IT Demand Stalls, Report Says
Online staff -- EDN, July 7, 2003
Don't hold out for a return to IT demand. Market research house Lehman Brothers today released a report stating that IT spending will stay low in the near term, seeing an upswing in the fall.
"We believe that the uncertainty caused by the recent geopolitical events in Iraq in the first quarter and the impact of SARS in the second quarter had the effect of temporary stalling the U.S.-led recovery in IT spending," Lehman Bothers' hardware and semiconductor analyst Dan Niles said in the report.
On that the firm lowered its forecast for worldwide PC unit growth in late May from 8 percent to 6 percent in 2003 with an IT spending outlook of 3 percent growth, which it said is roughly in line with GDP growth.
"As we have heard from several PC OEMs, right now IT demand seems stable but does not seem to be really growing," Niles said. "Also, PC supply chain inventory probably increased by one to two weeks in 1H03 to protect against supply disruptions from the war and SARS. We believe the PC channel inventory increased by about a week but is still at fairly low levels of three to four weeks in commercial and five to six weeks in consumer."
Comparing itself to IDC, which saw Q1 worldwide PC unit sell-through decline 9 percent quarter-over-quarter, Lehman says its numbers are on track and estimated global PC unit shipments to decline 5 percent sequentially in Q2. That is greater than the six-year average Q2 decline of 3 percent, the firm noted.
"With the incremental weakness in IT spending that occurred in the first quarter, we believe that there are several reasons why our large computer hardware OEMs reported largely in-line results," Niles said. "We think the strong euro helped both demand and revenue growth in 1Q03, after having appreciated over 18 percent on a year-over-year basis and roughly 5 percent on a quarter-over-quarter basis. We think this will not be as much of a benefit in 2Q03 but that expectations are fairly low and most of our names will be able to meet or exceed expectations."
Hewlett-Packard still holds Lehman's spotlight, the firm further said, noting the vendor as its "preferred play" due to a combination of low valuation and its leverage to improving IT demand, which Lehman believes will occur in the second half of 2003.
"Although the IT spending recovery is slower than anticipated coming out of the Iraq war and SARS, we continue to believe that the underpinnings of a U.S.-led recovery in IT spending are solid," Niles concluded. "We continue to believe that corporate profits, which are finally up year-over-year, will be the main driver in a pickup in IT spending.
"In addition to the Iraq war and SARS winding down, this is the first time since 2001 that our economy has not faced terrorist attacks, corporate fraud, corporate bankruptcy and global geo-political risk. With these distractions removed, combined with a tremendous amount of fiscal and monetary stimulus, we believe IT demand will be fairly strong in 2H03 post the usual July and August malaise."
