Dark days for hardware but points of light scatter the gloom


As the recession deepens surprisingly positive indicators are emerging from some corners of the IT world. Forrester Research has predicted only a 3% fall in IT spending this year and Gartner analyst, Dave Aron, reckons that unlike the during the last downturn, this time, IT is seen as part of the solution rather than part of the problem. Nevertheless, it's far from good news with Aron predicting flat spending this year and no growth expected in PC sales by most analyst houses.

On an individual company front there are mixed messages cropping up about what the recession means for individual sectors. IBM, for example has posted better than expected results with profits for its fourth quarter up 12% to US$4.4bn. Yet its hardware revenues were down 18%, mainframe revenues 6% and low-end servers 32%. Even so, IBM points out that it is hiring while others slash headcount.

Microsoft has announced 5,000 job cuts, with 1,400 to go immediately. With hardware sales performing poorly, the software giant is also clearly feeling the pinch. The company's Windows business has been hardest hit with an 8% drop in revenues due to slowing PC sales and a shift to low-cost netbooks. Chip giant Intel is also having a tough time and that can also be attributed to stalling PC sales. It announced its profits had fallen 90% in the fourth quarter and, although this was in line with downgraded expectations, the company blames much of the fall on its write off of its billion dollar stake in WiMAX operation Clearwire. Back in the core business little is rosy. Demand for the company chips has fallen as PC makers work through their stockpiles rather than ordering new supplies. As a consequence, revenues in the quarter dropped 23%.

A chink of light can be seen in Google's above expected results. For the last quarter, the company reported net income of US$382m down from US$1.21bn a year earlier. Total revenue was US$5.7bn up 24% on the previous year. The topsy-tuvy nature of the economic climate is reflected in Google's decision to cut contractors and lay off 100 recruiters while streamlining several projects.

If conclusions can be drawn, the rule of thumb appears to be that hardware is going to be an increasingly difficult business to generate profits in this year. IBM has suffered with its lines in this area but its services lines have only felt a 4% dip suggesting that enterprises are trying to sweat what they've got rather than shell out for new hardware. Google's results indicate that its business as usual on the media front but we are yet to see the impact of shrinking advertising budgets on the business. A slow in transactions on eBay might have some light to shed here. The ride will, without doubt, be bumpy but if I was CEO of an IT services business, I'd feel more comfortable than if I was trying to shift chips right now.



Stewart Baines
Stewart Baines

I've been writing about technology for nearly 20 years, including editing industry magazines Connect and Communications International. In 2002 I co-founded Futurity Media with Anthony Plewes. My focus in Futurity Media is in emerging technologies, social media and future gazing. As a graduate of philosophy & science, I have studied futurology & foresight to the post-grad level.