By Jim Kerstetter and Cliff Edwards Dave Anderson, chief executive at e-mail-software outfit Sendmail in Emeryville, Calif., says his corporate customers are still buying new software. But these days, they're being selective. Instead of spending on big projects, what they want is technology to deal with pressing issues like e-mail spammers and phishers. "That doesn't have the feel of investment to it," says Anderson. "That has the feel of defense."
Welcome to the tech industry's new reality. If it doesn't have to be done, companies are more than happy to put it off. "It's not like there's a lockdown in spending. But [tech buyers] are very paranoid right now," says Jim Shepherd, a senior vice-president at AMR Research in Boston.
CANARY STOCK. After a week of disappointing earnings news from tech bellwethers such as Cisco (HPQ) and Hewlett-Packard (HPQ), paranoid investors will be casting a weary eye over the latest batch of earnings, beginning Aug. 16. What will be particularly intriguing are the results at companies like Network Appliances (NTAP), Salesforce.com, (CRM), Novell (NOVL), and Autodesk (ADSK) -- which are selling technologies that most pundits assume corporate customers are still enthusiastically spending on.
An even brighter spotlight will be on earnings at Applied Materials (AMAT), which will report fiscal third-quarter results after the market closes on Aug. 17. Applied, which makes equipment for manufacturing computer chips, is often considered a canary in the coal mine for the rest of tech. Consensus estimates peg sales at $2.14 billion, up 5% from the previous quarter. Wall Street will be watching Applied's guidance for the current quarter. If third-quarter sales head south, it means chipmakers are cutting back on production, a terrible sign for tech demand.
So far, the news has been good at Applied. At an analyst meeting on July 12, execs said demand still looked strong. "All I can see is people are focused on adding capacity. We aren't alarmed by any early indicators," CEO Michael Splinter said. "The bears have been ruling the day since February. I can't reconcile it, other than it's a mood on the Street. The belief is the cycle won't last. I suppose, sooner or later, they'll be right."
Wall Street will be waiting to hear what Applied sees in its order pipeline now. Consensus estimates have pegged sequential growth at 7% for the current quarter.
WHAT'S THE FORECAST? Analysts also expect relatively good news out of Novell, a long-struggling software maker that has gained new cachwith investors since last fall when it acquired SuSE, a distributor of the Linux open-source operating system. Sales are expected to be up 8%, to $305.1 million, according to consensus estimates.
Even better results are expected from Network Appliance, which makes popular data-storage equipment; for Salesforce.com, the top provider of customer management software sold as a service over the Internet; and for Autodesk, which has a virtual lock on the market for engineering-and-design software. Financial software maker Intuit (INTU), tech consultant CACI, and software maker Wind River (WIND) also will report shortly.
Of course, what execs at those companies have to say about the rest of the year will be more telling about the tech's health than what has already happened. For Sendmail's Anderson, a Silicon Valley exec for more than three decades, all signs point to a new reality. "One thing the technology industry has to understand is that we have become so big...we can't expect the growth rates we had in the past," he says. "There isn't the money for it." For all but a handful of lucky companies, that just may be true. Kerstetter and Edwards are correspondents in BusinessWeek's Silicon Valley bureau