US computer and software companies are facing a prolonged slump in sales and profit as corporations and consumers tighten spending in the wake of the worst terrorist attacks on US soil, analysts said.
``There is so much uncertainty. People think that no one will spend any money,'' said David Zale, a director of research for Sands Brothers & Co. "We could have a tough time."
Based on estimates gathered by Thomson Financial/First Call, analysts expect earnings at technology companies to fall 67.9 percent in the third quarter. That figure reflects forecast reductions made through Friday, and analysts expect that to drop further as companies pare estimates in the coming weeks. Profit at technology companies fell almost 36 percent in the first quarter and 64 percent in the second, according to First Call.
Many investors were hoping that the release of Microsoft Corp's Windows XP software and the holiday season would give the computer industry a needed boost after a slump in sales this year.
Now, some analysts are reducing forecasts for Microsoft and other computer and software makers, after the attacks last Tuesday heightened concern that the US economy may slip into recession, damping hopes for a rebound.
Dan Niles, a Lehman Brothers Inc analyst who covers Dell Computer Corp, Compaq Computer Corp and other personal-computer makers, said many public companies will have to lower their third-quarter sales estimates by 2 percent to 4 percent because of lost work days, delays in shipping and travel and a slowdown at borders.
The attacks last Tuesday, in which terrorists hijacked four airplanes, crashing two into New York's World Trade Center and one into the Pentagon, provoked fear about economic growth and the possibility of retaliation and further attacks.
That will lead executives to wait and assess the environment for a month or two rather than buy new products now, said Charles Phillips, an analyst at Morgan Stanley Dean Witter & Co, in a note to clients. Normally aggressive technology-industry salesmen will be distracted or reluctant to push customers, he said.
"You get the potential for a lot of these companies who have had back-end-loaded quarters to miss [profit estimates] as a consequence of just not getting out and flying to their clients to try to close business," said Jeffrey Bianchi, portfolio manager at Aeltus Investment Management Inc in Hartford, Connecticut.
Federal Reserve policymakers yesterday reduced the overnight bank lending rate a half-percentage point to 3 percent, the lowest since February 1994, in a bid to shore up investor and consumer confidence.
Companies that lost computers, storage gear and network equipment will have to buy replacements that will add up to about US$500 million in spending, according to Phillips's estimates. Still, that won't be enough to make up for the decline in demand, analysts said. Many companies are expected to earn less this year and next, and therefore are likely to spend less as they cut costs.
US companies' fourth-quarter earnings may decline as much as 15 percent, said Chuck Hill, research director at Thomson Financial. Before the attacks, analysts had forecast a 2.7 percent drop in profits for the quarter and First Call had expected a decline of at least 5 percent.
Investment strategists including Goldman, Sachs & Co's Abby Joseph Cohen and Deutsche Banc Alex. Brown's Edward Yardeni reduced earnings estimates for companies in the Standard & Poor's 500 Index on Monday.
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