When Tech Spending Slows Down, Hug Your Vendor

Opinion: Tech spending seems to be at least hitting a speed bump. With vendors struggling, it may make sense to squeeze them on price.

It may be time to give your vendor a squeeze—and not the affectionate kind.

With the second-quarter earnings season in full bloom, its becoming clear that there are a few potholes in technology spending.

Sales cycles are getting longer. Growth forecasts are coming down. Whats it mean for you? Potentially, some leverage.

All customers should know the health of their key vendors, because there could be a buyers market emerging.

Its too early to gauge exactly how much leverage customers could garner, but its worth monitoring.

Recent developments to ponder:

  • IBM topped Wall Streets second-quarter targets with earnings of $2.02 billion, or $1.30 a share, but contract signings in its global services business lagged. Revenue for the quarter was $21.9 billion, with sales for IBMs Global Services unit falling 1 percent to $11.9 billion. According to analysts, IBM is facing a longer sales cycle as customers pare down outsourcing deals.

"Bookings were lower than expected, and business deteriorated in June," said ThinkEquity Partners analyst Eric Ross in New York. "Management stated that customers increased their level of scrutiny, particularly in June."

The play for customers interested in IBMs services: Play hardball, since IBM may be willing to cut a deal to land a signing in its pipeline.

  • SAP said its second-quarter software license revenue was up 8 percent. Nice results, unless observers were expecting growth of 17 percent. SAP, which said business in the Asia Pacific region slowed, maintained its outlook for 2006 and reported that profits in the quarter were up 43 percent, but the situation is worth monitoring.

According to Thomas Weisel analyst Tom Roderick, SAP is banking on a budget flush by customers to save the second half.

"We believe that the most likely driver of the weaker-than-expected results was the delay of seven-figure deals on a global basis," said Roderick in San Francisco.

"Although we do not necessarily believe that SAP is losing meaningful share in the market to competitors such as Oracle, we do believe that continued share gains by SAP have proven to be more difficult."

The play for potential SAP customers: Monitor the results and the market share battle with Oracle. Chances are, both parties are anxious to win business.

  • Dell has rejiggered its pricing strategy for smaller businesses in an attempt to boost growth.

"Given that Hewlett-Packard has continued to gain share (especially on the consumer side of the business), we are not surprised that Dell is looking to make substantive changes in their approach to selling into this segment," said Citigroup analyst Keith Bachman in New York.

The rub: Dells approach is killing the financials. On July 21, Dell said its second quarter earnings would be 21 to 23 cents a share, well short of Wall Street estimates of 32 cents a share.

"These estimates primarily reflect aggressive pricing in a slowing commercial market worldwide," the company said.

The play for Dell customers: Squeeze Dell some more. It shouldnt be difficult to pit HP against Dell in competitive bidding.

Other vendors, such as EMC, are also having troubles.

Whether all vendors are struggling remains to be seen, but its imperative to monitor vendor health—as long as squeezing struggling ones can help cut the costs of IT projects. Give those vendors a hug.


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