7 Signs IT Spending Growth Is Stalled

by Alyssa Oursler | October 29, 2012 7:30 am

The corporate environment is chock full of uncertainty these days: the upcoming presidential election, the looming fiscal cliff, the not-fully-resolved debt crisis in Europe and continuing economic malaise in the U.S.

It’s almost no wonder that countless companies have started tightening their purse strings. When the going gets tough, one of the first things to go is enterprise spending. Expensive technology and services are a luxury many companies simply can’t afford, or can at least push back, until they’re standing on steadier economic ground.

The most recent evidence of this reality was the double-digit plunge of F5 Networks (NASDAQ:FFIV[1]) shares suffered last Thursday. The company missed analysts’ estimates for Q3 and delivered a cautious outlook for Q4.

As President and CEO John McAdam explained:

“After a strong first half, revenue growth slowed in the second half of the year. Beginning in the third quarter and continuing through Q4, slowing growth in product revenue reflected smaller deal sizes, particularly among large U.S. enterprise and telecommunications customers.”

This, of course, isn’t the industry’s first red flag. In fact, subpar sales for the third quarter paired with an unimpressive outlook for the fourth have been all too common in recent tech earnings reports.

With that in mind, here are six other signs that corporate IT spending is stalled:

• On the same day FFIV dropped, shares of Citrix Systems (NASDAQ:CTXS[2]) also suffered. While the IT services company did enjoy sales growth across all product segments, the total came in lower than expected. Plus, that news came with a weak outlook for the current quarter: revenue of $700 million to $710 million vs. expectations of more than $715 million.
• Technology supplier Juniper Networks (NASDAQ:JNPR[3]) watched shares slip around 7% earlier in the week when it reported only 1% year-over-year sales growth, thanks partly to a weak Enterprise segment. And for the current quarter, Juniper predicted earnings of 19 cents to 22 cents per share on revenue of  $1.1 billion to $1.13 billion. Analysts has been expecting around 24 cents per share on sales of $1.15 billion. The company cited increasingly cautious customers as a reason for the lackluster expectations.
• Tech giant Intel’s (NASDAQ:INTC[4]) latest earnings report wasn’t much brighter. Its struggles were a result of falling PC sales and the global enterprise market slowdown. For Intel, the result was an 11% drop in earnings and a 5% fall in sales last quarter  — and little hope of improvement for the current quarter.
• On top of that, IBM (NYSE:IBM[5]) reported the same drop in sales and topped that off with a similar attitude for the current quarter: Things aren’t looking much better. As InvestorPlace contributor Tom Taulli put it[6], “IBM merely reaffirmed its EPS for fiscal 2012 at $15.10. Keep in mind that the company has a habit of upping its forecasts.” He also added that “the revenue problems are likely to continue for a while.”
• CEO confidence has plunged to the lowest levels since The Great Recession, which undoubtedly feeds into this larger trend of caution. As InvestorPlace Editor Jeff Reeves noted in a recent article[7], an Economic Outlook Index[8] — courtesy of the Business Roundtable of CEOs from the largest U.S. corporations — suffered its third-largest drop ever in late September. One detail: Only a mere 30% of CEOs were looking to increase capital expenditures — which, of course, means fewer companies shelling out cash for new IT.
• The cracks had already begun to surface in July. Then, Cisco Systems (NASDAQ:CSCO[9]) announced that it planned to cut 1,300 positions. Its reasoning? To deal with uncertain global economy and the threat of sluggish corporate sales.

I think you get the point. Don’t expect a revival in IT spending until the economy settles, businesses see demand picking up again and the clouds of uncertainty lift.

As of this writing, Alyssa Ourser did not own a position in any of the aforementioned securities.

Source URL: https://investorplace.com/2012/10/7-reasons-it-spending-growth-is-stalled/

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