August 28, 2008, 10:56 PM — Investors betting on tech stocks got some unwelcome news this week that corporate customers are cutting their IT spending plans, and Dell's financial results, announced Thursday, seem to bear out that trend. Meanwhile, Sun's stock took a dip in heavy trading, seemingly fueled by a research report showing it had dropped in server market rankings, overtaken by Dell.
ChangeWave Research surveyed close to 2,000 corporate IT buyers, and 30 percent said that their third-quarter spend was lower than they had planned. The fourth quarter looks equally bleak for vendors hoping for an uptick in the market: Twenty-nine percent of buyers surveyed said their spending would drop or even stop altogether in the final quarter. ChangeWave's director of research said that a spending downturn that big hasn't been seen since the dog days of August 2001.
Dell blamed economic weakness worldwide for a 17 percent decline in profit (to US$616 million) for its fiscal second quarter, even as its revenue grew 11 percent to $16.43 billion. Chief Financial Officer Brian Gladden pointed the finger at a weak PC and server market in the U.S. and Western Europe, as well as restructuring in the company's services business in Europe.
Investors greeted the news with dismay: Dell shares were down nearly 10 percent to $22.70 in after-hours trading Thursday evening. It had closed earlier in the day at $25.21.
Earlier in the week, it was Sun whose shares were hit by bad news, ironically news that was welcome for Dell. IDC put out its list of the top server vendors by factory revenue, and while IBM and Hewlett-Packard held on to the number one and two spots, respectively, Dell moved up to third place and Sun fell to fourth.
Sun's stock started the day Wednesday at $9.52 but fell by 7 percent to $8.86 by close of trading. Thursday saw similar volumes that were nearly triple the typical day of trading in Sun's shares, but the company's stock started climbing back and closed at $9.10. Sun's stock is still far off from its 52-week high of $25.04, and hovering closer to the 52-week low of $8.63.
Meanwhile, it's back to business in China now that the Olympic torch has been extinguished.
China Telecom's earnings disappointed investors. Its first-half net profit fell 4 percent to $1.69 billion as fixed-line customers declined by more than 5 million, and revenues were flat, according to MarketWatch. The company's shares subsequently fell by 4.7 percent in trading on the Hong Kong Exchange.
Last month, China Telecom finalized a deal to acquire China Unicom's CDMA (Code Division Multiple Access) business, which had 43 million subscribers as of June 30, for $6.41 billion.
While fixed-line business fades, e-commerce in China propelled auctioneer Alibaba.com to doubled profits at the half-year mark, as it reported $102 million net through June.
Nonetheless, the company is proceeding with caution. Earlier this month, Alibaba Group CEO Jack Ma warned shareholders and customers that they should "prepare for winter." With oil prices high and the U.S. dollar low, Alibaba plans to concentrate on business within China, and it will begin charging fees on its Taobaba.com consumer auction site in October.
Finally, IT spending isn't the only thing companies cut back on when times get tough. Seagate Technology, perhaps looking to brace itself for choppier waters ahead, is literally moving markets: It's delisting from the blue-chip New York Stock Exchange and placing its shares on Nasdaq, the traditional home of technology startups.
CEO Bill Watkins pointed to Nasdaq's trading platform in a statement announcing the move, but also acknowledged the stock exchange's "cost-effective structure."
Indeed, Nasdaq's top annual listing fee for traded companies is $95,000, and according to a handy calculator on its site, Seagate will be saving more than $355,000 annually by making the move from the pricier NYSE.
Watkins must hope that all of his customers aren't equally eager to cut their spending.
