War risk clouds forecasts

By : |February 3, 2003 0



SAN FRANCISCO: Technology companies, counting on a cautious recovery in spending after the bruising slump since 2000, say the risk of a U.S. war against Iraq has cast a new fog of doubt over their business forecasts.

“A war would be bad for the economy … I have no clue what the war will bring,” Joerg Jung, manager of investor relations for SAP AG, said at the Thomas Weisel Partners Tech 2003 conference in San Francisco.

                                 

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As the United States ships out troops in preparation for a potential attack on Iraq and investors brace for the worst in a still-fragile economy, some tech companies, meeting with investors and analysts, forecast modest improvement in spending and revenues in 2003 — while warning that big risks remained.

Already, Applied Materials Inc., the world’s largest semiconductor equipment manufacturer, last week cut its order forecasts because chip makers have reined in spending due to war jitters and the continued economic downturn.

Other technology executives have split over whether concerns about war were already hurting demand and over the equally key question of whether the effects would be fleeting, as they were after the Gulf War of 1991.

The Semiconductor Industry Association continues to forecast a strong year for the chip industry, with worldwide revenue from chip sales rising 19.8 percent this year following feeble growth of 1.3 percent in 2002.

The trade group’s president George Scalise has dismissed questions about how a war with Iraq might effect the industry, saying “We would not speculate on what may or may not occur there.”

Part of the problem in sizing up the impact of the Iraq factor is that important sales data for January are just now trickling in, executives said.

“It’s too early to tell. Most of our retailers are just now getting data for the month of January, so it’s premature to say,” said Mike Gray, the chief financial officer of SanDisk Corp., the No. 1 supplier of flash memory storage products.

But other technology leaders, more reliant on corporate investment, said the uncertainty of a war is already hurting.

UNSETTLED ECONOMY

“I don’t see the economy really settling down until we make a decision one way or another (on Iraq),” said Joe Tucci, chief executive of EMC Corp., the biggest maker of data storage machines. “Everybody’s nervous.”

Personal computer maker Gateway Inc. and data-networking equipment provider Foundry Networks Inc. even declined to forecast calendar first-quarter results, citing the uncertainty surrounding a potential war.

Manugistics’ CFO Raghavan Rajaji said it was “too difficult to tell” if a war would hurt corporate spending. A short, decisive war in Iraq could be a positive, Rajaji said, while a prolonged war or continued uncertainty could have a negative impact on the economy.

Business Objects SA Chief Financial Officer James Tolonen said the company expected 2003 revenue to rise 10 percent on growth in the market for its software that sifts business data for trends but said he could not be more specific.

“I think we have to see how the world unfolds,” Tolonen said, referring to the possibility of war with Iraq.

The companies that resell computer products and electronic components, often watched as an early bellwether for demand trends, said there was no sign yet that war worries had cut into orders.

If the United States goes to war, Roy Vallee, chairman and chief executive of Avnet Inc., the second-biggest distributor of electronic components and computer products in the United States after Arrow Electronics, said his company could see a short-term negative effect.

“I would anticipate once a war commences there could be a temporary downtick in business,” Vallee said. “Then, once the war is completed, there should be a temporary surge in business, and that’s kind of what we saw in the previous Gulf conflict.”

But at the same time, Vallee said business for Phoenix-based Avnet was stable and has been for the last six quarters, noting that to date he has seen no change in demand as a result of war jitters.

“I would not say it is not a concern, but we have not seen it bubble up yet,” Ria Marie Carlson, head of investor relations at Ingram Micro Inc.

© Reuters

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