Not Out Of The Woods Just Yet

Just as it seemed the tech market might be breaking into the clear, a cluster of bad news has shown that financial recovery is still a work in progress.
Don't get me wrong: The economy, and the tech market in particular, have been on a steady upswing. But events of the last week show that the tech turnaround, which has already made a name for itself as the slowest in recent history, isn't ready to ditch its training wheels just yet.

Profit warnings from the likes of integration software firms Informatica and WebMethods, for example, this week provided a contrast to the generally upbeat outlooks we've gotten from the BI reporting and analysis companies. The spate of bad news doesn’t slam the brakes on the economic acceleration we've seen this year, but it does give put the recovery's speed into perspective. And it raises questions about what's causing the hiccup.

The larger technology outlook, while still better than this time last year, definitely hasn’t fully solidified just yet. On a single day last week, bellwether IT stocks Intel and Hewlett-Packard both shed more than two percent of their value, Yahoo took a five percent hit, and the market lopped off a full 20 percent from shares of data-storage system maker Emulex. One might have thought Yahoo would rebound this week when it reported profits and revenue that more than doubled in its second quarter, but no dice. The company's shares lost more than six percent of their value instead, and the larger market followed.

More warnings came this week from Siebel Systems, BMC Software, Filenet, Sybase and Veritas. (PeopleSoft also reported a profit warning, but blamed the shortfall on Oracle's ongoing hell-or-high-water takeover attempt of the company.)

Unexpected -- and unpredictable -- developments have conspired to slow the full-on economic recovery many pundits had begun to expect. Oil prices show no sign of dropping as shortfalls have hit a number of major producing nations such as Iraq and Norway. Unemployment claims rose last week unexpectedly as well, one day after the Fed boosted interest rates. Naturally, such developments hurt the technology companies just as they hurt everybody else.

But it's clear technology is sputtering, at least a little bit. What's less clear is whether all the revenue and profit warnings merely indicate temporary skittishness among technology buyers or something worse. For the answer to that question, stay tuned: The big software players, including Microsoft and SAP, both report their second quarter results before July is out.

Editor's Choice
Brian T. Horowitz, Contributing Reporter
Samuel Greengard, Contributing Reporter
Nathan Eddy, Freelance Writer
Brandon Taylor, Digital Editorial Program Manager
Jessica Davis, Senior Editor
Cynthia Harvey, Freelance Journalist, InformationWeek
Sara Peters, Editor-in-Chief, InformationWeek / Network Computing