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

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

By Marc Ferranti
July 13, 2012 01:49 PM ET

IDG News Service - 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.

Reprinted with permission from Story copyright 2014 International Data Group. All rights reserved.
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