Tech CEOs not optimistic on IT recovery

From Microsoft's Bill Gates to Michael Dell, the founder of the world's second-largest personal computer maker, few were prepared to predict a recovery in global demand for technology after the Internet bubble burst.

"There's no big uptick," Gates told the World Economic Forum. Comments from Dell, chief executive of Dell Computer, struck a similar note. "It's OK, but not good," Dell said.

Many of the chiefs of the world's largest technology companies spent the past days in the Swiss ski resort, host each year to some 2,000 political and business leaders.

The corridors have been full of talk of war on Iraq and the sluggish U.S. economy. But technology executives have been taking the pulse of their market, often in back-to-back meetings with customers, ranging from aircraft manufacturing bosses to the heads of global retail chains.

John Chambers, chief executive officer of network equipment maker Cisco, who prides himself on being close to his clients, stressed the volatility of the short-term outlook.

A sales uptick like the one seen last spring, and which was widely seen as the beginning of a recovery, was followed by a slowdown after the summer.

This was the reason why Scott McNealy, CEO of U.S.-based network computer maker Sun Microsystems, who had a better than expected October to December quarter, was hesitant to call the growth a trend.

"Anybody who thinks they can forecast has been proven dead wrong," he said.

This did not prevent other executives forecasting how much money they expect to be invested in information technology after a virtually flat 2002.

Infineon's Ulrich Schumacher, CEO of Europe's second-largest chip maker, who last year predicted that 2003 would be hard to spoil after the industry's worst-ever downturn, said: "In Europe, at least in 2003, I'm not very optimistic."

Any optimism?
Hewlett-Packard Chief Executive Carly Fiorina, however, had a few upbeat words about prospects for a longer-term pickup, though she said she saw no sign of a recovery in the U.S. economy at the moment.

Fiorina also said that U.S. consumer sales in the high-tech sector over Christmas had "not been stellar" and that the U.S. economy remained "challenging" despite brief signs of greater activity last November. At the same time, there were no signs of a further deterioration.

"Economic fundamentals are very strong...there is reason to be optimistic," she added.

Fiorina said structural changes in the technology market meant the industry would not go back to high growth rates of four to five times gross domestic product and would be more likely to settle at a ratio of one to two times. That meant that in a "normal economic environment" HP could be expected to grow at about seven to nine percent, she said.

Fiorina forecast that growth rates for HP, the world's largest printer maker, would be higher in areas such as visual imaging and that the emphasis from consumer markets would be on innovation and not on the purchases of faster, cheaper PCs.

"Consumers are not spending more on another box," she said. "It is innovation that makes life more rewarding or more fun."

HP's assessment of long-term structural changes in the technology sector were key to the decision in 2001 to acquire Compaq Computer. Fiorina said HP had exceeded its own internal forecasts on the acquisition, despite controversy both within and outside HP, and that the firm was on track to generate $3 billion of cost savings by this year compared with an initial target of $2.5 billion by 2004.

Some executives grumbled that the looming war in Iraq put a reward on being cautious. To be on the safe side most companies said they had tightened their belts and were investing even less in technology compared with 2002 when many already cut their capital investments sharply.

KT, South Korea's largest fixed telecommunications and broadband company, will cut investments by up to 10 percent, in a move that is typical for most telecommunications companies.

Eric Benhamou, CEO of handheld-computer market leader Palm, forecast modest growth in IT spending and a slight decline in telecommunications investments.

Top 10 chip makers like Intel, STMicroelectronics and Infineon, which are among the world's biggest spenders on new technology together with telecommunications carriers, have already said they will trim budgets or keep them flat at best.

Cisco's Chambers voiced the new reality when he said that "tech for the sake of tech is over."

Gerard Kleisterlee, CEO of Philips Electronics, the world's largest consumer-electronics maker, said he expected above average technology spending growth in areas such as health care and personal safety and security.

Sun's McNealy added that technology still self-destructed after a while, which would continue to fuel demand.

"Tech still has the shelf life of a banana. It will quickly go brown and mushy. There's an opportunity to keep developing because people will need a new banana," he said.

Story Copyright  © 2003 Reuters Limited.  All rights reserved.