Is IT Spending Slowing?

By John Moore  |  Print this article Print


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Opinion: Does slowing economic growth presage a tightening of IT budgets? Channel executives say they haven't seen a decline, but they remain wary.

News of the nation's slowing economic growth rate has given channel players something to think about.

The gross domestic product rose at an annual rate of 3.1 percent in the first quarter, according to the Commerce Department. That's down from a 3.8 percent growth rate in the previous quarter.

So, is the economy weakening or merely hitting a temporary "soft patch," as Federal Reserve chairman Alan Greenspan likes to say?

Channel companies reporting first-quarter results this week had mostly good news to offer. For those companies at least, signs of slackening business spending aren't in evidence.

Jerry Greenberg, co-chairman and co-CEO of Sapient Corp., a technology services company, is keeping an eye out for trouble, but said he hasn't seen any yet.

"Obviously, we're taking a look at that," he told analysts in a teleconference. "You have so many different things being said, from clearly there is a slowdown to clearly there's not. Our data suggest that no, there has not been a slowdown in spending."

Greenberg said Sapient's opportunity pipeline made "a sharp move north a quarter ago and continues to grow strongly." He suggested that perceptions on spending may depend on geography or industry sectors.

Sapient reported first-quarter revenue of $76.8 million, a 30 percent increase compared with the year-ago period. The company's earnings per share increased to 5 cents from 1 cent in the first quarter of fiscal year 2004. The company targets a 30 percent services growth rate for the full year.

In distribution, Avnet Inc. also reports growth. "Our Avnet Technology Solutions revenues in America grew 11 percent year-over-year last quarter, which makes three of the last four quarters double-digit growth," said Roy Vallee, the company's chairman and CEO.

"Also, our billings at Avnet Electronics Marketing rose, and we had a positive book- to-bill ratio, so we built a little backlog. Overall, we are seeing a little strength and not new weakness."

DiamondCluster International Inc., a management consulting company, reported this week that revenue grew 21 percent to $52 million for its fiscal fourth quarter ended March 31. But the company's revenue and earnings outlook for its June quarter came in below analysts' estimates.

DiamondCluster executives told analysts not to read too much into the forecast.

Mel Bergstein, chairman and CEO of DiamondCluster, said the company has seen great growth in recent quarters but will catch its breath in the June quarter. He attributed the pause to "a transition in a couple of clients" as opposed to a general trend.

Click here to read more about Sapient and DiamondCluster.

All the same, DiamondCluster continues to cultivate revenue from noncyclical industry sectors–namely the public sector, health care and utilities. Company officials reported that 20 percent of the company's March quarter revenue came from those segments. The noncyclical industries contributed 9 percent of the company's revenue during last year's March quarter.

So, while the economic situation appears somewhat uncertain, industry executives remain unruffled. But don't blame them if they cast a backward glance occasionally.

Check out eWEEK.com's for the latest news, views and analysis on financial applications and services for the enterprise and small businesses.

John writes the Contract Watch column and his own column for the Channel Insider.

John has covered the information-technology industry for 15 years, focusing on government issues, systems integrators, resellers and channel activities. Prior to working with Channel Insider, he was an editor at Smart Partner, and a department editor at Federal Computer Week, a newspaper covering federal information technology. At Federal Computer Week, John covered federal contractors and compiled the publication's annual ranking of the market's top 25 integrators. John also was a senior editor in the Washington, D.C., bureau of Computer Systems News.


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