Wall Street Beat: Bad news gets worse for IT

Editor's note: Updates were made on 11/14/08 and include changes to reflect Sun's Friday morning layoff announcement.

The financial news for IT just keeps getting worse, with bellwethers like Intel cutting revenue guidance, shares of high-flyers like Google sinking to multiyear low, Sun slashing up to 18 percent of its workforce, and market researchers at IDC and Citigroup slashing forecasts.

The conventional wisdom up until now has been that since corporate IT budgets were slashed and stayed lean after the dot-com bust, there isn't much left to cut. Therefore, the thinking goes, the tech sector will suffer a slowdown but not an actual decline. However, market watchers are starting to seriously hedge their bets, revising their official expectations and in some cases forecasting declines.

Before a Thursday afternoon rally, probably caused by traders seeing opportunities to snap up historically low shares, the tech-heavy Nasdaq closed Wednesday at 1499, a new low for the year and a level not seen since the tail end of the dot-com bust five years ago. The new low point marked a stunning loss of confidence in the tech sector. Shares of Google sank to below US$300 for the first time in three years.

Sun's announcement Friday that it will cut up to 18 percent of its worldwide workforce to curb costs in the face of tough economic times put a cap on what was a tough week for tech. Sun plans to slash costs by about US$700 million to $800 million annually, and lay off 5,000 to 6,000 employees. In an effort to emphasize the company's considerable intellectual property in software -- and de-emphasize hardware -- the company is also reorganizing, and plans to form two new business units and a new group within Sun's Systems business.

Two weeks ago Sun blamed the downturn in the financial sector for a $1.68 billion quarterly loss. The collapse of the U.S. investment banks has eliminated what was Sun's customer stronghold. Sun shares immediately started trading lower Friday morning.

Market analysts have continued to downgrade tech shares this week. Goldman Sachs downgraded Dell to "sell" from "neutral" based on expected declines in margins and earnings. Dell remains highly dependent on sales of hardware, which is typically the first thing cut when IT budgets are trimmed.

Goldman initiated coverage of Palm with a "sell" rating.

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