Europe weakness threatens tech rebound
SAN FRANCISCO (Reuters) - Fears that Greece's debt crisis will spread could undermine a resurgence in regional technology spending, but European tech exporters -- and their customers -- could benefit in the second half, executives told the Reuters Global Technology Summit this week.
The euro hit a four-year low against the dollar on Wednesday, one of the clearest signs of concern that financial problems in Europe will not be limited to Greece.
"Before this Greece thing, all this 'double dip' conversation had effectively gone away," said Tom Georgens, chief executive of U.S. data storage equipment maker NetApp Inc (NTAP.O). "But now we go through this. I don't know if the pessimism bar is swinging back again."
Tech spending took a big hit in 2009 as corporations and consumers held off on purchases until the economy improved. PC shipments jumped by 24 percent in the first quarter, which many took as a sure sign of recovery. Now doubt is creeping back.
TALE OF TWO CONTINENTS
The clearest fears, however, are focused on Europe.
"Customers are not paying," said Hamid Akhavan, CEO of Siemens Enterprise Communications, which specializes in communications systems for large corporations. "We still see hesitation. We don't sense that the businesses we deal with are convinced that the economy is on the recovery path."
The United States was holding up better, said Akhavan, whose firm is a joint venture between Siemens AG (SIEGn.DE) and U.S. financial investor Gores Group.
"We've seen a little bit of relief in the U.S. -- it's starting to show more activity, people are asking for quotes and solutions. Europe we see people pushing the projects out."
Some are already bracing for a potential hit. Mitsubishi Electric Corp (6503.T) is considering stepping up efforts to cut costs and boost sales to lessen the negative impact of a softer euro, Chief Executive Kenichiro Yamanishi said. "We need to take measures if the market remains like this for a while longer."
"We need to drive down costs and drive up sales more than planned," Yamanishi said, adding he aims to reduce costs by a "considerable amount".
Microsoft Corp (MSFT.O), which gets more than half its sales outside the United States, acknowledged the Europe threat, but remained generally more optimistic.
"To the extent there is fiscal austerity that constrains overall economic growth, I think it's fair to think that might provide a headwind to IT spend," said Peter Klein, chief financial officer of the world's largest software company.
Klein so far sees damage confined to Europe, especially after a recent trip around the United States.
"I've been out on the road this week talking to a lot of customers, talking to a lot of our salespeople and it feels like things are loosening up a bit," he said of the U.S. trip.
For chipmakers like Micron Technology Inc (MU.O), which has production facilities in Europe and mostly sells to Asia, the low euro could actually be a boon.
"We do have a manufacturing footprint there and a weaker euro has benefited (us)," said Mark Durcan, chief operating officer of the world's No. 4 chip maker. "We also have significant asset purchases in Europe -- as do many of our competitors -- in the form of advanced lithography tooling. From that perspective, we view that (the decline of the euro) as not necessarily harmful."
Telecoms and mobile firms, which have been enjoying a recovery as smartphones and tablet devices take off, are starting to express doubts about consumer spending.
"Let's face it, a lot of the products that ARM sells into are, if you like, discretionary products," said Tudor Brown, president of British chip company ARM Holdings Plc (ARM.L), whose designs are found in 90 percent of mobile phones and in Apple Inc's (AAPL.O) new iPad.
"We are victims to whatever happens in the macro economy."
European governments introducing austerity measures in an attempt to cut debt could also hit personal spending.
"If you increase tax, increase the cost of retirement, this is money that they (consumers) will not spend elsewhere, so I do not see how we can have no impact at all," said France Telecom FTE.PA CFO Gervais Pellissier. The recovery "will take a bit more time because of this new financial crisis," he added.
Not all speakers at the summit were so pessimistic.
"Europe right now is in a difficult situation," said Eli Harari, CEO of flash memory card maker SanDisk Corp (SNDK.O), whose products feature in many digital cameras and mobile phones. "(But) its demise is highly exaggerated."
(Reporting by Bill Rigby; editing by Carol Bishopric and Edwin Chan)
- Anger mounts after bodies found trapped inside sunken South Korean ferry |
- Vice-principal of South Korea school in ferry disaster commits suicide |
- Special Report: How the U.S. made its Putin problem worse
- Search resumes after Everest's worst climbing tragedy
- All 338 Korean students, teachers rescued from sinking ferry - school official