You Survived Q4; Now What?

The IT spending slowdown is here, and it intends to stick around for a while.

Think its tough to survive in the Australian Outback? Try keeping your company healthy during the IT spending slowdown. In recent days, many high-tech companies have issued chilly financial forecasts for Q1. But not everyone is in a deep freeze.

Computer Associates, EMC, IBM, Oracle and Siebel Systems all announced strong financial results in recent weeks. Nevertheless, the high-tech sector—from chips to hardware to networking—has had its share of ugly surprises in recent weeks (see chart, opposite page).

The only exception is the high-end storage market, where Compaq Computer, EMC, IBM and other companies continue to drive revenue through partners.

The networking sector, meanwhile, has been particularly difficult to track. 3Com says its readying layoffs to cut annual costs by $200 million. And former industry stars like Foundry Networks and Lucent Technologies are struggling to keep pace with Cisco Systems, Extreme Networks and Nortel Networks.

Just last week, Lucent announced plans for 10,000 layoffs. The company intends to slash costs by $2 billion, as it strives to get back into the black. Lucents layoff bomb landed the same day that Extreme Networks delivered strong Q2 results.

Still, networking market leaders see slowing sales growth in the weeks to come. Even Cisco CEO John Chambers is less bullish than usual. During a financial conference in Arizona earlier this month, Chambers said Ciscos current quarter is "a little more challenging" than expected. Cisco is slated to release Q2 results on Feb. 6.

The software market has been equally perplexing, especially in the systems-management sector. Aprisma Management Technologies (a Cabletron Systems subsidiary) says sales will grow more than 70 percent during the companys current fiscal year, which ends in about five weeks. Likewise, CA announced strong quarterly results last week. Yet, IBMs Tivoli unit stumbled badly in Q4. Tivolis ugly performance was the one blemish in IBMs otherwise solid quarter.

Even Microsoft was forced to issue an earnings warning in December—its first such warning in a decade—because of the slow PC market. Apple Computer, Compaq, Gateway and Hewlett-Packard all have hit financial bumps in recent weeks. Hardest hit was Gateway, which is planning layoffs to bring costs in line with sales.

Compaq wasnt spared, either. After hoping for 10 percent growth this year, the company now says it expects single-digit growth in the 6 percent to 8 percent range. But the news isnt all bad. CEO Michael Capellas says Compaqs enterprise business—spanning servers and storage—offset softness in the PC market.

Still, Wall Street is bracing for an extended slowdown. "Its pretty nice to be privately held right now," quips Candle vice chairman Robert LaBant.