The December Reporting Heavyweights Step Up to the Bar
WW IT Spending Inches Forward Through the Mire
“Less Reluctant to Spend” is the Good News
As far as we can tell, IT Spending is still in its comfortable rut. The Oracle, Accenture, RIM, and Adobe stories net to "recent business as usual". Here’s what the Ralph Finos Consulting WW IT model expected and here’s what we got (in orange).We listed the companies alphabetically.
Company
Guidance
RPF Q409 As-reported Estimate
% Change vs Q408
Notes
Q4 Results
Meaning of Actuals
Accenture
$5.3-$5.5B in constant currency
$5.670B
-5%
Excludes reimbursables; RPF assumes +5% impact
$5.383B as-reported
Very disappointing.Reported a +7% Currency impact which equates to $5.0B in constant currency
Adobe
$690-$740M
$751M
-17%
Assumes +5% currency impact; Omniture not included
$731M
Disappointing. Excluding Omniture ($26M), the results were ~-3% short
Oracle
-1% to +2% in current currency
$5.834B
+4%
Without Sun; Oracle assumes +5% currency tailwind
$5.858B
Encouraging. Right on the money (including +7% currency assist)
RIM
$3.6-$3.85B
$3.720B
+34%
No currency impact
$3.924B
Very Encouraging.Results and guidance point to a much stronger than expected 2010
Takeaways
RIM’s results are very encouraging for Hardware (Palm’s troubles notwithstanding).We’re curious about what Sun’s Hardware picture will look like when Oracle discusses that next month.
On target results from leader Oracle are encouraging (although their performance may have come at the expense of SAP).We wish Adobe had done better.
After messing up his marriage Tiger appears to have moved on to messing up Accenture! To their credit, they didn't blame him. Sarcasm aside, Accenture continues to flail – which is not good news for Services spending – especially on the Consulting side (although this quarter was less worse than recent quarters).Oracle’s Services number (not consulting and large projects) came in on the estimate.But given the spending environment, we would expect consulting and new large project spending to be low on the “must have” list.
Remember that we regard performance vs. the estimates primarily as indicators of the direction of IT spending overall.These vendors represent a decent sampling of ~15% of the revenue in the full WW model, but their quarters are offset by 1-2 months compared to other leading vendors.This will tend to make them look worse than upcoming January Q4 reports as we slowly put the worst period of the recession behind us.Last quarter, these vendors performed slightly less well compared to the total model, so we will be careful in interpreting the results.
Aspiring to match Q42008 results is a pretty low bar - but these results indicate that its about what we should expect for Q42009.
December 10th Update
An Ugly 2009 is Set to Close Out in Negative Territory
2010 is Looking Like +4.2% in Constant Currency
Early View of 2010 on Horizon with Oracle, RIM, Accenture, and Adobe on Deck Next Week
Q42009 Predictions
The as-reported Full Year 2009 revenue model is already pretty well baked in at:
Hardware
-12.1%
Software
-3.8%
Services
-6.3%
Total
-8.1%
We expect Q42009 to decline by -1.0% vs. Q4 2008 in constant currency, but come in closer to +5.0% in as-reported revenue.
2009 is a lost cause.The more interesting question is whether the Q409 results will move the meter on the 2010 constant currency forecast of 4.2% (vs. +6.7% in 2008) and the as-reported forecast of 5.1% (vs. +7.3% in 2008).
Here’s what the Ralph Finos Consulting WW IT model is expecting over the next 10 days from key vendors with a November Quarter-end close.
Company
Guidance
RPF Q409 As-reported Estimate
% Change vs Q408
Notes
Accenture
$5.3-$5.5B in constant currency
$5.670B
-5%
Excludes reimbursables; RPF assumes +5% impact
Adobe
$690-$740M
$751M
-17%
Assumes +5% currency impact; Omniture acquisition not included
Oracle
-1% to +2% in current currency
$5.834B
+4%
Without Sun; Oracle assumes +5% currency tailwind
RIM
$3.6-$3.85B
$3.720B
+34%
No currency impact
While its fun to do financial analysis of vendors, we regard performance vs. the estimates above primarily as indicators of the direction of IT spending overall.These vendors represent a decent sampling of ~15% of the revenue in the full WW model, but their quarters are offset by 1-2 months compared to other leading vendors.This will have an impact on how well they do as we put the worst period of the recession behind us.Last quarter, these vendors performed slightly less well compared to the total model, so we will be careful in interpreting the results.But it would be nice to get some good news from these leaders.
