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Analysts see rough year ahead

Analysts see rough year ahead

Concerns over the US economy, combined with a slowdown in demand - particularly from dot-com companies and application service providers - threaten to make this a difficult year for hardware makers, analysts said.

Major hardware vendors such as Hewlett-Packard and Compaq have already lowered their expectations for the year, citing reduced demand for their products. And some, such as Gateway and Motorola, are resorting to layoffs to cut costs in the months ahead.

Among the major players, only IBM appears to have remained untouched so far. The company last week slightly beat market expectations when it announced earnings of $US2.7 billion on revenue of $25.6 billion. Its broad technology portfolio may have spread out the impact of any hardware decline, helping the company make its numbers, analysts said.

But analysts aren't sure what the slowdown means for users in terms of new products and support from other companies. In the short term, they expect vendors to go ahead with products that have already been announced, but technologies further down the road could get pushed back. There also could be a reduction in the number of product models to keep support costs down, analysts said.

Still on schedule

Most major products, however, are still on schedule. Sun Microsystems for instance is on track to start shipping its UltraSPARC III products later this year. HP recently started shipping its Superdome server and IBM is on track with its z900 mainframes.

"There was a burgeoning demand for hardware caused by the growth of the Internet over the last few years which has now begun to slow down," said Bob Sutherland, an analyst at Technology Business Research.

Fred Halperin, managing director of US-based IT services company Answerthink, estimated that nearly one third of hardware sales during the past two years or so have come from Internet companies building their IT infrastructures.

Similarly, an ongoing consolidation in the application service provider market - another big demand generator in the past two years - should impact hardware demand in the near future, predicted Laurie McCabe, an analyst at Summit Strategies.

Reinforcing these economic predictions are concerns over a much closer scrutiny of IT budgets among corporate buyers, analysts said.

"The slowdown here is much less significant than in the e-world, but all hardware investments are being put through a more rigorous cost-justification and ROI process," Halperin said.

There are already indications that a slowdown has begun. Last week chip maker Intel predicted a 15 per cent drop in first-quarter sales because of a slowdown in PC spending and economic uncertainties. It said that its research and design budgets wouldn't be affected, however.

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