News From Telecom World

Recession May Alter Way Businesses Buy Technology Products

Posted on: May 6, 2009

Just as consumers are learning to be thrifty in the recession, so are corporate buyers of computers and other information technology.

The trend could lead to long-term changes in how companies purchase hardware and software, analysts say.

Companies are hoarding cash and not buying costly IT, says Andrew Bartels, an analyst with Forrester Research. They’re delaying purchasing new PCs and looking to do more with less using technologies like virtualization software, which lets users get more use out of servers and thus avoid buying more servers.

Some enterprises might even experiment with giving their employees lightweight, low-cost netbooks instead of higher-priced, full-function notebook PCs, Bartels says.

A shift of just 5% to 10% of corporate users to netbooks from traditional notebook PCs would be significant, he says. Netbooks generate less revenue and profit for vendors than do notebooks.

On the bright side, the downturn in tech spending won’t be as severe as that which followed the dot-com bubble bursting in 2000, analysts say.

During that Web 1.0 era, tech companies overbought computers, networking and telecom gear. And when startup companies began failing in large numbers, their hardware flooded the secondary market and dampened sales of new equipment in 2001 and 2002.

“That was a much worse decline,” Bartels said. “The tech market in that period was dropping by 15% or 20% in different categories, and not just for one or two quarters but for two or three years.”

Sales in some tech sectors now are in sharp decline, especially computer hardware. But it won’t be a “prolonged, deep downturn” like last time, Bartels says.

Still, massive layoffs nationwide since last summer have created a glut of unused PCs at some corporations. Companies are redistributing the newer PCs to remaining employees and delaying the PC replacement cycle from three years to four or five years, says Crawford Del Prete, an analyst at market research firm IDC.

Analysts aren’t yet seeing any big surge in computer hardware hitting the secondary markets after all the layoffs in recent months. Companies are redeploying the hardware or putting it in storage as spares, Del Prete says.

In Silicon Valley, though, some tech gear from folded startups has been showing up on the used market, says Trip Chowdhry, an analyst with Global Equities Research. Some of that gear is less than a year old and is selling for one-fifth the price of new equipment.

That’s taking sales away from hardware makers such as Cisco Systems (CSCO), Hewlett-Packard (HPQ), IBM (IBM), Juniper Networks (JNPR) and Sun Microsystems (JAVA), Chowdhry says.

Source: Investor’s Business Daily

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