HP – Good News for 2009, Cold Water for 2010 Expectations Adjusting for November Currency, As-reported Revenue for all of 2009 Recedes to -8.1% Q409 May be as Good as Q408!
2010 Growth in Constant Currency declines to 4.2%
Annualized 2010 Constant Currency IT Spending Levels to Equal 2008 Levels in Q4 2010
Overview The news this week was HP – solid Calendar Q3 results but holding fast to a weaker 2010 forecast than expected.The net for the WW IT Spending model was to dampen the 2010 forecast (primarily Hardware) by ~-0.5%.Right now we’re looking at 2010 growth in Constant Currency to be 4.2%, down from 4.7% last week.
The good news was that most vendors (58%) beat their estimates/guidance – by about +1.5% in the aggregate – owing in part to the best currency comparison we’ve seen since Q208.However, that’s pretty weak when Q309 is already -10% off of Q308.
Q409 spending is likely to equal Q408 (the 1st full Q of the Panic of ’08).Currency will likely kick in as much as +5% additional growth points for SW and Services companies – so don’t read the Q409 as–reported results as if demand is coming back.Q110 is looking like +2% (constant currency, likely better as-reported revenue) off of the low of the Great Recession.We’re still optimistic for accelerating growth in 2010, but right now Q410 looks like the first Q of real growth.
HP Results
We had a pretty good gauge on HP overall.The model had HP at:
ESS - $4,167M (actual $4,218, we were -1.2% too low)
Services - $8,995M (actual $8,926M, we were 0.8% too high)
IPG - $6,398M (actual $6,457M, we were -0.9% too low)
PSG - $9,542M (actual $9,862M, we were -3.2% too low)
Software - $989M (actual $967, we were 2.3% too high)
As we predicted, HP beat us on the HW side.HP is guiding towards $29.6-$29.9B (sans 3COM) – about 3% more than Q408.HP’s FY10 guidance is for +4% - which is either a serious sandbag or really disappointing news from an industry leader who should be gaining share in this environment.I think it’s a little of both. Dell Results
We expected Dell to come in at $12,925M for Q309.They came in at $12,896M (we were 0.2% too high).Expect a disappointing Q4 of $13,106M (-3.7% vs. Q408). 2010? The model is in a comfortable trough – which points to business as usual (i.e. 2009 weakness going forward).HP’s sober outlook underscores that near term view and begs the question as to when we’re going to see actual good news (vs. not worse news).The market is ripe for breaking through:
The YoY compares are going to be easier over most of 2010.
Profits have been growing since Q209.
The dollar is weaker.
Windows 7 and the much-anticipated PC refresh.
So, when does real demand kick back in?Our 4.2% constant currency estimate for 2010 is ½ the 2007 & 2008 growth levels, which basically equates to an accelerated limp.Its likely that we won’t see annualized 2008 spending levels until late 2010 or perhaps even into early 2011.
My view?The Hardware news has been improving, but we won’t break out of our current rut until the Software news (namely Oracle, Microsoft, and SAP) gets much better.
November 18, 2009 Update
HP and Dell Updates
Where's Demand Going to Come From?
HP Outlook The Q3 models thusfar have been coming in ~1.3% higher than estimated – owing to currency as much as anything else, so the results have been lackluster, but not worse.HP came in ~+1% in total, lining up with the industry trend.The model has HP at:
ESS - $4,167M
Services - $8,995M
IPG - $6,398M
PSG - $9,542M
Software - $989M
So add about 1% to each of the above.We’d be expecting the HW categories to do better overall. Dell Outlook The model has Dell coming in at $12,798M.Keeping with the +1% trend across the market in general, we might expect $12,925M.The breakdown:
PC - $3,371M
Mobility - $3,891M
Server & Network - $1,403M
Storage - $559M
Services - $1,150M
SW & Peripherals - $2,424M
CSC results come up short Services continue to struggle – with CSC coming in ~-2% short of the estimate.
2010 Outlook for IT Industry Sector Performance Most industry sectors will see a recovery (of sorts) in 2010.CRM, Health Care, and Banking will continue to show positive growth.Retail, SCM, HCM, Telecomm, CAD, and Security will be back in positive territory.IT Intensive BPO (e.g., payment processing, payroll) will continue to be weak as will be general ERM. The continued weakness in payroll processing (a function of weak employment) and payment processing (a function of weak consumer activity) gives us pause when considering the general recovery we’re seeing in the data above.If these two sectors are weak, then where is the demand going to come from to support the recovery?
