Just as the tech sector was showing a glimmer of life, two bellwethers on Friday just as quickly restored the gloom.
Networking giant Sun Microsystems Inc. said it will cut 3,900 jobs and post wider quarterly losses because of last month’s terrorist attacks, and semiconductor manufacturer Advanced Micro Devices Inc., which announced 2,300 layoffs and plant closings last week, also warned of wider losses.
The announcements reinforced the idea that last month’s attacks weakened demand for high-tech equipment, and the effects of diminished customer spending and confidence are expected to ripple through tech companies for months to come.
“It’s pretty bad in the near term,” said Daniel Kunstler, a J.P. Morgan analyst who covers Sun. “Nobody’s spending any money, and Sept. 11 is a further inhibitor of money being spent.”
Despite marginally positive news from other high-tech companies earlier this week–notably Dell Computer and Cisco Systems–analysts said Friday’s announcements show most firms in the sector have not hit bottom.
“The two best-run companies in the industry have rebounded,” said Forrester Research’s John McCarthy. “That by no means guarantees that the companies that are struggling … are going to see an immediate stabilization of their businesses.”
Sun, which until Friday had kept its ranks intact during the economic slump, said it will cut 9 percent of its workforce. The layoffs will not affect the sales or research areas, said Scott McNealy, Sun’s chief executive.
The company also said revenue in the just-completed third quarter will fall short of analyst estimates, and its loss would be larger than expected.
A large percentage of Sun’s business takes place in the final month of any quarter. Before the Sept. 11 attacks, Sun had warned that it would lose money because of soft demand for its products in Japan and Europe.
“Our business nearly ground to a halt in the two weeks following that tragic day,” said Michael Lehman, Sun’s chief financial officer.
Sun shares jumped 6 percent, to $9.87, on the Nasdaq stock market. They are nearly 85 percent below last year’s all-time high.
“We still don’t think it is necessarily an inexpensive stock. Too many investors are seduced just by stock price,” said Tim Ghriskey, senior partner of Ghriskey Capital Partners.
Advanced Micro Devices Inc. said its losses for the quarter will range between $90 million and $110 million, or 26 cents to 31 cents per share; analysts were expecting a loss of 12 cents per share, excluding one-time charges. AMD said third-quarter sales totaled $766 million, a 22 percent drop from the previous quarter.
AMD lays much of the blame on its battle with chip giant Intel Corp., which has been slashing processor prices to attract customers. AMD Chairman Jerry Sanders said Intel’s “aggressive pricing and large, cash-backed marketing program” was part of an effort to overcome “performance deficiencies” of its Pentium 4 chip.
AMD shares lost 4 percent, to $8.60, on the New York Stock Exchange. They are 75 percent below their 52-week high.
Overall, analysts say consumers are showing few signs of spending on new tech equipment, and, among businesses, information technology spending isn’t much of a priority either.
“In 1990, there were still a lot of businesspeople who didn’t have PCs. You still had to put a machine on a desk. That’s not the case today,” McCarthy said. “We’ve got so much infrastructure installed that it’s become discretionary spending.”
John Gantz, chief researcher at technology research firm IDC, said the $450 billion-per-year U.S. IT industry is being kept alive by growth in services and software.
“What was our worst-case scenario for this year is now our best case,” Gantz said. “We were looking for 5 percent growth in the IT industry. We’re now looking for 3 percent growth this year, with PCs negative and servers and storage flat.”
