Look for the Payoff in Poor Earnings

 
 
By eweek  |  Posted 2001-01-22 Email Print this article Print
 
 
 
 
 
 
 

Earnings reports last week swooped down like an Alberta Clipper, suggesting the economy is headed for the deep freeze.

Earnings reports last week swooped down like an Alberta Clipper, suggesting the economy is headed for the deep freeze. Refreshingly, IBM, one bright spot and an accurate gauge of future IT spending, brushed aside this nonsense with a 28 percent rise in fourth-quarter earnings from a year ago. More important, IBM, according to Chairman Louis Gerstner, looks forward "to another good year."

Gerstner will probably be chided by President Bush for not being pessimistic enough.

Fear not, there was plenty of misery to go around last week as Apple reported a greater-than-expected loss. Intel lowered its 2001 forecasts, and GE suggested big layoffs are in the wind. The worst news came from smaller techs and Internet pure plays. Vignette, citing uncertainty about IT spending, announced layoffs. So did NBCi and AltaVista. And DSL provider Northpoint Communications filed for bankruptcy.

Rounding out this bleak picture, California plunged into darkness with rolling blackouts. What more? Oil prices shortly will head up again.

Its too easy and perhaps unwise to adopt the herd mentality and pull the reins in on IT spending. Given the restrained market, now could very well be a propitious time to launch a project long relegated to the back burner due to skills shortages. The good news is consultants and product vendors alike are hungry for business.

Analysts chided Intel for hiking capital spending to $7.5 billion this year, 12 percent more than last year and nearly double the figure in 1999. Intel, which has put cost controls in place and plans to shut down a plant in Puerto Rico, is counting on PC sales rebounding in the second half of the year.

Beyond just admiring Intels boldness (Wall Street sees it as stupidity), there is a big potential payoff. While its competitors hunker down, Intel will be ready for the next upturn. With well north of $13 billion in cash, Intel can afford to take the risk even if it incurs the wrath of Wall Street.

Ironically, IBM enters the year with unbridled confidence. In good times, Gerstner has been far more cautious if not downright gloomy in his prognostications. Just as the rising chorus of pessimism is hitting a crescendo, IBM is leaving the music hall.

For its part, Microsoft, which met lowered expectations, cautioned that falling PC sales will make this a tough year. But dont necessarily believe Microsoft—it has a habit of setting lowered expectations and then sailing by them. This was the companys modus operandi for years.

The company, with upward of $24 billion in cash, is also on tap to spend almost $4 billion in R&D for fiscal 2001, up from $2.6 billion in 1998.

These three companies are technology bellwethers, able to rekindle a recovery faster than a half-point drop in the prime. But you have to do your part, too, and see beyond the prevailing state of economic sentiment. Gloom, after all, is a state of mind.

 
 
 
 
 
 
 
 
 
 
 

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