Wall Street Beat: Vendors brace for the worst

Despite strong third-quarter performances from some vendors, cautious forecasts from companies as diverse as Microsoft, Apple, Amazon, EMC, Texas Instruments and Yahoo focused attention on what are bound to be rough waters over the next few months.

There is no longer any doubt that the failure of Wall Street investment banks and the resulting credit crunch is putting a damper on consumer and business IT spending. While market researchers like Gartner and Forrester still maintain that the downturn will probably not lead to the type of absolute decline suffered in the dot-com bust, increases in global IT spending could slow to just 1 percent or 2 percent, or bottom out at zero growth if credit markets don't loosen up soon.

Microsoft on Thursday beat expectations, reporting net income of US$4.37 billion, or $0.48 per share, up from $4.29 billion in 2007, while revenue increased 9 percent to $15.06 billion. Analysts polled by Thomson Reuters had expected $0.47 EPS and $14.8 billion in revenue. After-hour traders pushed shares up by $0.75 to $23.07 within a few minutes of the report.

Analysts have remained hopeful about the company's prospects for next year, as well. "While Vista and Office 2007 are compelling upgrades on the consumer side, we believe that the majority of the financial impact on the enterprise side from these product release cycles will occur in fiscal 2009," said Citigroup analyst Brent Thill in a research report earlier in the week.

Microsoft's outlook for the current quarter was disappointing though -- a common theme for the week. The software giant expects revenue to be in the range of $17.3 billion to $17.8 billion, and EPS to be in the range of $0.51 to $0.53. Analysts were forecasting EPS of $0.55 and revenue of $17.9 billion.

On Monday, chip maker Texas Instruments captured the prevailing mood when CEO Rich Templeton said in the company's earnings statement that "our outlook for the fourth quarter is for revenue to decline substantially based on weak order trends over the past few months." TI reported an 8 percent decline in revenue, to 3.4 billion, and a 26 percent decline in earnings, to $563 million. Investors swiftly punished TI, whose share price declined to $16.85 Tuesday after Monday's close of $17.98.

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