Oracle, the world’s second largest software company, dispelled some fears over Big Technology’s future last week, announcing quarterly results that included a 28% rise in share price from a year ago.
Elsewhere, the news has been mixed. Hewlett Packard stands to profit big time from its $13.9 billion acquisition of EDS last week–not so for the 24,600 employees who lost their jobs in the merger. (HP says it will replace about half of them in the next few years, in new areas of its computing services business.) And share prices have been down at Apple, RIM, UNISYS, Sun Microsystems and Dell, which blamed its stock woes on dwindling tech spending.
Even still, analysts aren’t forecasting doomsday scenarios just yet. Several analysts told Fast Company that big tech companies are well-positioned to weather the storm, because they are cash rich and generally unleveraged. But a lot will depend, analysts say, on how the markets rebound in the coming weeks and how much consumer psychology will be affected by the economic troubles.
“We will have to wait and see how foreign markets are affected by the struggling U.S. economy,” says Andy Woyzbun, a lead analyst at Info-Tech Research Group. “A lot of big tech companies have diversified and sell to global markets, so much of this has yet to play out.”
Many tech companies that sell equipment and services to financial institutions can expect to see a decline in their business, analysts say. The financial services industry is the largest purchaser of computer servers, accounting for 25 percent of worldwide server revenue, according to Gartner, a leading tech research firm.
“The spending of the financial industry is so great because most of the deals are already contracted, so all of that is going to continue to run,” said Patricia McGinnis, research director at Financial Insights, a tech research and consulting firm. “Of course, there may be softness at the margin, and some projects may be put off.”
Especially vulnerable in this economy are tech consultants, whose are often the first to face the budget axe during a financial squeeze, says Woyzbun, who noted that many of the pink-slipped Hewlett Packard employees suffered that very fate.
Big tech companies may also take a hit on profits. While demand for computers, software and PDAs has remained virtually inelastic over the last five years, manufacturers may see prices start to slip and margins decrease, says Woyzbun.
Stephen McClellan, a former First Vice President at Merrill Lynch and author of the investors’ handbook “Full of Bull,” says the stakes will be especially high for big tech companies over the holiday season, in most years a time when consumer tech spending tends to spike.
Who stands to gain from the crisis? To begin with, companies that offer services or technologies that help the financial industry adapt to the changing regulatory climate. Corporations are likely to focus their attention on technologies that will save them money, and companies that play a role in this could come out ahead, analysts say.
What’s more, the economic downturn may force companies to make better decisions—to be smarter with their money and avoid wasteful expenditures—these kind of swings make companies more disciplined, said Eric Clemons, a professor at the Wharton School at the University of Pennsylvania.
And no matter how bad the economy, technology is one area where companies–even faltering ones–can’t afford not to compete.
“In the end, most big companies are reliant on technology to serve their customers,” said Ellen Carney, an analyst with Forrester Research. “And that’s not going to change.”