eWEEK content and product recommendations are editorially independent. We may make money when you click on links to our partners. Learn More.
A downturn in tech spending? An upturn in tech inventories? Whats going on here?
A wave of earnings warnings from major enterprise software providers such as PeopleSoft and Veritas; analyst downgrades in the semiconductor stocks, including Merrill Lynchs lowered Opinion of mighty Intel; and cash-rich Microsoft talking about cutting $1 billion in spending have all combined to sow unease regarding the strength of U.S. tech spending.
Here are the factors that are having an impact on the industrys financial outlook:
Putting a priority on security. It had to happen at some point, after all the regulations, warnings and virus attacks that have been pummeling the corporate network on a daily basis. The range of security choices in products and services has grown in line with the range of dangers.
IT executives are quite justified in thinking there is little wisdom in building out new applications until they have a firm foundation. In addition, the upcoming Service Pack 2 release from Microsoft for the XP operating system is focused on security and offers little in new nonsecurity capabilities. Microsofts stance of trying to fix security problems before moving forward could be a metaphor for the tech industry at large.
The power of the bean counters. Rising oil prices, a modest rise in interest rates, a war and an upcoming presidential election all add up to an uncertain economy and uncertain corporate revenues. All you CIOs who thought you could find some shelter from the storm by reporting to the chief financial officer instead of the CEO are finding the downside to ceding power.
The effect of lawsuits. The Department of Justices attempt to block Oracles bid for PeopleSoft has made for great theater and created a source of inside information on the real prices being charged for enterprise software. Readers following the case have gotten a peek at frenzied sales practices as financial quarters near completion and competitive pressures increase to the level where discounts of 70 and 80 percent are considered. Do software vendors think the discount pricing stories dont make the e-mail rounds and Monday-morning executive meetings of their customers? Add in open-source software, and the downward pressure on prices for enterprise software is extraordinary.
Software as a service. Salesforce.com Chairman and CEO Marc Benioff was the first person, or at least the loudest, to champion the end of packaged software and the rise of services. Benioffs declaration that the era of big-bang ERP and CRM projects is coming to an end is proving correct. Customers want to subscribe to software as a service and pay as the service is used rather than upfront, as the service is promised.
Does all this mean tech spending is on a downward spiral? I dont think so. I think it means customers are getting smarter. For example, I asked a CEO I know if the current economic uncertainty had led him to rethink a major infrastructure (including desktops, servers and mainframes) his company was undertaking. After I agreed not to identify him to keep the vendor sales forces at a distance, heres what he said:
“We have made a decision to manage our business based on our needs and not let the political pundits scare us into a waiting game that has no end in sight.
“While it appears to be true that tech spending is down, those willing to take the risk will find that there are some incredible deals to be had. We have been able to negotiate some fantastic deals with hungry manufacturers, resellers and distributors where all involved have done well. We have crafted new business relationships and have received support akin to royal treatment.”
Vendors able to craft those new relationships will benefit regardless of the economic upturns and downturns. Vendors thinking they can ride out economic cycles and then return to prior business practices will be left behind.
Editor in Chief Eric Lundquist can be reached at [email protected].
To read more Eric Lundquist, subscribe to eWEEK magazine.