What’s Next After HP’s detailed reporting is in, we’ll recalibrate the entire model and take a look at 2010.Right now, our models are looking at 2010 coming in much higher (no brainer!) than 2009, but lower than the 2007/2006 & 2008/2007 growth rates.So it’s a modest-weak recovery off of a bad year.Maybe 2011 will be better.
November 7, 2009 Update Q309 Software Decline Trumps a Nice Hardware Uptick
Adjusting for November Currency, As-reported Revenue for all of 2009 Recedes to -7.2% Regardless of Windows 7, the Turnaround Begins in Q409
Expect a Shallow Recovery Slope in 2010
Windows 7 Aside, 2010 Growth in Constant Currency is Holding at 4.7%
Annualized Constant Currency IT Spending Levels Begin to Exceed 2008 Levels by Late 2010
Overview – Just back from a Grand Canyon vacation – so get ready for the canyon, plateau, vortex, and raging rapids metaphors! With 62% of the IT WW Spending model in, we’re still on the same canyon floor we were last quarter.The Microsoft and SAP news was disappointing. Hardware (Cisco, EMC) news was encouraging, but its coming off of the bottom of the river at the bottom of the canyon. One encouraging sign - 60% of IT vendor business units met or exceeded our forecasted Q309 estimates and/or the midpoint of their own guidance (vs. 48% in Q209). For 2010, the Constant Currency Model is at +4.7%, a gently sloping rebound off of a bad 2009.As-reported results should be a few points higher – as the comparisons benefit from a weakening of the very strong Q408-Q209 US$.However, even with this growth, IT spending will only begin to exceed 2008 annualized levels by late 2010. Windows 7 could be the vortex of a more robust recovery.Right now, our forecast assumes nothing special. Product Highlights – The As-reported 2009 forecast (adjusted for November currency) and the constant currency forecast for 2010 for the products: . Absent a Q4 Windows-led PC surge, 2009 HW will finish at -10.3%.HW has picked up so far this Q, but the HP and Dell results later this month will tell the true tale.HW will grow 4.2% in 2010 in constant currency, still falling short of 2008 spending levels. A big PC surge could change that picture significantly. . Software growth slid to -3.7% in 2009 and will rebound to 6.3% in 2010 . Services will finish at -6.1% in 2009 and will rebound to 4.2% in 2010
The Turnaround?: We turn the corner and head back up in Q409.This is no great feat since the Q409 results will only equal a very weak Q408.With the currency tailwind, expect a lot of vendors to beat their YoY revenue numbers.Even so, annualized (running 4 Qs) constant currency revenue will begin to increase in Q409 after 4 consecutive quarters of decline. A good Windows 7 showing would add a little sizzle. However, even with 4.7% constant currency growth in IT spending in 2010, overall 2010 spending levels will still be lower than 2008 until Q410.
The Slope of the Recovery Curve -Each new day means we’re a day closer to the recovery in IT Spending.While we’ve just begin our ascent, the grade of the recovery slope is by no means clear.Going back to the 2001-2003 IT spending recession and comparing it to where we are today may provide useful guidance as to what we can expect in the coming quarters. The 2001 global recession is clearly an analog to the 2008-2009 economic meltdown beginning in Q408 that is driving the IT market.The severity of the economic downturn is greater than in 2001 (as is the strength of the US$), but the 2001-2002 IT spending picture had two other factors that dragged down growth – the Internet bubble burst and the Y2K hangover.We have no way of gauging the comparative impact of any of this, but that being said, history may help us understand where we will be in the coming quarters. Comparing the quarterly revenue data of IT vendors in both periods suggests that the pattern of decline in 2008-2009 has been very similar to the earlier period.The X-axis has the 2000-2003 quarters mapped against the equivalent 2008-2009 quarters in terms of YoY Spending decline (visual curve fit).The current RalphFinosConsulting IT Spending model suggests that we are likely to begin showing positive growth in Q12010, a quarter earlier than the market’s experience in the 2001-2002 slowdown.Given that we haven’t got the Y2K hangover and the .com meltdown in the equation, and that we have better inventory management, a more rapid return to normalcy makes some sense.However, we may be coming out of this IT spending recession earlier than we did in 2002, but with less vigor.
