Week of poor reports suggests IT buying still tepid

Those awaiting a rebound in the IT market found little comfort in last week's earnings announcements from many of the industry's biggest vendors, suggesting that spending on large IT projects at many corporations is still on hold.

Vendor after vendor said buying is down among customers, with little indication of a rebound any time soon. Microsoft lowered its revenue expectations for its coming fiscal year, while IBM detailed the staff and cost-cutting steps it's taking to keep its operating expenses in line with reduced customer demand. Sun Microsystems returned to profitability after three quarters in the red but said it anticipates a loss again next quarter -- news that prompted a 27 per cent drop in its share price on Friday.

Research firms IDC and Gartner released reports documenting a continuing slide in PC sales. Gateway offered its own evidence of a stagnant PC market, posting a $US61 million net loss for the quarter and an 18 per cent decline in unit sales from a year ago.

Hardware vendors were particularly hard hit during the quarter. Chip maker Transmeta announced plans to lay off 40 per cent of its staff after posting a pro forma net loss of $24.7 million, more than three times its net revenue, and cancelled plans for a new processor. Advanced Micro Devices posted its biggest net loss since 1999 and forecast further losses next quarter. IBM said it is shifting its focus away from hardware, a sector it sees commoditising, and toward the "higher profit opportunity" of software and services.

But software makers are also struggling to find buyers in the tough economy. Growth in enterprise software application markets, for software such as ERP (enterprise resource planning) and CRM (customer relationship management) packages, has come to a "screeching halt", Gartner reported in a study released on Wednesday. Forrester Research backed up that conclusion with its own report predicting a 5 per cent decline in the CRM market in 2002.

CRM vendor Siebel Systems missed analyst expectations and announced plans to lay off nearly 1,200, while ERP leader SAP also missed expectations, slashed its forecast and implemented cost-cutting measures its executives termed drastic.

Concerns about a continued IT slump helped send the Dow Jones industrial average skidding on Friday to its lowest level since 1998, as investors reacted to a week of financial reports that were absent of hoped-for promising signs.

"There is little evidence that demand is going to substantially improve anytime soon," Morningstar analyst Joseph Beaulieu wrote in a Friday briefing.

Tech companies scheduled to report their financial results this week include AOL Time Warner, Amazon.com, EDS, and Computer Associates International. After last week's disappointments, Wall Street is already backing away from potentially troubled companies.

AOLTW crashed to a new 52-week low on Friday on news of the planned departure of Robert Pittman, the company's chief operating officer and interim head of its struggling America Online unit, and questions about its revenue accounting raised in a pair of Washington Post articles.

Shares of CA also hit a new 52-week low, dropping 15 per cent on Friday at the end of a week in which the company replaced four board members and began gearing up for its second annual proxy fight with a shareholder seeking to oust the company's management.

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