The "bright spot" is "Commie" China once again, as it was in 1997 when it "stood tall" against the devaluation of its currency. "Thanks" to the bureaucratically led and driven process of capitalist restoration. It is this + the resistance of European workers to "Americanization" which (dialectically, obviously) props up world capitalism, as the Soviet Union did in the preceding period. "Neoliberalism", anyone?
March 16, 2001
Foreign Sales of Technology Are No Longer a U.S. Refuge
By WAYNE ARNOLD with SUZANNE KAPNER
SINGAPORE, March 15 — American technology companies, whose recent earnings declines in the United States have been softened by strong sales abroad, now appear to be facing a slowdown overseas as well.
A slump in technology sales in Asia, coupled with signs that growth in Europe may also be ebbing, is raising concern among analysts that instead of insulating American technology industries from the domestic slowdown, foreign markets may worsen the trend this year. Together, Asia and Europe account for almost half of global sales in information technology, according to the International Data Corporation, a market research firm.
"It looks like it's going to be a globally synchronized downturn," said Steven Milunovich, technology strategist at Merrill Lynch in New York. While analysts have been hoping for a strong industry bounce in the second half of the year, he said, "I think if the rest of the world worsens, we're talking about a U-shaped recovery."
"I think it means you can write off this year for earnings," he said.
In Asia, commonly one of the fastest- growing markets for technology products, strong demand last year for computers and other information technology took some of the edge off sharply slower sales at home.
But as slower growth in the United States weakens the demand for Asian exports, and as home-grown economic problems push Asian currencies lower, growth in Asian technology sales could edge below 10 percent this year, according to International Data, from more than 16 percent in 2000. The research firm said it expects to reduce its estimates further in coming weeks as reports accumulate on the effects of the slowdown in the United States.
"The economic environment is worsening and consumers are becoming more conservative," said Junichi Saeki, a senior analyst at International Data's subsidiary in Japan, Asia's largest market for technology products. "Corporate spending is declining."
What makes the overseas slowdown so remarkable is how suddenly it appears to have overtaken the industry. Just weeks ago, companies like Oracle, Sun Microsystems and Cisco Systems were citing robust sales in Asia and Europe as bright spots in otherwise gloomy financial results.
"Sales growth for Oracle products in Europe and Asia-Pacific remained strong," said Oracle's chairman and chief executive, Lawrence J. Ellison, announcing on March 1 that profits would come in below forecasts. "The problem is the U.S. economy."
A little more than a month ago, Cisco assured investors that sales overseas, which account for roughly half its revenue, remained strong. Then last Friday, Cisco's chief executive, John Chambers, said his company could see "initial signs of a slowdown expanding to other parts of the world," in explaining why Cisco might eliminate as many as 5,000 full-time jobs — 11 percent of the work force.
Also among signs that the United States is exporting its slowdown are the latest revenue figures from the dominant chip maker, Intel, which relies on Asia and Europe for more than 60 percent of its global sales. After a year of at least 25 percent quarterly growth, sales growth in Asia dropped back to 16 percent in the fourth quarter of 2000. Intel's European sales fell almost 2 percent.
Some economists have warned for more than a year that Asia's export- driven economies would suffer from a slowdown in American demand for technology-related products. In January, Japan posted its first trade deficit in four years as exports to the United States and the rest of Asia slowed and the price of imported crude oil increased.
Nonetheless, many executives and analysts expressed hope that demand in Asia and Europe might weather a slowdown in the United States. Emboldened by resilient foreign demand last year, some of them predicted that economies overseas — having largely missed out on the kind of boom that churned out new fortunes in America almost daily — would be spared the bust. In addition, companies in Europe and Asia lagged behind their American competitors in adopting technologies to streamline their businesses, so demand for new equipment might remain strong, they thought.
Executives and others used similar logic to explain why Asian sales would not suffer when financial crisis erupted there in 1997. Asian companies, they argued, needed their equipment too much not to spend — a view that turned out to be woefully wrong. Spending on technology was one of the first things that Asian companies cut, and revenue declined.
Not all high-technology executives ignored the risk of a ripple effect abroad this time. As she announced a 59 percent drop in quarterly profit last month, the chief executive of Hewlett-Packard, Carleton S. Fiorina, said her company was concerned that economic weakness in the United States could spread to areas dependent on exports like Mexico, South Korea and Taiwan.
Ms. Fiorina's worries now seem to be coming true. International Data expects growth in Taiwan to slip, and predicts the South Korean market will grow little more than 2 percent after swelling 47 percent last year.
