Soft Earnings by Intel, IBM, Others Linked to Elections: Analyst
Intel, IBM and Microsoft are among a large number of top-tier tech vendors that saw weak third-quarter earnings, with executives from many of these IT companies talking about a difficult global economy that is forcing enterprises to keep a tight grip on their IT dollars.
However, while economic times in Europe are particularly difficult, issues in the United States may be more about tech buyers waiting to see the outcome of the presidential election, according to Forrester Research analyst Andrew Bartels.
In a recent post on the Forrester blog, Bartels said the spate of soft third-quarter earnings from a wide variety of vendors doesn’t indicate the start of a downward trend in the tech market, and that he expects spending to start picking up the fourth quarter and into 2013, after the presidential and congressional elections are set and politicians can begin work again on the fixing the U.S. economy.
“Yes, there continues to be weakness in Europe, with most countries there in or close to recession,” he wrote. “But the U.S. economy seems to be gathering strength, with consumer confidence on the rise, retail sales increasing, and the housing sector improving. China, which had been showing signs of slowing growth, also appears to be picking up. So the economic fundamentals are pointing toward an improving tech sector in Q4 2012 and 2013.”
What is most worrisome to CEOs and CIOs is the looming “fiscal cliff” in the U.S. economy—specifically the threat posed by a combination of the Bush tax cuts expiring and the deep cuts in domestic and military spending that were part of the deal struck by the White House and Congress during the confrontation over the debt ceiling. President Obama said during the last debate Oct. 22 that he didn’t believe those deep spending cuts would take place and that an agreement could be worked out to avoid them.
However, a key part of the debt ceiling debate—and the nature of Washington in general over the past several years—has been the stalemate between the Republicans and Democrats, and business leaders worry that the gridlock could continue into next year. The threat of a potential U.S. default will come around in the first quarter, when the debt ceiling comes up again in March, Bartels wrote.
“These are real risks, especially with the Republicans likely to retain control of the House, the Democrats looking to hold the Senate, and a Presidential race that could go either way,” he wrote. “But I think the election results are more likely to lead to compromise rather than renewed stalemate.”
With a close presidential race between President Obama and former Massachusetts Gov. Mitt Romney and tight Congressional contests, it’s unlikely either party will get out of the Nov. 6 elections with a mandate, with each seeing some public support of their ideas and some defeats.
“While diehard partisans in both parties will resist compromises, the threat of an economic recession will be a powerful incentive for a majority drawn from both parties to agree to extend most but not all of the tax cuts, keep some but not all of the spending cuts and begin a process for dealing with entitlement reforms,” Bartels wrote. “But that cannot happen until the election is held, the dust settles and both parties come to terms with the election results.”
Until then—when the political picture becomes clearer—many businesses leaders will be reluctant to spend much money on technology or anything else. With the election results will come more stability, he said.
“So tech decision makers will sit on the fence for the next four to six weeks, wait to see how the election turns out and look to see signs that political leaders will pull the U.S. back from the fiscal cliff,” Bartels said. “When that happens, tech purchasing will start to pick up, responding to the more positive trends in the U.S. economy.”