Tech CEOs take dim view of 2002 rebound

NEW YORK (Reuters) - Top high-tech executives attending theWorld Economic Forum are generally far gloomier than WallStreet about the economic outlook for this year and see littlehope of a rebound until 2003. "We've been very cautious about the economy," said MichaelRuettgers, chairman of EMC Corp.

NEW YORK (Reuters) - Top high-tech executives attending the World Economic Forum are generally far gloomier than Wall Street about the economic outlook for this year and see little hope of a rebound until 2003.

"We've been very cautious about the economy," said Michael Ruettgers, chairman of EMC Corp., the largest supplier of storage equipment used to house corporate data. "My own feeling is that you shouldn't plan on a strong recovery this year," he said at a meeting of the world's political and business elite.

Microsoft Corp. (MSFT.O) Chairman Bill Gates said on Sunday that he sees no broad economic recovery this year, countering a budding groundswell of optimism tied to recent economic data pointing to a rebound in the second half of 2002.

"I don't see any big uptick in this year. Japan certainly won't be, and the U.S. won't be," Gates told an audience of editors and reporters attending the five-day World Economic Forum summit of political and business leaders in New York.

On an upbeat note, Gates said: "Europe may be a little more positive," referring to a rebound in its overall economy.

Their remarks contrasted with more bullish views voiced by some leading economists attending the conference.

These economists have argued that Europe was making steady progress toward recovery, but could not lead the world out of recession by itself. Japan's economy may get worse before getting better, many experts have said.

At the forum late last week, Conference Board Chief Economist Gail Fosler forecast that the U.S. economy would stage a healthy rebound out of recession later this year, and its gross domestic product would grow by 4 percent in 2003.

Even among high-tech leaders, the wait-and-see outlook is not unanimous, however.

Carly Fiorina, the chief executive of computer and printer maker Hewlett-Packard Co. (HWP.N), said on Monday that consumer PC demand was rebounding and that HP was planning for an economic recovery in the second half of this year.

During a presentation on Monday at a Goldman Sachs investment conference near Palm Springs, California, Fiorina said the company now expected to post financial results for its first quarter ended in January ahead of Wall Street's hopes.

Fiorina, who is battling to win shareholder acceptance of her company's proposed merger with Compaq Computer Corp. (CPQ.N), left the World Economic Forum to return to California over the weekend.

"Consumer technology spending was the first thing to fall off a cliff. So the fact that consumer technology spending is on the rise again is perhaps a hopeful harbinger of things to come," Fiorina said.

Still, she noted that economic conditions around the world remain challenging and that the Unites States corporate technology spending climate is challenging and "a bit foggy."

But most tech leaders and economists say that this downturn is a business-led recession and will require a rebound in corporate spending before the general economy gets a lift.

The mood among high-tech leaders reflects a caution borne of the on-going hangover felt from go-go years gone by, when a seemingly limitless supply of capital, wide latitude for delayed profits, loose accounting standards and mega-mergers became the rules of the game.

"The sobriety will stay, the somberness will stay. It's very healthy," Gates said. "I like this period where people are forced to play by rules driven by economic sense."

Search for new high-tech drivers
Analysts say that a rebound in the high-tech economy will require more than just a rebound in the psychology of economic well-being, it will take a new round of product innovation to spur increased demand by businesses and consumers.

In a recent grim report on the sector, Pip Coburn, global technology strategist for brokerage UBS Warburg, wrote: "Growth will be slow this year (2002) and next year prior to the emergence of material impacts in 2004 from fresh technologies."

"We are concerned that the enterprise (corporate sector) will not broadly start spending until, say, six months after profits start to recover," Coburn wrote of the timing of any tech recovery.

James Morgan, chairman and chief executive of Applied Materials (AMAT.O), the dominant maker of semiconductor equipment, remarked in an interview at the World Economic Forum about the slow pace at which major tech companies are investing in equipment.

Morgan described the chicken-and-egg conundrum that has existed in his industry for decades, where demand for new high-tech products has been driven by an inexorable increase in the power and intelligence of electronic devices.

Underlying this magical increase has been heavy investment in sophisticated semiconductor production equipment that squeezes ever more transistors onto each computer chip.

"I'm still concerned," Morgan said, adding that a very significant investment needs to be made by big equipment customers such as Intel Corp. (INTC.O), Taiwan's TSMC (2330.TW), and Sony Corp. (6758.T) and others.

"So far they have put in pilot lines...and some limited production, but they'll need to do more...over the next five years," Morgan said of purchases of Applied's latest generation of wafer-maker and circuit-laying machinery.

Rick Belluzzo, president and chief operating officer of Microsoft, told Reuters that Gates' comments were referring not simply to the high-tech sector, but to what Microsoft was seeing across the global economy in general.

When asked to forecast when the world's economy might see a move back to healthy growth, Belluzzo echoed Gates, saying: "It depends on what you mean by 'back.' I think you will start to see growth in two to three quarters."

"In some segments it may take longer," he added.

Yet the news is not all glum, and there are pockets of strength among high-tech companies. The Internet is not going away and consumers' lust for new gadgets is as strong as ever.

Some of the better performing high-tech sectors include business automation and security software, video game equipment and software, a Microsoft stronghold, and isolated stand-outs like Nokia (NOK.N), the world's biggest mobile telephone maker.