Compounding South Korea's problems is a sharp decline in the value of its currency, the won. The won has dropped 13 percent against the dollar in the last six months, making imports from the United States that much more expensive for Korean customers.
All this would matter less if Asia, like the United States, were a big buyer of high-technology services. But hardware sales dominate the market, making Asian demand more vulnerable to turmoil in the foreign- exchange markets. Services can be priced in local currencies, but hardware typically carries a dollar price tag.
The biggest dent in Asian sales growth comes from Japan. Despite an economy with virtually flat growth for the last decade, Japan's market for information technology has boomed. Analysts credit a popular fascination with the Internet that has spurred sales of personal computers, especially more expensive laptops. Also aiding sales were deregulatory measures that pushed banks and manufacturers to overhaul some of their operations and embrace Western networking concepts like companywide raw-materials planning, customer relationship management and data mining.
As a result, Japanese companies and banks that once prided themselves on running huge, in-house networks have realized that they can import expertise and achieve savings by handing over the running of those operations to specialists like I.B.M. In the last year, I.B.M. has signed major contracts with companies including Daiwa Bank, NKK Steel, Nissan and Nippon Telegraph and Telephone.
But this drive for competitiveness at some businesses is apparently insufficient to overcome the country's economic troubles. Double-digit growth in Japanese technology services declined to just over 4 percent last year, and the International Data Corporation estimates that growth will not be much better this year.
Sales of personal computers are slumping as the ardor of Japanese for the Internet cools and competition drives down PC prices. International Data predicts that the PC market there will grow slightly more than 7 percent this year, after growth of more than 25 percent in 2000. Not only has interest peaked in Internet access by personal computer, Mr. Saeki of International Data says, but competition from mobile phones able to download e-mail and surf the Web is eating into demand.
A similar lag is being played out less markedly in Europe. Unlike South Korea and Southeast Asia's export-dependent economies, Europe has enough internal trade and economic dynamism to insulate itself somewhat from the drop in American growth, economists say.
"The trans-Atlantic umbilical cord is still pretty strong," said Paul Horne, a European equity market economist with Schroder Salomon Smith Barney in London. "But the American and European economies seem to be less correlated than in the past."
In large part, that is the result of the increasing cohesion of the European Union. Just 2.25 percent of the 15 European Union countries' combined gross national product is exported to the United States, Mr. Horne said, making the region less susceptible to the American slowdown. That compares with 16 percent of output sold within the European bloc, he said.
Nevertheless, growth in Europe is expected to slow. International Data forecasts that growth in information technology will dip to 11.1 percent this year, from 12.5 percent in 2000. And when telecommunications is included, the drop is expected to be sharper — to 8.8 percent this year, from 10.6 percent in 2000. Martin Hingley, vice president for European systems at International Data in Britain, acknowledged that the estimate is optimistic, given the economic tides buffeting the Continent from across the Atlantic. He said his firm was in the process of lowering its forecasts for Europe.
The telecommunications industry accounts for roughly half of total spending on information technology in Europe, according to International Data. On Monday, the Swedish electronics producer LM Ericsson warned it would report a first-quarter loss, as demand slackened on both sides of the Atlantic. Nokia of Finland, the world's largest maker of mobile phones, had issued its own warning of a slowdown. Today, Nokia confirmed that first-quarter profit would be about the same as a year earlier, even though sales are falling short of expectations.
All this can be seen as more bad news for companies like Intel and Compaq that make chips and servers for mobile devices.
"Any impact on demand for mobile phones impacts the suppliers," said Graham Palmer, a spokesman for Intel, one of the largest suppliers of flash memory devices for mobile devices. Mr. Palmer said the softening demand in the United States had spread to Europe and Asia.
And so, analysts say, companies looking for shelter abroad this year will have to look to China, Asia's second-largest market for technology products after Japan and its fastest-growing one. International Data expects sales growth in China to continue this year around 30 percent, providing a lone bright spot in the gathering Asian gloom.
Though China runs an enormous trade surplus with the United States, its economy is proportionately less dependent than others on such exports. At the same time, China is trying to overhaul its economy, make state-owned enterprises profitable and prepare private enterprise for the threat of foreign competition that entry into the World Trade Organization will bring.
That, say technology executives, means more computers and more networks. "There is pent-up demand waiting to be capitalized on," said Muan Lim, Hewlett-Packard's vice president for technology financing, based in Hong Kong. China's companies, he said, "need to compete, so they need to develop their I.T. systems."