Tech Sector Informer

Signs of recovery?

Analysts at IDC said the words that everyone wants to hear: The European IT market has entered its first phase of recovery. Spending in western Europe will grow by 4.4% in 2002 and by 6.2% in 2003, up from just 3.4% in 2001. In issuing one of the most bullish forecasts of recent months, IDC senior analyst Vicky Hawksworth said that macro-economic issues such as accounting scandals and bankruptcies had clouded many other analysts’ judgement. “IDC is upbeat about the underlying fundamentals and long-term prospects for the western European IT market and believes the market is now entering the initial phase of recovery, having reached its lowest point in the fourth quarter of 2001,” she said.

Comment: There are many conflicting messages. Days before the IDC statement, rival firm Ovum Holway warned that the slump in IT would continue well into 2003. “The pain is enough to make suppliers’ pips squeak,” moaned one analyst. Then again, new US government figures reveal that the IT boom ended sooner than first thought – suggesting, to the bulls at least, that a recovery could also come earlier. In IT forecasting, as in so many things, you pay your money and you take your chance.

Quantum cuts staff

Storage tape specialist Quantum became the latest high-tech company to slash its workforce during the recession, saying it plans to cut 1,100 jobs from a total headcount of almost 3,000 during the next six months. The EU1 billion company will incur a restructuring charge of about $100 million (EU102.4m) in the process. Most of the job losses are a direct result of Quantum’s recent decision to outsource the manufacturing of its P-Series automated tape libraries to Jabil Circuit, a US components supplier. The restructuring move comes just weeks after the appointment as CEO of Rick Belluzzo, the former president and chief operating officer of software giant Microsoft.

Comment: Belluzzo’s first big decision is not surprising. That’s not just because his last days at Microsoft taught him a thing or two about ruthless management. Belluzzo’s appointment signals a much more aggressive strategy by Quantum – particularly in the networked storage market, where it needs to make gains to offset declines in its core digital linear tape business.

HP, HDS swap APIs

Open season. Hitachi Data Systems (HDS) and Hewlett-Packard (HP) extended a partnership to ensure that their respective storage management software products will be compatible with each other’s hardware. By swapping application programming interfaces (APIs) – middleware that enables interoperability between products – HP is now able to manage HDS’ Freedom and Thunder storage systems with its OpenView software, while HDS is able to link its HiCommand software with HP’s StorageWorks systems. The deal is the latest in a series of agreements involving HP, HDS and other storage companies determined to ensure cross-vendor support for their products.


Microsoft, Siebel end pact

US software giant Microsoft will end a three-year agreement to resell Siebel Systems’ mid-market customer relationship management (CRM) software


Tom Siebel


at the end of 2002, although it promised to continue supporting companies that had already deployed the technology. Microsoft inherited the pact after buying mid-market CRM vendor Great Plains in 2000. Great Plains had resold a scaled-down version of Siebel’s CRM applications suite to small and medium-sized businesses. Rich Reimer, Siebel’s director of mid-market products, said the company had not gained much business from the agreement because its clients preferred to deal directly with Siebel.

Comment: This partnership had been expected to unravel. Microsoft, which will release its own CRM suite towards the end of 2002, is making a concerted push into the mid-market on the back of its Great Plains acquisition and more recent Navision acquisition. But the end of the agreement seems bad news for Siebel – smaller businesses generally favour the reseller channel, whatever Reimer says.

HP revenues slide

New HP, same old problems. Systems giant Hewlett-Packard (HP) reported revenues down by more than a tenth in its first financial quarter since the completion of the Compaq acquisition in May 2002. In the three months to the end of July its sales dropped 11% to $16.5 billion (EU16.9bn), compared to a combined $18.6 billion (EU19.1bn) in the same period a year ago. Worst hit was the company’s servers and software unit, which suffered a 22% sales slump. HP also reported a net loss of $2 billion (EU2.1bn), which was almost exclusively related to restructuring costs and merger-related charges. The company has cut its workforce by 4,740 and more than 5,000 further jobs will go by the end of 2002. Days after the results, the company was dealt a further body blow when Goldman Sachs, the investment bank that advised HP on the Compaq merger, said it had found evidence in a survey of 100 multinational companies that the company was struggling to integrate its two operations and that this was damaging its share of the server and storage markets.

Comment: Except for printers, this is all bad news for HP. But what will most alarm the Fiorina-Capellas double act is the 7% decline in the IT services business. Before the merger, CEO Carly Fiorina had said that the Compaq buy would help HP become a services giant in the mould of IBM. That grandiose claim seems even more fanciful now.

WebGain sells core business

Java application development tools vendor WebGain, which ceased trading in July 2002 after consuming $220 million (EU225.9m) in venture capital funding, sold its core software tools business to rival TogetherSoft for an undisclosed sum. The deal leaves WebGain with only one remaining product, ‘Application Composer’, which is also up for sale. WebGain was spun out of BEA Systems, the application server supplier, in early 2000. It became a victim of an over-ambitious acquisition strategy, burning through cash and struggling to knit together its many acquired products. Ultimately, BEA set itself up as a rival to WebGain, effectively sealing the latter’s fate.

