TMT credit crunch survivors face new challenge

FRANKFURT/BOSTON (Reuters) - Technology and media companies have weathered the global credit crunch but a wider U.S. economic slowdown poses a deeper test of their resilience.

After a round of first-quarter earnings reports, investors in companies such as IBM (IBM.N), Intel (INTC.O) and Google (GOOG.O) heaved a sigh of relief, but the sector may have little time to regroup before facing its next major challenge.

The credit crunch has done most damage in the financial sector -- certainly an important customer group for suppliers of hardware, software and communications, but also a sector that cannot afford to fall behind in efficiency-boosting technology.

A slowdown in consumer spending, however, will ripple more broadly through the economy, and leaders of top technology, media and telecoms companies -- including a clutch attending the Reuters global TMT Summit next week -- have yet to convince that they will escape its effects.

Steve Rubinow, CIO at stock markets operator NYSE Euronext (NYX.N), said he was scrutinizing IT spending harder than usual and that smaller vendors would likely suffer most -- an opinion also expressed by several industry observers.

"We're trying to keep a lid on it," he said.

"We're going to get a lot of leverage by reducing the number of vendors we deal with," he added. "We have the Oracles (ORCL.O), the HPs (HPQ.N) and the IBMs (IBM.N) of the world having a significant presence in what we do."

Trip Chowdhry, an analyst with Global Equities Research, says ultimately no tech company will escape unscathed.

"At the end of the day, the customer of every technology company is a consumer and the consumer is getting hurt. It falls back on the whole food chain," he said.

IT SPENDING 'NECESSARY'

Many industry executives, especially those outside the United States, reject this argument.

Those in sectors such as IT services or enterprise software argue their remoteness from the consumer protects them, while the nature of the goods and services they provide could even allow them to benefit from economic adversity.

Masamichi Ogura, chief financial officer of Japan's Fujitsu (6702.T), said last week: "We see no signs that companies are cutting back on IT spending, which they see as necessary to cut costs or meet compliance or risk-management requirements."

Even the more consumer-oriented Nokia (NOK1V.HE), whose CFO Rick Simonson will be a guest at the New York leg of next week's Reuters Summit, has argued that cellphones have joined the ranks of indispensable tools for everyday life.

In general, large providers of corporate software and IT services appear best insulated against an economic downturn and have sounded most confident.

"The focus is definitely stronger on making the business case for an investment," said Chris Capossela, senior vice president in Microsoft's (MSFT.O) Office division, describing recent meetings with chief information officers.

"But I haven't seen it translate to: 'Hey, we need to cut our budgets by 40 percent because of the economy'. I haven't seen that direct cause and effect," he said in an interview.

MICROSOFT OR IPOD?

As well as executives from software makers including Symantec (SYMC.O), McAfee (MFE.N) and Adobe (ADBE.O), a host of telecoms carriers, communications equipment suppliers and chipmakers will attend the Reuters Summit.

Chipmakers are more governed by the industry's own cycles than by wider economic factors, and top executives from Hynix (000660.KS), Qimonda QI.N and Elpida (6665.T) will be invited to comment on the likelihood of price improvements in the second half of the year after a collapse over the last 12 months.

Telecoms executives including AT&T (T.N) CFO Rick Lindner and T-Mobile (DTEGn.DE) CEO Hamid Akhavan, already battling long-term declines in calling charges, will be challenged as to their plans to prop up profits by selling higher-margin services if consumers become more thrifty.

And advertisers such as WPP (WPP.L) CEO Martin Sorrell and Publicis (PUBP.PA) CEO Maurice Levy will be quizzed on whether they see signs of advertising budgets being cut.

Global Equities Research's Chowdhry sees Google and Yahoo (YHOO.O) as likely victims of a third wave of spending cuts -- in Internet advertising -- following big-budget IT hardware infrastructure and then consumer appliances and software.

With the essentials becoming more expensive, he expects people will think twice about which software or consumer electronics they really need: "The consumer has to worry about oil, food and clothing. You think it's plus Microsoft? Or plus (Apple's (AAPL.O)) iPod?"

The Reuters Technology, Media and Telecoms Summit takes place from May 19-22 in Paris, New York and Tokyo.

(Additional reporting by Daisuke Wakabayashi in Seattle; Editing by Jason Neely)