U.S. downturn to hit hardware more than software

By Jim Finkle and Philipp Gollner

BOSTON/SAN FRANCISCO (Reuters) - With fears of a U.S. recession bearing down on technology companies, the sector's safest bets appear to be in business software, while makers of computers and consumer gadgets look vulnerable.

John Chambers, chief executive of tech bellwether Cisco Systems Inc, said on Wednesday that CEOs in the United States and Europe were being more cautious than he has seen in many years.

"If there's a downturn, not all sectors will be affected equally," said Stephen Minton of market researcher IDC. "The first round of cuts would affect the PCs and the devices and the software that goes directly onto those PCs and devices."

Analysts say business software makers look better placed to ride out a recession as they help boost companies' efficiency, but prospects are dimmer for hardware manufacturers like Dell Inc and Hewlett-Packard Co and chip makers Intel Corp and Advanced Micro Devices Inc.

Nucleus Research analyst Rebecca Wettemann, who helps executives figure out how tech investments can boost or hurt profits, said cost-conscious companies are now willing to use hardware, such as Cisco routers, until it breaks.

"They are saying: 'If I can't find a direct relationship between the infrastructure and the value it is delivering, then I am hesitant to invest,'" Wettemann said.

Tech research firm Gartner forecasts global spending on business software to grow 8.2 percent this year to $191 billion, which is more than twice as fast as estimated hardware sales growth of 3.4 percent to $394 billion.

AMR Research Senior Vice President Jim Shepherd said he now expects overall corporate technology spending to rise just 2 percent this year, compared with his firm's October forecast of 4 percent growth, based on conversations with tech executives.