Moreover, the degree of decline in our current situation has been exaggerated by the rapid acceleration in the US$ vs. other currencies from Q408 thru Q209 – which has had the effect of dampening any metric measured in $USs.The strength of the US$ in the current downturn has been much stronger factor than the 2000-2002 experience.As such, the revenue data has looked worse than it actually is from a constant currency or demand perspective. So, I’m liking a spending recovery (positive Year-over-Year growth) beginning in Q12010 with ultimate levels of recovery spending being less than the 2003 experience.The key question is when this downturn is over, will we see IT spending levels at >2X GDP again?
Upcoming Reports – CSC (Nov 11), HP (Nov 23), and Dell (late Nov) are the remaining heavyweights in our model.The vendors reporting to date have beat the forecast by an average of +1.4% (as expected).Hardware did the best (7 of 10 beat their estimate).BPO vendors were ~50/50 – perhaps reflecting weakness in the real economy (i.e., payment processing, payroll processing). Here’s how our predictions fared: ·Apple - $6.13B (excluding music) (actual $7.29B, +21% - those iPhone sales are hard to predict) ·Lexmark - $895M (actual $958M, +7%) ·VMWare - $475M (actual $490M, +3%) ·EMC - $2.911B – without VMWare (actual $3.03B, +4%) ·Microsoft Software - $11.950B (actual $10.46B, -12%) ·Juniper - $895M (actual $824M, -8%) We’ll be firming up our HP, CSC, and Dell forecasts next week.
October 16, 2009 Update
IBM: Stabilization = IT Spending will Continue to Bump along the Bottom Adjusting for October Currency, As-reported Revenue for all of 2009 holds at -6.9% Expect + 4.8% Growth in 2010 in Constant Currency
IT Spending Levels Begin to Exceed 2008 Levels by Mid-year 2010
Overview – With 25% of the IT WW Spending model in, “stabilization” is the watchword.The “tepid” IBM results didn’t move the model appreciably so we’re still on our weak course, looking for encouraging news elsewhere. One seeming bright point is that the revenues of 13 out of 20 (65%) IT vendor business units met or exceeded our forecasted Q309 estimates and/or the midpoint of their own guidance (vs. 48% in Q209). However, currency helped a bit in Q309, and will be a much more significant factor in Q4. For 2010, the Constant Currency Model is at +4.8%, a modest rebound off of a bad 2009.As-reported results should be much higher in 2010 due to the relatively strong US$ of 2009.However, even with this growth, IT spending will only begin to exceed 2008 levels by mid-late 2010.2010 Hardware spending will be lower than 2007 spending. Product Highlights – The As-reported 2009 forecast (adjusted for October currency) and the constant currency forecast for 2010 for the products: ·2009 HW will finish at -11.2%, and will be in positive territory (+3.1% in constant currency in 2010) ·Software will finish at -1.6% in 2009 and will rebound to 6.6% in 2010 ·Services will finish at -5.5% in 2009 and will rebound to 5.2% in 2010 2009 Analysis: One promising indicator is that 65% of the reporting IT suppliers were at or above the model’s forecast or the midpoint of their own explicit guidance vs. 48% in Q209.That means that the model is now missing on the upside which would be encouraging if it weren’t for the currency help.The currency headwind will be slight in Q309.Expect a currency tailwind in Q4 continuing through 1H2010. The Turnaround?: Q409 will be flat against a very poor Q408 with Hardware showing the most movement.Growth in overall IT spending will be positive starting in Q110 with Software getting back on a growth track.However, even with 4.8% constant currency growth in IT spending in 2010, overall 2010 spending levels will still be lower than 2008 until later in the year.
Upcoming reports – Bell-weather vendors reporting next week include the following.The As-reported model isn’t picking up the improving currency situation yet, so we would expect all of them to beat these numbers by ~+2 to +3%: ·Apple - $6.13B (excluding music) ·Lexmark - $895M ·VMWare - $475M ·EMC - $2.911B ·Microsoft Software - $11.950B ·Juniper - $895M Re IBM - Overall we (and the consensus) were light – especially in Hardware. ·IBM Services (Predicted = $13.569B; Actual = $13.772B; difference = 1.5%) ·IBM Software (Predicted = $5.042B; Actual = $5.114B; difference = 1.4%) ·IBM Systems & Technology (Predicted = $3.659B; Actual = $3.917B; difference = 7.1%)
October 7, 2009 Q3 Revenue Reporting Preview
So Far? Disappointing!
Its early in the quarter to draw conclusions, but the first wave of earnings statements for Q3 had a mixture of good and bad news.In the net, I’d call it mildly negative vs. where we thought we were in August.The model slipped -0.1% to -6.6% for 2009.The 2010 model declined to +3.1% from our August estimate of +3.7%.
