Gloom deepens over US industry

Optimists looking for a swift reversal of the recessionary gloom over the US economy would have been bitterly disappointed by the quantity of gloomy news emerging from the IT sector and by the quality of the companies involved.

The gloom has even affected EMC, which had found the storage business thus far unscathed by the industry downturn and was beginning to think itself immune. However, EMC has now admitted that it will indeed be affected and could suffer a drop in revenue of between 25 and 35 per cent in 2001. The shortfall has been attributed to a fall in sales to dot-coms, which will be offset to a degree by sales to large multinational companies, by growth in networked information storage, and by an expanding Asian marketplace. Mike Ruettgers, EMC's executive chairman, maintained that the biggest risk to the US economy is a self-fulfilling prophecy. "If enough pundits continue to predict that the US economy will slow further, it will do just that," he said.

Hewlett-Packard had already warned that its profit in 2001 will fall below analysts's estimates, but then Moody's sent the market into a deeper pessimism by announcing it may cut HP's debt rankings within three months. The ratings agency was concerned about competition and profit pressures in markets for PCs, servers, and inkjet printers.

Sun Microsystems didn't help the mood when it announced last week that its earnings-per-share estimates for the third quarter, which ends on March 31, had been halved. COO Ed Zander blamed the slowing US economy, but claimed the company would come through in one piece because it will "take gobs and gobs of market share". That didn't impress the analysts, who showed more enthusiasm for Zander's admission that the company will cut spending across the board.

Intel, too, is going on a cost-cutting drive that will involve deferment of pay increases, restrictions on hiring new staff and a 30 per cent reduction in discretionary spending, which includes travel and overtime. The company's workforce will be reduced by a restricted hiring process in league with attrition, but Intel's R&D budget will be unaffected.

3Com, no longer a major power in the communications equipment manufacturing game, will lay off about 1200 people in a "global cost reduction initiative". The cuts appear to be part of a restructuring plan announced last December.

And while market was focusing on dollars, Dell cast some gloom on another set of figures when it acknowledged it shipped fewer computers in the 12 months from late 1999 than it had previously announced. The problem arose from Dell's tradition of reporting shipments according to its financial year, while analysts report according to the calendar year. It has been estimated that the discrepancy may be as many as 100,000 units, which has not pleased the analysts. "It's fairly unforgivable that Dell somehow misunderstood the use of the calendar year as opposed to the fiscal year," explained Roger Kay, manager of IDC's PC program.

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