Comment: For a fuller analysis of WebGain and other recent company failures see The dream ends for software hopefuls.

Peregrine overstated by 20%

Ailing asset management software vendor Peregrine Systems admitted overstating revenues by $250 million (EU256.7m) between April 1999 and December 2001 – equivalent to almost 20% of its reported sales in the period, and twice the amount it confessed to in May 2002. Yet there are fears that the restatement may rise still further as US investigators continue to probe the company for evidence of ‘channel stuffing’ – the practice of recording a sale simply when a product is shipped to distributors. Peregrine, whose new CEO Gary Greenfield is working on a recovery plan, has sacked two auditor firms during the scandal. Meanwhile, the Nasdaq Stock Market said it was preparing to de-list the company because its shares had been trading at less than a dollar since June 2002.

Comment: Channel stuffing has been outlawed, so what are the wider lessons of this fiasco? One is that ill-conceived shopping binges always come back to haunt you. Peregrine spent almost EU3.5 billion acquiring a rag-bag of companies during 2000 and 2001. Another is: listen to your advisers. Almost no one in the IT industry thought that buying Harbinger and Extricity would be a good idea; yet Peregrine ploughed on regardless.

Cisco buys Andiamo

Networking hardware giant Cisco Systems said it was acquiring Andiamo Systems, a privately held supplier of switches for fibre channel-based storage area networks. Cisco, as it seeks to diversify its product portfolio beyond its core business of routers, will release a family of Andiamo switches before the end of 2002. The eventual value of the deal will not be determined for another two years. Under a so-called ‘earn-out’ arrangement, the transaction will be based on a multiple of sales from the Andiamo unit in a three-month period in 2004. Some analysts estimate the company could end up costing Cisco about $2.5 billion (EU2.6bn). Cisco has earn-out arrangements on at least three other private companies.

Comment: For more on this deal and other earn-out arrangements, see The dream ends for software hopefuls.

WLANs get pick-me-up

The roll out of public wireless local area networks (WLANs) in Europe was given fresh impetus by a deal between systems giant Hewlett-Packard (HP) and mobile network operator T-Mobile. They promised to extend their US alliance with coffee shop chain Starbucks to cover stores in Germany and the UK, equipping an unspecified number of Starbucks shops in Berlin and London with WLANs. The initiative is only a six-month trial, and no one will be charged for downloading data, but the hope is to extend it to other locations on a permanent commercial basis. T-Mobile, owned by Germany’s Deutsche Telekom, operates more than 1,000 public WLANs in the US, charging monthly subscription rates of between $30 and $50 (EU30.80-EU51.34).

Comment: The timing of this initiative is significant. One by one, European governments are lifting restrictions on the commercial use of WLAN frequencies. Those moves come despite evidence of lobbying by third-generation mobile licence-holders wanting the restrictions to remain at least while they roll out their new networks. As a result, there is likely to be a raft of similar announcements in the coming months.

Sun blocks Intel

Ending one of the IT industry’s most celebrated rivalries, systems giant Sun Microsystems began selling its own brand of Intel-based servers running the Linux operating systems. Sun said it had decided to sell a range of low-end systems with a modified version of Red Hat’s Linux distribution in order to


Scott McNealy, Sun


take advantage of the better price/performance ratio offered by Intel chips. The servers will also be able to run Sun’s Solaris operating system. But it will be an old version of the operating system, prompting an outcry from users. They took out full-page advertisements in Silicon Valley newspapers to argue that the software was the only way for developers and companies on lower budgets to become familiar with Solaris code.

Comment: Sun knows it has problems at the low end. But its attempt to prevent a tide of desertions is little more than a half-hearted makeover with no sign of any coherent strategy. Its earlier decision to cease work on Solaris for Intel together with the minimal effort it is putting into its Linux products indicate that Sun’s heart is still with Solaris and Sparc. It is simply hoping it can persuade wavering corporate customers to stay faithful, rather than look elsewhere for satisfaction. Pic of McNealy

Toshiba phones for Europe

Japanese systems giant Toshiba said it was poised to make an unexpected entry into the European mobile handset market. Toshiba was due to wait until the roll out of third-generation (3G) wireless networks before launching its first device in Europe. But delays in those networks prompted the company to develop a 2G handset compatible with i-mode, the Japan-developed mobile data technology that has been a bigger success than its European alternative, WAP. The first Toshiba i-mode phones will go on sale before the end of November 2002 in the Netherlands.

Comment: Toshiba is entering a saturated market. So its strategy should not be about simply gaining a toehold in 2G and supporting i-mode, which in any case seems unlikely to have as big an impact in Amsterdam as it has in Tokyo. Rather, Toshiba is on a steep learning curve. And it must build on this experience to increase its chances of breaking the stranglehold of Nokia, Ericsson and Motorola when 3G eventually takes off.

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Ben Rossi

Ben was Vitesse Media's editorial director, leading content creation and editorial strategy across all Vitesse products, including its market-leading B2B and consumer magazines, websites, research and...

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