Financial analysts picking over first-quarter earnings reports from major technology suppliers want to determine whether the IT market has bottomed out. So do those responsible for corporate IT spending, but for entirely different reasons. A careful analysis of the data indicates that IT buyers might find that they can now buy new—yet relatively well-tested—technology at cut-rate prices. In fact, the fear and gloom that has enveloped many major technology suppliers might signal major buying opportunities.
Quarterly earnings reports yield plenty of information to IT professionals. The top-line revenue numbers are compelling indicators of who is buying what from whom, regardless of revenue forecasts. If you aren't buying storage technology from, let's say, EMC, you can bet that somebody else—perhaps your competition—is. Graphs 1, 2, 3 and 4 show recent year-over-year revenue growth figures of major companies associated with IT's PC segment.
These numbers paint a subtle picture. Although overall PC sales have slumped since June 2000, revenue growth at Dell has remained strong, and Microsoft's revenue picked up in the last quarter. The reason? Windows 2000 has finally taken off in corporate America. Dell has steadily built its server business on Win2K's back, and the upgrade cycle even goosed the sales of Microsoft Office.
Apple's numbers add an important nuance. The company bounced back last quarter because of hot new technology. In the consumer segment, compelling new technology drives sales.
But desktop computers are only one part of the equation for corporate IT professionals. Graphs 5, 6, 7, 8, and 9 show year-over-year revenue growth during the past 5 quarters among major technology suppliers of enterprise computing.
IBM shows the most revealing numbers. For two reasons, IBM experienced revenue falls in fourth quarter, 1999. First, companies had earlier ramped up their spending to address Y2K concerns about mainframes. Second, the company hovered on the verge of a new mainframe technology release. IBM and its customers have now gone forward; in fourth quarter, 2000, hardware sales jumped 11 percent, led by the 40 percent climb in revenue for IBM's zSeries mainframe technology. Database revenues, which are often tied to large-scale hardware installations, grew 36 percent.
Sun and Cisco are following the IBM pattern but lagging a year or so behind. They benefited mightily from Y2K worries, because many companies simply bought new technology rather than trying to remediate old installations. Sun and Cisco also gloried in the dot.com frenzy as new companies built their IT infrastructures as fast as possible. After all, the Web site was the store, so to speak. But some customers burst along with the dot.com bubble. Sun also faces increased competition from Win2K. Just as IBM required three quarters to right itself, Sun and Cisco will probably work through their inventory overhangs within a similar timeframe.
But as Sun and Cisco work through the fallout of their hyper growth years, buyers find themselves in the drivers' seats. The name of the game for vendors for the next two to three quarters? Market share. The name of the game for buyers from stable companies? Finding and negotiating the best deal.
That game will be played out most vigorously in the e-commerce software arena. Few will risk initiating large-scale IT projects with vendors who might be around a year from now.
In every industry, the wheel turns. Sometimes it's a buyers' market, sometimes it's a sellers' market. Now, market power belongs to the buyer. It's a good time to make a good deal.