Following the latest wave of earnings reports, analyst firms offer a cautious view of the enterprise hardware market. Some IT organizations look to be spending their hardware budgets, a change from the past.
Major analyst firms such as International Data Corp. and Gartner Inc. recently began sharing their second-half forecasts with their clients, although the formal estimates arent expected to be released for a week or two. On the enterprise hardware side of the industry, the outlook is mostly cautious but positive.
Analysts said theyre still operating under the assumption that the technology industry is still in the midst of a replacement cycle that began in 1999 and 2000, when Y2K spending peaked. They also advised not to worry about the potential for a slowing server market, as a shift to cheaper commodity servers has kept unit volume up, if not sales.
Macroeconomic forces will guide the PC market to growth of roughly 10 percent, year-on-year, with servers showing an average growth of about 8 percent.
For the first time in a year, IT directors have begun to actually spend the amount of money theyve been budgeted, according to Brian Smith, research director for IT Watch, a subscription service from Gartner, in San Jose, Calif. IT Watch polls around 100 CIOs per week and tabulates the results on both a monthly and quarterly basis. Throughout the past year, IT personnel have spent under their budgeted amount, primarily due to cost concerns, he said. The exception has been telecommunications expenditures, where carriers have deeply discounted voice and data services to attract customers.
"IT spending is at budgeted levels, although budgets arent going up," Smith said. "Caution remains the norm, and thats what were forecasting for the rest of 2004."
Hardware spending, on the other hand, is expected to be flat to down, with some exceptions. Gartners surveys have shown that one area of interest is Tablet PCs, although the relative dollars attached to the category make it "almost a non-issue," Smith said.
For many, PC sales remain the lynchpin of the technology industry. During the second quarter, a total of 42.8 million PCs were shipped worldwide, 13.3 percent more than the same period in 2003, Gartner said. IDC, meanwhile, said PC shipments grew 15 percent over the same period, to 39.7 million units. The firms 2004 forecast calls for a 13.5 percent increase in PC sales; Merrill Lynchs Global Securities Research and Economics Group calls for a 13.3 percent increase in PC growth throughout the year, driven by the belief that corporate sales will outpace the consumer market.
Roger Kay, a PC analyst with IDC in Stamford, Conn., said he expects PC sales in the second half to be about even with the first half, or slightly lower. Compared with the second half of 2003, unit shipments could increase by slightly more than 9 percent, a slight dip compared with the previous year. The firms thesis is that the PC industry is in the middle of a recovery period, which began last year. As the recovery becomes more mature, shipment growth will flatten, he said.
"Weve been pretty close to being right for a number of quarters now," Kay said. "We think we know the scenario, and were sticking to it."
Kays counterpart at Gartner wouldnt commit to a unit forecast in advance of the firms public announcement of the second halfs expected performance, due in the next few weeks. However, "our forecast assumes a pretty healthy third and fourth quarter, although not as strong as last year," said George Shiffler, a PC analyst at Gartner.
"I think almost everyone is pretty bullish," said Toni Duboise, a PC analyst for Current Analysis in La Jolla, Calif. "We had a great last year a great first quarter, and the second quarter doesnt look too bad." The third quarter is usually "disappointing," she said, but the market usually rebounds in time for the holiday season.
Next Page: Macroeconomic trends guiding sales.