CNET News Daily Debrief: How the big bailout will impact IT
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>> There's news of a financial bailout today, so far it's not doing much to help Wall Street, definitely not putting a luster back on
tech stocks, at least not just yet. Welcome to the CNET News Daily Debrief, I'm Charlie Cooper here with CNET News Editor in Chief,
Dan Farber. Dan in the debate over whether or not to bailout or rescue Wall Street, the argument was made that,
hey, we've got to put up this money because the problems of Wall Street can not be allowed to bleed into Main Street even more. So what
about Tech Street, if things really go to hell in a hand basket, what's the likely impact?
>> Dan: Well, hopefully things won't end up in that disastrous situation, but we've been through that before in 2000 so I think the
tech industry is -- ya know -- has a little bit of learning from that period but that's not to say that the tech stocks won't be hit
hard. For example, today, with the bailout kind of in confusion because Congress is supposed to -- ya know -- vote on it today and
who knows what the outcome will be. Google is down below 400 for the fist time in 2 years. Apple has gotten hit hard. Cisco -- Microsoft --
everybody else. Simply because this uncertainty on the market is not just an issue of well, people are pulling their money out, it's
more an issue that spending on IT is likely to go down by big percentage because of all this consolidation in the financial sector.
>> Charlie: And the financial services industry is a big consumer of IT products.
>> Dan: Huge, huge. For Microsoft software it's a big issue. Cisco, IBM, Sun also are very dependent on financial companies, so there'll
be some hurt in that space because with consolidation you could see probably a 20% drop in the amount of spend in that sector.
>> Charlie: You rightly made the analogy to the post-bubble, post nine eleven environment when tech got whacked. How is it different
now? Are the companies smarter, leaner, better funded than they were back then?
>> Dan: Well, there's always that notion that we learn from our past --
>> Charlie: If we're lucky.
>> Dan: and certainly in 2000 and that whole tech meltdown there was a lot of learning that goes on, but I tend to think that companies
forget about it when the times get good again. Jason Calicanis [assumed spelling] who runs a site called Mahalo but
also follows the tech start-ups a lot --
>> Charlie: and a web entrepreneur.
>> Dan: yes, was saying 50 to 80% of the start-ups will be gone or in hibernation mode in the next 18 months. Well, I don't necessarily
agree with that but --
>> Charlie: A lot of this [inaudible] nuclear winter --
>> Dan: Which is to say that you bulk up with enough [inaudible] funding that you can make it through a period like this. But I don't
think that's any different than in other periods, it's just it's more intense and amplified at this point because the truth of the matter is
that 40 to 80% of start-ups fail anyway.
>> Charlie: Last question.
>> Dan: Or don't have a great outcome.
>> Charlie: What about the companies that fall under the rubric of Web 2.0. Yes they are leaner, smaller, they haven't received as
much funding as the big companies which failed during the hey day of pre dot com bubble burst, but they are in, to a large degree,
independent upon internet advertising and any slow down or recession, internet advertising is gonna get whacked hard.
>> Dan: Well, there's one thing we know for sure, that money is going to get tighter and that -- so budgets are going to be constrained.
In that situation whether it's advertising or spending on servers or software, there's going to be some reevaluation going on and I think
that's why you're seeing all these financial analysts coming up with new estimates for companies which are -- ya know -- lowering their
revenues and potential profit.
>> Charlie: Great stuff. You really made my day so far. On behalf of CNET News, I'm Charlie Cooper.
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