lottery tomorrow?
      No one knows.

      Will I read the next article a useless as this?
      No one knows
      Smarty_Pantz
  • RE: Tech's economy careens into the great unknown

    "How bad is it?", you ask? Nobody knows, you say? Well, that is why Congress should have listened when both Bernanke AND Paulson told them, "act now, or we face deep recession". But they did not.

    Since Rep. Boehner was particularly prominent is hemming and hawing, making really poor excuses, I suggest we name this recession/depression in the history books "Boehner's Bung Up".
    mejohnsn
  • Cliche

    What is apparent is that production has been in slow decline for some years, unemployment has been masked by part-time employment, and the slow wind-up over the past three years are no different to the late 1920's. Everyone who doesn't do much reading attributes the start of the Great Depression to the collapse on Wall street, but in fact, things had been going bad for some time. That stock markets collapse rather than decline with output indicates their vast ability to feed on fantasy...
    Mahegan
  • RE: Tech's economy careens into the great unknown

    One segment of the tech market which is already experiencing a surge in demand is Software-as-a-Service (SaaS) and cloud computing solutions. These flexible, low-risk, pay-as-you-go solutions are perfectly suited for today's uncertain business environment. As a result, THINKstrategies believes SaaS and cloud computing companies will see a significant jump in demand for their solutions.
    jkaplan@...