TAIPEI/PARIS Shares of technology companies are surging on hopes of a recovery, but their executives remain only cautiously optimistic until they see signs of a pick-up in consumer demand that will likely be led by Asia when it comes.
Most company executives speaking to the Reuters Global Technology Summit this week gave a dour assessment of the economic climate, and few felt a recovery was likely in the near-term despite some inventory restocking that has lifted production of chips and other components.
Executives at the New York and Paris legs of the summit were gloomier than counterparts in Tokyo, many of whom reported higher orders as an apparent result of China's stimulus package as well as incomes that continue to rise in many parts of Asia.
"It depends on whether you're talking about the real world or the world in people's minds," said Martin Sorrell, chief executive of the world's largest advertising group, WPP (WPP.L), speaking by videolink from London.
"I think psychologically the mood has got better, but that's not the real world."
MSCI's global information technology index .MIWD0IT00PUS has surged more than 37 percent since its low in March this year as investors bet that the sector will soon emerge from a bottom.
But that surge seems somewhat detached from reality.
U.S. consumers, whose spending accounts for about 23 percent of the world's GDP according to Thomson Reuters data, have been pulling back on their purchases, pushing retail sales in the world's largest economy down for a second straight month in April.
And although a number of company executives pointed to some signs of stabilization in U.S. consumer demand, many said the current uptick in orders could be partly attributed to an inventory correction rather than any real growth in end demand.
"There is an inventory bounce going on now, but I don't think it will be sustained going into the back half," said Warren East, CEO of chip designer ARM ARM.L, whose technology is used in more than 90 percent of the world's mobile phones.
"There's no underlying catalyst to make consumers go out and buy electronic products."
Companies heavily dependent on corporate spending sounded far more cautious and suggested that improved sentiment could be based on nothing more than hype.
"I wish I could say we're all done and any of the economic issues are completely behind us, but I don't think any of us would honestly say that's a reality now," Verizon (VZ.N) Chief Financial Officer John Killian told the summit.
IBM's (IBM.N) Chief Financial Officer Mark Loughridge said: "It's too early to say that we're seeing signs of recovery."
Steve Schuckenbrock, president of the PC maker Dell Inc's DELL.O large enterprise business, said, "If I had to guess today you've got a 50/50 mix of those that are cautiously investing and those that are still in hunker-down mode."
But both Loughridge and Schuckenbrock said they were well placed to be active in acquisitions -- which should eventually help spur renewed growth in the IT sector.
Not so in telecoms, urgently in need of consolidation -- especially in saturated and crowded European markets -- but without the wherewithal.
"There are unfortunately more obstacles," France Telecom's FTE.PA CFO Gervais Pellissier told the summit, naming turbulence in financial markets, scarcity of management time amid the recession and renewed government protectionism as barriers.
EMERGING MARKETS LEADING THE WAY?
Companies in Asia, however, are singing a different tune.
Top Asian tech companies such as PC maker Acer (2353.TW), appliance maker LG Electronics (066570.KS) and contract chip maker TSMC (2330.TW) have benefited from China's recent move to encourage the purchase of electronic products in rural areas.
Many of these companies are also reporting higher shipment numbers and utilization rates, as orders pour in from the developing economies of Asia.
"I've a feeling that the demand strength is stronger now," executive vice-president at Taiwanese LCD maker AU Optronics (2409.TW) Paul Peng said at the summit.
"TV (growth) is going up and China grows very fast. Orders are not a problem but supply will be a concern."
AU and smaller rival Chi Mei 3009.TW could hold a 50 percent share of China's massive LCD TV panel market this year, according to research firm DisplaySearch.
Demand growth in Asia could have a global impact. Jim Flaws, chief financial officer of U.S.-based Corning Inc (GLW.N), the world's largest maker of glass for LCD screens, said the company could see better-than-expected demand for flat-screen televisions and has already restarted some previously shuttered plants.
"Our belief is in 2010 we are looking for growth in televisions... We actually think IT (spending) will pick up a little bit at the end of this year (and) IT will be stronger next year."
Others who are equally bullish about their prospects include chipmaker Hynix (000660.KS) and the world's top TV maker Samsung Electronics (005930.KS), banking on their leadership positions to further dominate the market.
"The downturn in the market doesn't seem as severe as expected and we were able to outperform the market's growth," said Sue Shim, senior vice president in charge of sales and marketing at Samsung Electronics.
Eli Harari, chief executive of SanDisk Corp SNDK.O, the No. 1 maker of flash memory cards used in digital cameras and other electronic devices, said 2009 could turn out to be "significantly better" than anticipated at the start of the year as big cutbacks in production bring balance back to an industry crippled by oversupply.
"I feel as good now as I've felt at any time in the last three or four years."
(Additional reporting by Gabriel Madway, Edwin Chan, Sinead Carew, Jim Finkle, Ritsuko Ando and Franklin Paul in New York, Paul Sandle, Nicola Leske and Cyril Altmeyer in Paris, Baker Li in Taipei, Kate Holton in London, Kevin Plumberg in Hong Kong, and Marie-France Han and Rhee So-eui in Seoul; Editing by Hans Peters)