There was almost no light at all on the US IT scene last week as corporations kept adding gloomy story to gloomy story. But we knew the rot had really set in deep when Oracle chipped in with a warning that third-quarter profit would fall short of expectations on revenue that is now expected to rise just nine per cent instead of the anticipated 17 per cent. Stock-holders reacted viciously and chopped the share price by 21 per cent to $US16.87. In identifying the causes of the corporate back-slide Larry Ellison started something of an industry-wide mantra when he blamed the revenue slow-down on the state of the US economy and customers' decisions to defer spending.
3Com issued not one gloomy report in the week but two -- the first announcing a 10 per cent cut to its workforce and the second announcing a $A100 million short fall in third quarter revenue. Even though the company has announced no good news in a long time, its reasons for the poor showing were almost identical to Ellison's, except that the reluctant customers were the telcos. US observers found other concerns, however. "We think that there's probably more to the story than just the telecom situation," commented one Merrill Lynch analyst.
Gateway too found it had to own up to troubled times and after announcing in February that it would cut its workforce back by 10 per cent, the company last week announced it would simplify its product catalogue in an effort to cut costs. Instead of giving customers a choice of millions of computer configurations, they will now be offered only hundreds. "By simplifying the choices it frees up a tremendous amount of resources," noted Ted Waitt, CEO of Gateway.
And for the first time in some time, a Japanese company has cut back its profit forecasts. Fujitsu this week said that declining PC sales and lacklustre economic conditions in Japan and the US during the current financial year, which ends at the end of this month. would drag sales about three per cent below a forecast it had issued last October. Operating profit was revised downwards by 16 per cent and net profit is expected to be less than 25 per cent of previous estimates.
And then the only good news anywhere around the industry last week was built on a rumour that didn't even start in the US. A report published in Britain's Sunday Times claimed that online retailer Amazon.com and Wal-Mart Stores are holding secret talks about a strategic alliance. It is thought that the deal could lead to Amazon.com becoming Wal-Mart's e-commerce supplier in return for which Amazon.com would be given a presence in Wal-Mart's 4500 stores and a percentage of sales it makes through the retailer. News of the rumoured deal sent Amazon.com's shares up 27.5 per cent even though spokesmen for the two companies declined to comment.