The Bear Stearns fiasco: What tech vendors will take a few lumps?

J.P. Morgan bought Bear Stearns for a whopping $2 a share, well below the investment bank's share price of $100 just a few months ago.
Written by Larry Dignan, Contributor

J.P. Morgan bought Bear Stearns for a whopping $2 a share, well below the investment bank's share price of $100 just a few months ago. The tech angle: J.P. Morgan's Federal Reserve inspired mercy killing has rattled Wall Street, financial services companies and most likely the technology spending plans of those firms.

In a research note, BMO Capital Markets analyst Keith Bachman summed the situation up for technology vendors well.

"We believe that large US financial services deal will be tough to close in the next two weeks."

Simply put, any technology vendor that was hoping for a big financial services deal to close a quarter isn't going to be happy.

A few takeaways: IT companies have material exposure to the U.S. financial services industry. On average, financial services companies account for 5 percent to 10 percent of total revenue among the large tech companies Bachman covers. Some of those names include IBM, Dell, EMC, HP, Sun, Network Appliance, Seagate and VMware.

IBM is most exposed to the U.S. financial services sector and more than half of that revenue is recurring (think maintenance or services). Bachman writes:

IBM has commented that 25% of its financial exposure is in the US, which equates to approximately 7% of total revenues. If we assume that 40% of IBM's US financial exposure stems from non-recurring sources, this equates to approximately 3% of total revenues.

Sun's March quarter is at risk, says Bachman. Sun is facing a weak economy and worries from its financial services customers.

HP appears to be in the clear with "relatively small exposure."

Bachman is focused on hardware so he didn't address the Bear Stearns fallout and how it may impact software vendors. To that end, analysts appear to be betting that Oracle will skate past worries about financial services customers.

Merrill Lynch analyst Kash Rangan says in a research note Monday that Oracle's fiscal third quarter--due March 26--looks solid. "We expect Oracle management to sound bullish on the May quarter outlook; guidance may bracket consensus expectations of 13-14% license growth. There is a slight chance management could temper its outlook for the US business due to economic concerns," writes Rangan.

Analysts are expecting Oracle to report third quarter earnings of 30 cents a share on revenue of $5.42 billion, according to Thomson Financial.

Update: In the "things I should have thought of initially but didn't department:" These giant U.S.-based IT vendors are also the same ones that have been getting a currency bump in their quarterly results. Given the dollar isn't worth the paper it's printed on these days it may be highly likely that a weak greenback will offset any financial weakness.

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