Tech firms alert for U.S. slowdown spread to Europe

BARCELONA Fri Nov 16, 2007 12:04pm EST

BARCELONA (Reuters) - The technology sector is alert for signs that effects of a U.S. spending slowdown will spread to Europe but has not seen evidence of that yet, companies at a Barcelona conference said this week.

IT service providers in particular, for whom the financial sector is an important source of business, told the Morgan Stanley Technology, Media and Telecoms conference they were staying vigilant but so far had experienced no downturn.

Europe-based hardware companies, who compete fiercely to keep manufacturing and labor costs down in their more commodity-like businesses, said they were striving to compensate for negative effects from the strong euro versus the dollar.

Cisco (CSCO.O), the world's biggest maker of telecoms network gear, set tech sector investors on edge this month by saying the company had been hit by "dramatic decreases" in orders from U.S. banks. Until then, the sector had been seen as a safe haven.

Although rival Alcatel-Lucent (ALUA.PA) had been warning of weak North American demand for months -- a complaint it reiterated at the conference -- it had not linked it to a credit squeeze stemming from the U.S. subprime mortgage market.

The head of Cisco's European services business told the conference that U.S. financial services accounted for only around 3-4 percent of Cisco's total revenues but said he was nonetheless looking out for signs of weakness in Europe.

"Have we seen spillover? I can't guarantee that we won't. I can only say that we didn't," Nick Earle said. "This story changes daily."

CapGemini (CAPP.PA), Europe's biggest computer services firm, which made 17 percent of its sales from financial clients last quarter, said its North American unit had a "very solid" October and foresaw a good fourth quarter.

"We do not so far see any U.S. slowdown. We are vigilant but we do not see any slowdown," Chief Executive Paul Hermelin said.

Rival French IT services company Atos Origin (ATOS.PA) was emphatic. "We don't see any sign from any customer today of an economic slowdown," Chief Executive Philippe Germond said.

Smaller Anglo-Dutch competitor LogicaCMG LOG.L said it expected growth in the overall IT services market to continue next year at roughly the 4-6 percent rate it expects for this year, although financial services might slow a little.

"We haven't yet seen any concrete evidence of a slowdown in customer spending expectations," Chief Financial Officer Seamus Keating said, while adding: "Inevitably, restrictions on lending across the broader economy are likely to make things a bit slower next year."

WEAK DOLLAR

European semiconductor makers and their suppliers said they had no option but to tighten their belts further as the recent acceleration in the long decline of the U.S. dollar to record lows made their euro cost base more expensive.

"It doesn't help to complain about it," said Peter Fischl, chief financial officer of chipmaker Infineon (IFXGn.DE).

"We have to be even more aggressive in terms of driving productivity and innovation," he said, adding that exchange effects had cost Infineon 80 million euros ($117 million) in profits in the year to end-September.

Competitor STMicroelectronics (STM.PA) said dollar/euro developments had cost it up to $2 billion over the last six years. "Now, of course, it's more difficult," Chief Executive Carlo Bozotti said.

Wacker Chemie unit Siltronic (WCHG.DE), one of the world's biggest silicon wafer makers, said it would simply not invest in more manufacturing facilities in the euro zone.

"At a certain point in time we're going to have to invest in further capacity and I don't think we're going to do it in Germany," said Chief Executive Carlo Bozotti. "We're escaping from the euro."

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