Tech Spending Weakness in Q3 2010


Today, Intel warned of an earnings miss on potentially weaker sales. This comes just after HP, Dell, and Cisco did something similar in the past month or so. I have not read this in other publications, but the reason for this is fairly well known to every tech executive that I have talked to in the past month or two.

During the recession, supplier slashed production in the face of weaker demand and also cut inventory. In early 2010, the stock market rallied, and it appeared as though the economy was getting better. When companies saw upticks in demand, businesses needed to start replenishing lean inventories. When most companies went to their suppliers during this time, their suppliers had constrained production capacity, so companies, in fear of running out of stock themselves, “double ordered”. As a result, suppliers ramped production to fill the double orders.

After the “flash crash” of May 6, 2010, the US expiry of home buyer credits and some unemployment benefits, debt concerns in Europe, missed growth targets in China, and etc., executives finally realized that the global economy was not, in fact, in a rapid recovery. With “double orders” already in at suppliers, the purchasing companies started to push out delivery dates and not re-ordering. I have now read about a dozen articles after the various tech companies have suggested weakness, but none have picked up on this trend for some reason.

With that being said, the storage industry is doing fairly well (I have heard much less talk from storage execs versus ones at datacom, PC OEM and semi companies) and considerably more exciting with the Dell-3Par-HP soap opera unfolding.


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