Though technology vendors are coming off a solid quarter, a decline in orders from troubled sectors of the U.S. economy is expected to have an impact on IT bellwethers as diverse as Cisco, Oracle and Sun.
Earnings announcements this week piqued worries that economic problems in the U.S. could put a break on business spending. Shares of tech companies, which have been riding high on a raft of good earnings reports, declined along with the rest of the market this week.
"U.S. IT enterprise spending is likely to slow in the near term, particularly in key verticals such as financial services and retail," according to a Citi Investment Research report released Thursday.
A surge in sales in the mature carrier router arena was one of the nice surprises that helped Cisco to a stronger-than-expected quarter. Wednesday it announced that revenue for the quarter ending in September was US$9.6 billion, up about 17 percent, while net income rose more than 37 percent to US$2.2 billion. But company expectations for a soft enterprise market for the current quarter hit a chord for nervous IT investors.
Cisco CEO John Chambers said on a conference call Wednesday that the problem is mainly relegated to "dramatic decreases" in networking equipment orders from financial services institutions. But not everyone is convinced.
"With the likelihood that this isn't a one quarter fix for the US Enterprise, there is risk of spillover into international markets," according to Citi Investment Research. Cisco shares fell by US$3.12 Thursday to close at US$29.63.
Sun Monday also reported solid profit, announcing its fourth consecutive quarter in the black after several years of losses. But revenue that was lower than analysts estimated, due to slower-than-forecast server sales, spooked investors. Sun shares lost $0.55 Tuesday, to close at $5.16.
Industry bellwether Oracle will address analysts next week at its OpenWorld conference in San Francisco. But Citi hit a note of caution, saying that sagging enterprise sales may affect some of its core customer base. Oracle lost US$1.75 Thursday to close at US$20.35.
The U.S. financial services market has been in turmoil, as a decline in housing prices and related concerns about the health of the credit markets send tremors through the economy. Faith in IT companies has been strong lately, with share prices running to six-year highs in the wake of strong third-quarter sales reports.
But investors are on tenterhooks. The latest concerns about a soft enterprise IT market were enough to drag down the tech-heavy Nasdaq along with other markets this week. Thursday, for example, the Nasdaq Composite Index closed at 2696, down by 52.76 points.