High-tech firms develop strategies for the downturn
PC, telecom and chipmakers are preparing for decreased spending
By Dave Hannon -- Purchasing, 11/13/2008 3:47:00 PM
Across various sectors of the high-tech industry, new reports are forecasting slower demand heading into 2009, prompting high-tech manufacturing firms to develop plans for managing business through a slump.
Overall, “spending on information technology will slow significantly in 2009 as a direct result of the global financial crisis that began in September 2008,” says market researcher IDC. According to a newly revised forecast from IDC, worldwide IT spending will grow 2.6% year over year in 2009, down from IDC's pre-crisis forecast of 5.9% growth. In the United States, IT spending growth is expected to be 0.9% in 2009, much lower than the 4.2% growth forecast in August.
Despite seeing 15% growth in third-quarter shipments, in recent weeks, the PC market has seen signs of the sluggishness that other markets have been experiencing. “Recent checks into fourth-quarter PC builds with the top five notebook ODMs [original design manufacturers] and top four desktop motherboard makers are significantly weaker than our month-ago checks," said analyst Craig Berger of Friedman, Billings, Ramsey & Co. in a research note.
With a PC slowdown shaping up, Dell recently completed its previously announced layoffs and according to some reports is holding off on new product introductions and hiring in the current market. The Wall Street Journal reports that Dell has decided not to launch an ambitious consumer product it hoped to release before the holidays--a digital music player tied to online entertainment software. According to the Journal, Dell is also reducing its use of contract employees by an undisclosed amount, cutting travel expenses and "reprioritizing" some projects and capital spending.
Shipments for Lenovo fell 4% last quarter in the Americas but grew by 12% year over year in China. “Due to the impact of the global economic downturn, and a shortfall in the execution of our strategic plan, Lenovo’s performance in the second quarter did not meet our expectations,” Lenovo Chairman Yang Yuanqing said in a statement. Yuanqing said the company is looking at “optimizing our operating structure” to improve efficiency, though the company isn’t saying whether it expects further layoffs.
Telecom giant Cisco reported a stark drop in orders for October but CEO John Chambers told CNBC that he sees a bright side to a slowdown in demand—increased innovation. “I’m a little more optimistic about the future of the United States,” he said. “Therefore, when we look at our plans, we’re beginning to invest aggressively in the U.S.” Chambers believes there will be a second wave of innovation coming through in the high tech industry, which will drive productivity. “So you will see us be aggressive through this downturn,” he said.
In the semiconductor and microprocessor segment, despite microprocessor shipments in the third quarter hitting record levels, IDC says the outlook for the processor market in the fourth quarter is “very murky.” In fact, the researcher says “The worldwide demand environment looks weak, and both Intel and AMD indicated an uncertain outlook for the market. As a result, IDC is conservative about 2009 and will be lowering its upcoming unit forecast for the year.”
Intel blamed "significantly weaker than expected demand in all geographies and market segments" and PC makers buying fewer new chips as they burn through existing inventory to save money in reducing its fourth-quarter sales forecast by $1 billion. Intel sales and marketing chief Sean Maloney told Fortune in a recent interview that, “We’ve been through downturns multiple times, so we’re sort of genetically set up to handle it. We accumulate cash in the good years, and that means we can then invest in the down times.”
Maloney said whereas Intel manufacturing and marketing executives used to meet once a month to plan what chips to produce, now they meet twice a week, and Intel has retooled its chip manufacturing operation to react better to customer demand.
Chipmaker AMD said in October that it plans to enter the foundry business with the backing of an Abu Dhabi investment company, which drew a variety of reactions from electronics industry watchers.
In September DRAM manufacturer Powerchip announced that it plans to cut DRAM capacity 10-15% in the fourth quarter and it’s hoping other memory IC makers will follow its lead.
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