On Wall Street, bad news gets worse for IT

IDG News Service - The financial news for IT firms just keeps getting worse, with bellwethers like Intel cutting revenue guidance and shares of highfliers like Google sinking to multiyear lows. Meanwhile, Sun is laying off up to 18% of its workforce, and market researchers at IDC and Citigroup have slashed their forecasts.

The conventional wisdom until now has been that since corporate IT budgets were slashed and stayed lean after the dot-com bust, there isn't much left to cut. That meant the tech sector might suffer a slowdown but not an actual decline. However, market watchers are starting to seriously hedge their bets, revising their official expectations and, in some cases, forecasting declines.

Before a Thursday afternoon rally, probably caused by traders seeing opportunities to snap up shares at historic lows, the tech-heavy Nasdaq closed Wednesday at 1,499, a new low for the year and a level not seen since the tail end of the dot-com bust five years ago. The new low point marked a stunning loss of confidence in the tech sector. Shares of Google Inc. sank below $300 for the first time in three years.

Sun Microsystems Inc.'s announcement Friday that it will cut up to 18% of its worldwide workforce to curb costs in the face of tough economic times put a cap on what was a tough week for tech. Sun plans to slash costs by about $700 million to $800 million annually and lay off 5,000 to 6,000 employees. In an effort to emphasize the company's considerable intellectual property in software -- and de-emphasize hardware -- the company is also reorganizing and plans to form two new business units and a new group within Sun's systems business.

Two weeks ago, Sun blamed the downturn in the financial sector for a $1.68 billion quarterly loss. The collapse of the U.S. investment banks has eliminated what was Sun's customer stronghold. Sun shares immediately started trading lower Friday morning.

Market analysts have continued to downgrade tech shares this week. Goldman Sachs downgraded Dell Inc. shares to Sell from Neutral, based on expected declines in margins and earnings. Dell remains highly dependent on sales of hardware, which is typically the first thing cut when IT budgets are trimmed.

Goldman initiated coverage of Palm Inc. with a Sell rating. It sees limited chance for a company turnaround, since increasing competition will likely drive market-share losses and the company's new software platform strategy remains unproven.

Credit Suisse cut its share price target for Apple Inc. to $120 from $135, to reflect a more conservative outlook for the personal computer industry.

One sign of tough conditions for hardware was Monday's announcement from electronics retailer Circuit City that it had filed for bankruptcy protection to try to turn around its bleak financial position.