Critical.
Authoritative.
Strategic.
Subscribe to CIO Magazine »

Wall Street Beat: Hardware hits headwinds, software picture clears up

PC market slows but enterprise software shows resilience in face of economic uncertainty

While hardware and components makers face economic hurdles, the picture for software is getting brighter, according to earnings reports from major vendors and mid-year market research polls.

Vendors and analysts lay much of the blame for the economic headwinds facing IT companies on Europe's debt woes. The debt burden on overextended banks and the huge sovereign debt in southern European countries as well as a recession in several E.U. nations has created an environment in which businesses are pulling back certain IT purchases, according to industry insiders.

For example, in its disappointing quarterly earnings announcement Thursday, outsourcing services company Infosys said that the cancellation of a large project in Europe was one reason it experienced slower revenue growth in the quarter than in the year earlier period.

Last week, when data integration software maker Informatica released worse-than-expected preliminary figures for the past quarter, Europe was also to blame.

"After 31 consecutive quarters of consistent results, I am disappointed that we fell well short of our own expectations in the second quarter of 2012. Clearly, we did not adapt as rapidly as we should have to the changing macroeconomic environment, especially in Europe," said Informatica CEO Sohaib Abbasi in a statement.

Slowing growth in China as well as a weak labor and housing market in the U.S. has also worried IT companies. Though no sector is immune from the economic concerns, hardware is getting particularly hit.

Global PC shipments totaled 87.5 million units, a year-over-year decline of 0.1 percent, Gartner said Wednesday. IDC on Wednesday also reported a year-over-year decline of 0.1 percent in worldwide PC shipments. In May, it had forecast 2.1 percent growth.

IDC pointed to a tough economy, competition from smartphones and tablets as well as the expected launch of Windows 8 this year, which may be causing potential PC buyers to hold off purchases.

"These latest results validate IDC's expectation that the second quarter would be a transition period where both economic factors and anticipation for new products in the second half of the year would result in relatively low PC shipment growth," said IDC senior research analyst Jay Chou in the report.

The slowdown in the PC market is affecting the chip sector. Advanced Micro Devices said this week that it expects its second-quarter revenue to drop by 11 percent from the first quarter due to slow sales in China and Europe. AMD had said previously that sales for the quarter ending June 30 would increase by 3 percent sequentially, plus or minus 3 percent.

Economic woes for hardware affect all levels of the component supply chain, including companies like Applied Materials, which makes manufacturing systems for the semiconductor and display industries. This week Applied Materials revised its fiscal year 2012 business outlook due to weaker-than-expected, near-term demand in its semiconductor equipment business.

For the fiscal year ending in October, the company expects sales to be below the previous outlook of US$9.1 billion to $9.5 billion. The company will provide a new forecast during its Aug. 15 earnings call.

Meanwhile the software side of tech, while not uniformly sunny for all vendors, offers some bright spots. On Thursday, SAP said that software revenue increased 26 percent in its second quarter to ¬1.06 billion (US$1.30 billion), at the high end of expectations. The ERP vendor, which will release its full second-quarter results on July 24, said operating profit was up 7 percent to ¬0.92 billion.

Despite Informatica's earnings warning last week, some software makers are doing well. Oracle and Tibco in the past few weeks reported strong results. Tibco CEO Vivek Ranadiv鬼a href="http://www.cio.com/article/709659/Wall_Street_Beat_Software_Progress_in_Euro_Zone_Plan_Help_Boost_Tech"> in an interview after the company's results, said that since software is so crucial to business processes now, in some ways it is easier to close big deals -- if a vendor can show a return on investment. The comment matches what some enterprise customers are saying.

"I think you're looking at an environment where when we make big investments, we just have a higher hurdle for the rate of return," said Chris Perretta , CIO of State Street. "I see the current environment as having much more scrutiny into any investment, technology or otherwise."

Taking all facets of IT into account, the tech picture may not be as bad as the most dire forecasts have predicted. Worldwide spending on IT products and services will rise 3 percent in 2012 to US$3.6 trillion, according to a Gartner report early this week. That forecast is up from the 2.5 percent growth forecast by Gartner earlier this year. A lot of the optimism is due to software. Enterprise software spending will be $281 billion in 2012, a 4.3 percent jump, Gartner said.

A wave of earnings reports from some of the biggest names in tech next week, including IBM, Microsoft, and Intel, may provide a clearer snapshot of the IT market as a whole.

(Additional reporting by Chris Kanaracus in Boston.)

Recommended

  1. Think Tank: Tips for IT strategic planning success

  2. Class action against Vodafone to be filed by ...

  3. BYOD and ITSM: What you need to know

  4. Tapping into social experience: Tourism Australia

    CMO

Join the CIO Australia group on LinkedIn. The group is open to CIOs, IT Directors, COOs, CTOs and senior IT managers.

Comments are now closed.
Related Whitepapers
Latest Stories
Community Comments
Latest Blog Posts
Whitepapers
  • Maximising productivity without sacrificing security
    Advances in mobility and client computing technology combined with the ubiquity of the Internet and social media are creating a culture and desire for constant connectivity and anywhere access to information. As these trends extend from the home into the work place, IT managers should consider seriously the opportunities for increased productivity and communication with customers and constituents, as well as understand the increased security risks posed by online, anytime access to private networks and data. Read more.
    Learn more »
  • Unleashing the Power of Information
    If business-relevant information is not well managed, secured and analysed, it can become an underutilized asset or—worst case—a legal and competitive liability. Nearly all of the IT and business executives who responded to a recent survey recognise this risk, and say they understand the importance of having an enterprise information management (EIM) strategy. Find out more on how to reduce costs, improve competitiveness and avoid risk by making information management an enterprisewide strategic priority.
    Learn more »
  • Getting Real About Security Management and Big Data – A Roadmap for Big Data in Security Analytics
    It’s an exciting yet daunting time to be a security professional. Security threats are becoming more aggressive and voracious. This whitepaper examines the escalating complexity for the security management environment; how to get more meaning from data already collected and the combination of infrastructure, analytic tools and threat intelligence need to drive business value from Big Data. Download now.
    Learn more »
All whitepapers
rhs_login_lockGet exclusive access to Invitation only events CIO, reports & analysis.
Recent comments