For Tech, E-Commerce Offers Ray of Hope

The outlook for communications and computing equipment makers is clouded by the overall economic downturn, and by a severe slump among telecommunications companies that over-invested in infrastructure.

While a few companies, most notably IBM, seem to be holding their own, vendors across the technology spectrum are hurting.

Intels most recent earnings were down 96 percent. Sun reported a $180 million quarterly loss and plans to lay off thousands. Even Microsoft isnt immune — first-quarter profits were down $1.28 billion from the same period a year ago.

But most of the communications and information technology vendors on the Interactive 500 saw big year-over-year gains in online revenue. IBMs e-commerce numbers shot up from $17 billion to $26 billion; Intels jumped from $23.8 billion to $25.9 billion; and Cisco Systems went from $15 billion to $20.7 billion.

For the third year, Internet, communications and information technology companies dominate. AOL, Compaq Computer, Dell Computer and Ingram Micro also made it into the top 10.

Still, the economic slump weighs heavily. The slowdown was severe enough before Sept. 11. A recession is either under way or imminent. Gartner says PC sales slipped 12 percent in the third quarter compared with a year ago. Gateway is struggling, and Compaq will likely be swallowed up by Hewlett-Packard. Dells market share grew to 13.8 percent.

While the technology and electronics industry is experiencing a slowdown, the impact might have been worse if companies hadnt begun realizing efficiencies from operating on the Internet. Cisco announced a $1.01 billion loss for fiscal 2001 ended July 28, a year that started with 60 percent growth in December and “suddenly chang[ed] into an extremely challenging second half,” CEO John Chambers says.

But Ciscos sudden turnaround would have led to a much steeper loss if the company were dependent on a large field sales force and support staff for all its sales. That staff would have been expanding at a rate to match growth as the turnaround occurred at midyear, and Cisco would not have been able to react as quickly as it did to contain losses, Chambers notes. The company has increased its sales over the Web to account for as much as 85 percent of its business; customers configure and submit orders with a minimum of sales force support.

Oracle likewise announced $1 billion in annual savings at the end of fiscal 2000 on sales of $10 billion, savings that resulted from what CFO Jeff Henley calls an “e-business transformation.” Instead of continuing to field a large, aggressive sales force, Oracle published its price list on the Web and encouraged customers to conduct as much of the purchase as they wished without the help of a sales rep. Those savings continued to roll through Oracles financial results in 2001, with income up 25 percent on revenue of $11 billion.