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Techs Can't Find Hangover Cure

By Cynthia L. Webb
washingtonpost.com Staff Writer
Thursday, November 11, 2004; 9:40 AM

There's plenty of good news out there in the technology sector, particularly when it comes to e-commerce powerhouses like eBay and Amazon, and portals like Yahoo.

But nearly five years after the great Nasdaq bust of 2000, other tech bellwethers continue to struggle. Case in point is Cisco Systems Inc., which this week gave investors a less-than-stellar report card on its sales outlook and on the future of IT spending industrywide.

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More Past Issues

Outlining the company's first-quarter earnings report, chief executive John Chambers on Tuesday "said sales growth would slow this quarter and that it was too early to say whether customers were more optimistic about the economy." Even though the company reported higher profit and revenue for the quarter, the "results disappointed investors who had hoped the company would send stronger signals of a comeback in corporate technology spending. Chambers said during a conference call with analysts on Tuesday that the market 'continues to be challenging' and described demand in some product categories as uneven," the International Herald Tribune reported, relying on dispatches from The New York Times and Bloomberg.

The same article added: "Chambers's tempered remarks were not surprising. He said in May that he believed demand for corporate technology products was starting to improve. But three months later, he told analysts that he was hearing less optimism from business executives. On Tuesday, Chambers offered no clear indication of how fast demand would improve." Steve Kamman, a network industry analyst at CBIC World Markets, was quoted in the article saying, "Cisco just kicked the ball another quarter forward, but it didn't provide anyone with a clear idea of the macro picture."
The International Herald Tribune: Cisco Hurt On Worries About Sector's Recover

Signs of Malaise

Wall Street definitely doesn't like uncertainty, and as a result, Cisco shares fell more than 6 percent in trading yesterday. And the company's negative news cast a wider pall on tech stocks. "Lower-than-expected sales at Cisco Systems sent technology stocks tumbling Wednesday while the overall market was little changed after the Federal Reserve announced a widely expected interest rate hike," the AP said. Reuters reported that "Cisco's decline pulled networking shares much lower on Wednesday and contributed to broader weakness in the Nasdaq Composite Index, which was also hurt by softness in semiconductor shares."

Meanwhile, the outlook for PC makers might be weak as well. "Shares of Dell and Hewlett-Packard declined after UBS AG analyst Benjamin Reitzes reduced his rating on the two largest makers of personal computers, citing slowing demand in 2005 and increased competition in computer printers. Dell slipped 58 cents, to $36.85, while Hewlett-Packard fell 73 cents, to $18.97." Over in the wireless hardware arena, pink slips are flying at Nokia, which announced the closure of a plant in Florida that will result in 400 lost jobs.
The Associated Press via The Washington Post: Tech Stocks Decline On Cisco Sales Report (Registration required)

Diagnosing the Problem

One analyst said Cisco's news mirrors a general slowdown for the tech industry. Tim Ghriskey, chief investment officer of Solaris Asset Management, noted "an industry-wide deceleration in growth."
Reuters: Cisco Stock Falls On Tech Spending Concerns

The Wall Street Journal did its readers the favor of explaining just why technology continues to struggle. In a front-page article on Tuesday, the newspaper said: "The sector revived over the past 12 months as corporate buyers caught up on projects they had largely deferred for three years. Now the catch-up phase is clearly over as companies begin to hold back. Burned by overblown promises of the 1990s boom, companies are squeezing more out of what they have on hand and buying cheaper technology. High on their shopping list: Internet phone services and free 'open-source' software they can customize themselves. They also are asking tougher questions about how quickly technology will bring returns and refusing to pay big upfront fees -- instead paying only as they install specific products."

More from the Journal: "Corporate spending on technology gear grew roughly 15% in the first half of the year, compared with last year, giving a boost to giants such as Intel Corp., Microsoft Corp., Cisco Systems Inc. and Dell Inc. But rather than building on its momentum, as it has after past downturns, the recovery already is losing steam. The growth in corporate technology spending slowed to 9% in the third quarter. The shift has big implications for the broader economy. It's terrific news for corporate buyers but is holding back a major driver of overall economic growth. It shows that the economy is still reaping the benefits of the big spending on technology in the 1990s. Many jobs are still getting done faster and cheaper even with minimal new spending. Productivity, driven in part by technology, has risen for 14 straight quarters, the longest stretch in 60 years, though it too is showing signs of slowing."
The Wall Street Journal: Drag On High-Tech Recovery: Companies Do More With Less (Subscription required)

Gloomy Mood in Tech's Capital City

It's even hard to find some bullish optimism in California's Silicon Valley these days. A survey released Tuesday by the Bay Area Council showed that confidence in the area's economy is waning, the San Jose Mercury News reported, noting that there are "fewer companies planning to add jobs in the near future." More: "The Bay Area Council's latest quarterly Business Confidence Index dropped to 59 from 63 last quarter and down slightly from 60 a year ago. The index has now stayed the same or dropped for four straight quarters, a trend that indicates growing gloom among the region's leaders. 'We've seen a softening in confidence,' said John Grubb, a spokesman for the Bay Area Council. 'What we're hearing is that business conditions are still poor.'"
The San Jose Mercury News: Economic Outlook In Bay Area Sinks (Registration required)

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