Weaker Tech Spending Expected, Surveys Show

Wall Street helped deepen the gloom around crumbling tech stocks Wednesday as two brokerage surveys predicted weaker tech-equipment spending in 2001.

A Morgan Stanley Dean Witter Discover & Co. survey indicated technology spending will rise 8% next year, a significantly slower pace than the 12% rise in 2000.

Separately, a Merrill Lynch-commissioned survey of corporate technology buyers forecast a similar spending pullback.

“These findings represent a more subdued spending environment as compared to 2000, which isn’t surprising given the uncertainty in the economy, financial markets, corporate earnings, and political environment at the time of the survey,” said Chuck Phillips, a leading Wall Street software analyst with Morgan Stanley Dean Witter’s Technology Group.

Merrill Lynch analyst Thomas Kraemer cited the forecasted decline in the rate of spending growth in downgrading his investment ratings on industry heavyweights IBM Corp. and Hewlett-Packard Co.

“We think [information technology] spending is slowing down,” Kraemer said in a conference call with clients. He downgraded both stocks to “neutral” from “near-term accumulate.”

Shares of IBM fell $4.13 to $86, a decline of almost 5% on the New York Stock Exchange. Hewlett-Packard stock fell 88 cents to $30.44, also on the NYSE.

Attendees at a Morgan Stanley conference of corporate chief information officers cited the brokerage’s survey as contributing to the stock market selling pressures across many tech sectors Wednesday.

“A lot of [information technology] officers are also waiting to see how the economy turns out before they make any further commitments, so the risk is on the downside,” Martin Schulz, manager of the Armada International Fund, said of the survey.

More than 15% of the corporate technology managers surveyed by Morgan Stanley said they will spend less in 2001 than they did in 2000.

In recent weeks, scores of tech companies, including Microsoft, Intel, Apple Computer and other personal computer-related giants have warned that fourth-quarter sales have been slower than expected.

They have been joined in recent days by many smaller players, including many makers of telecom and Internet infrastructure equipment, which have warned that equipment spending by cash-strapped Net service companies and phone companies is waning.

On Tuesday, for example, Foundry Networks, a supplier of networking systems, said fourth-quarter earnings will be half what analysts had expected because sales growth has dimmed. The company’s stock plunged $17.63 to $13 on Nasdaq.

Still, some tech leaders have yet to indicate that they’re trimming their own spending plans.

“We announced that we expect our capital expenditures for the year 2000 to be $6.5 billion, versus the previous forecast of $6 billion,” said Intel spokesman Chuck Mulloy. “We haven’t given any guidance for 2001.”

Intel, the leading PC microprocessor maker, had previously announced construction projects worth about $7 billion. It plans to open several new processor fabrication plants next year.

Chip maker Micron Technology plans $2.3 billion in capital expenditures next year, up 64% from 2000.

And Hewlett-Packard said it stands by the lowered projections given to Wall Street analysts Dec. 6. “We had anticipated a softening in the economy and took all that into account,” said HP spokesman Dave Berman. “At this point, we see no reason to change our guidance.”

The Palo Alto maker of computers and printers said at the analyst meeting that Hewlett-Packard believes it will show revenue growth of 15% in the three months ending in January.

Networking giant Cisco Systems is sticking to its November forecast of high-single-digit to low-double-digit growth in revenue in its current quarter.

Even so, Merrill Lynch downgraded Cisco to “intermediate-term accumulate” from “buy” Wednesday, saying the company’s sales could weaken as the economy slows and customer defer spending.

San Jose-based JDS Uniphase, a leading supplier of equipment to manage optical networks operated by telecommunications firms, does not anticipate any slowdown in its own capital spending projections, according to Anthony Muller, executive vice president.

“I think capital-spending growth in the telecom space will be slowing but . . . as a percentage of . . . the telcommunications mix, fiber optics will be increasing,” Muller said.

In other findings from the Morgan Stanley survey:

* Database software, marketplace software and e-commerce software were the top three categories for increased spending.

* Investments in network equipment came in a strong fourth.

* E-commerce software, Internet-based logistics applications and software application servers are the three categories CIOs indicated where they will most increase spending over last year.

* Spending on Unix servers--computers that manage networks and use the Unix operating system software--among all companies in the survey will outpace the overall 8.1% average spending increase.

* Mainframe computer and consulting spending will decrease the most in the coming year, continuing long-term trends.

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MARKET HAMMERED

Stocks slid, led by tech shares, on deepening fears over the economy. A1, C4

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Tech: The Meltdown Continues

How major technology stocks fell on Wednesday, and their percentage losses from their 52-week highs:

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52-week Wed. close Pct. drop Stock high and change from high IBM $134.94 $86.00, -$4.13 -36% EMC 104.94 55.63, -7.38 -47 Cisco Systems 82.00 36.50, -5.25 -55 Compaq 35.00 15.48, -1.53 -56 Intel 75.81 31.94, -1.50 -58 America Online 88.00 37.25, -3.51 -58 Microsoft 119.94 41.50, -3.31 -65 QLogic 203.25 67.44, -13.06 -67 JDS Uniphase 153.38 46.00, -5.75 -70 Redback Networks 198.50 47.50, -8.38 -76 Extreme Networks 128.88 31.13, -17.44 -76 EBay 127.50 27.94, -4.38 -78 Cacheflow 161.38 33.94, -7.38 -79 Xircom 75.94 13.50, -0.56 -82 Commerce One 165.50 22.69, -8.31 -86 Yahoo 250.06 27.94, -0.06 -89 Cybercash 16.00 1.00, -0.13 -94 EToys 40.25 0.22, -0.03 -99 Priceline.com 104.25 1.25, -0.28 -99 PSE tech index 1,254.89 774.04, -49.86 -38 Nasdaq composite 5,048.62 2,332.78, -178.93 -54 Internet index* 688.52 265.31, -28.77 -61

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* Interactive Week index

Source: Reuters