New Economy big four staying ahead

The overall market for the IT industry will recover but it's going to take some time. Meanwhile, even the biggest companies: Cisco, EMC, Sun and Oracle, are suffering from the disruption.

The four horsemen of the New Economy have ridden into a ditch. A year ago, the rule of thumb was that if you were selling a Web solution, it would include a Sun server, EMC storage, Cisco routers and switches, and an Oracle database with related applications.

Of the four, Oracle is probably in the best position, largely due to its services operation. In fact, given that 56 percent of its $10.1 billion in revenue last year came from services, it's hard to call Oracle a vendor at all.

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As for Oracle's other three compatriots, it now appears that an even higher percentage of their business came from the dot-com explosion than anyone originally thought. All you can say is that it was a heck of a party. Venture capitalists were footing the bill and plunking down wads of cash for any opportunity that seemed plausible—regardless of whether there was a clear timetable for making money or a seasoned management team to bring off the idea.

While much of that money was squandered, many billions of dollars found its way into IT infrastructure and consulting. That's what drove Sun's sales, and it's what made Web integrators Wall Street darlings until early last year. Now those one-time customers are turning into competitors of the vendors, liquidating their assets as they dissolve or merge with other businesses.

Sun, EMC and Cisco have gone from the suppliers of the dot-com enterprise to some of the biggest names in the used equipment market. And as their equipment gets bought up secondhand, it's put a huge damper on their earnings.

EMC, meanwhile, is getting a double whammy. IBM is hell-bent on rebuilding its storage business and regaining market share from EMC, and Sun and Compaq are both looking at that market to prop up earnings.

In terms of the overall market, this is a temporary lull. It's like watching an inchworm move. We're sitting at the pause when the back of the worm catches up before the front moves forward again. And with the professional and proven management teams in place at all those companies, you can bet they won't sit idle watching their markets erode and their stock prices slide.

New products will be introduced, and partner programs will be modified to make it more attractive to push their products. Look for major changes from Cisco over the next few weeks, including seven "specialty" markets for partners to target.

The overall market will recover but it's going to take a couple of ugly quarters to sort all this out, and the disruption during that time will be like any disruption of a good thing—very unpleasant.