Lehman Brothers is going bankrupt, Merrill Lynch sold itself to Bank of America and the markets had their worst day in seven years. But Wall Street’s crisis isn’t sinking tech. Yet.
Analysts on Monday said that while times are tough, big technology companies might continue to turn in decent sales and profits thanks to overseas sales. Some, like Sun Microsystems (JAVA), are more dependent on Wall Street than others, like IBM and Hewlett-Packard, which have customers around the world who can keep buying despite Wall Street’s troubles.
That’s not to say everything’s hunky-dory. Financial services firms account for a whopping 18 percent of overall IT spending, according to Forrester Research, with Wall Street firms making up a third of that. That’s a big enough chunk that tech firms feel the pain as spending slows down. And slow it will, experts predict – Forrester Research revised its I.T. Spending forecast for the U.S. On Tuesday morning, saying it now expects 6.1 percent growth in 2009, down from an earlier projection of 9.4 percent growth.
The thing is, many financial firms had already cut spending way back, says Forrester analyst Ellen Carney – so it might not get too much worse. She expects firms to slash their spending on business consulting, and hardware purchases they can delay. “But they’re going to continue to spend,” she says. “They’ll buy things that increase productivity, things that help them identify risk.”
But tech’s prospects could darken considerably if the banking collapse, whose effects have already spread to Europe, hits Asia. That’s by no means out of the question. If credit-strapped U.S. Consumers cut back on holiday spending, that will hurt Asian manufacturing economies. And if oil prices drop at the same time, that could be the end of spending sprees in Russia and the Middle East, high-growth areas that tech companies have relied on for overseas revenues.
How will we know if things are getting bad? If there’s a canary in the coalmine here, it could be the PC business. In fact, on Tuesday Dell warned that global PC demand is softening. “The influence of emerging markets has spread the PC industry out quite a bit,” says IDC analyst Richard Shim. “It’s just a question of, will the economic situation in the U.S. Spread out to other regions?” If it does, we could see big fourth-quarter earnings misses from the likes of Microsoft, Intel, HP, Dell and Apple – and a tech industry in a world of hurt.