Lawson, Red Hat, and Tibco met or exceeded the midpoint of their guidance or our estimate of their revenue.Adobe and Accenture came in a little higher than expectation, but both have been very weak all year.
Oracle and Progress had lower than expected revenue growth to report.RIM has light, but they have been on fire all year.The Oracle results were the most disappointing (especially Professional Services) – although Applications wasn’t as disappointing as it has been.
Given currency, vendors with a July 1 to Sept 30 quarter will have a slightly less tough compare with Q32008 than the vendors listed above.However, currency will still be ~2% pt drag overall.
IBM (reporting on Oct 15) will be an important bellweather for Q3.We are expecting the following:
Services - $13,569M
Systems – $3,659M
SW - $5,042M
September 14, 2009 Update
Q309 Reporting Begins
The first Q309 (>50% of their reported quarter in Q3) results are due this week.We’re looking for better revenue results on the basis of less currency drag and some slightly better demand.About ½ the forecasts below are based on the company’s own guidance at their last earnings report.The other ½ are statistically derived from prior Quarterly history.
Ralph Finos Consulting’s current 2009 WW IT Spending Forecast is:
·All spending:-6.5%
·HW: -11.1%
·SW: -0.8%
·Services:-6.5%
If the vendors come in on the forecasted number, then that will have no net impact on the above forecast will not change.If they come in better (or worse), then the forecast will be moving accordingly.
Company
Estimated Reporting Date
Company's Guidance for Q3 ($M)
RFC Model Q309 Estimate ($M)
RFC Model 2009 Estimate ($M)
Note
Adobe
15-Sep
$665-715
$690
$2,871
Oracle
17-Sep
"-3% to -5% in current currency"; no Sun revenue
$5,203
$23,166
Oracle New SW
None
$1,081
$6,779
Oracle Upgrades
None
$3,146
$12,311
Oracle Services
None
$976
$4,076
Palm
17-Sep
None
No estimate made, new product line now selling
Paychex
23-Sep
None
$534
WW BPO Spending Model
Red Hat
23-Sep
$178-180
$179
$725
Progress
24-Sep
$120-123
$121
$492
RIM
24-Sep
$3,450-3,700
$3,580
$14,425
Tibco
24-Sep
$140-147
$143
$598
Accenture
24-Sep
$5,000-5,200
$5,100
$20,878
Excludes reimbursibles
September Total
$15,016
$63,155
% of RFC WW IT Model
10%
August 20, 2009 Update
HP: Good news for Hardware.Bad News for Software and Services.
Worldwide Information Technology Spending Estimated Decline in 1stH 2009 Holds at -11.5%
Adjusting 2ndH 2009 for August Currency, As-reported Revenue for all of 2009 Holds at -6.6%
Expect +3.6% Growth in 2010
Overview – HP results were the big story this past week, basically staunching the bleeding in Hardware, but raising significant questions for Software and Services.The model has been holding steady on a 1stH 2009 WW IT Spending estimate decline of -11.6%.Assuming that the August exchange rates are sustained throughout the 2ndH of 2009, the as-reported 2009 forecast is for a -6.7% decline for 2009 and a modest +3.6% recovery for 2010.HP has done its part to show us the bottom and the way up.Dell is in the clean-up spot, so here’s hoping for some good news from them next week. The SAP and Microsoft results last week hammered the software forecast down.
The revenues of 63 out of 135 (47%) IT vendor business units met or exceeded their forecast Q209 estimates and/or the midpoint of their own guidance (vs. 72% falling short in Q109). Currency has been an important factor in driving down growth for Q1 and most of Q2 (around a -7% impact – depending on the product).However, the comparative strength of the dollar in Q3 & Q42008 will be advantageous for vendors for their Q3 & Q42009 comparisons.So watch for some better than expected as-reported revenue news in Q309 and way better in Q409 – but a significant portion of that will be a currency impact.Watch the constant currency results for the real story.
Product Highlights – The as-reported 2009 forecast (adjusted for August currency) for the products: ·HP results helped raise the 2009 HW Forecast to a -11.4% decline vs. 2008 ·Weak Microsoft and SAP results helped drive Software into negative territory (-0.7%). ·Services weakened to -4.9% vs. 2008.
2009 Analysis: One promising indicator is that 47% of the reporting IT suppliers were at or above the model’s forecast or the midpoint of their own explicit guidance vs. <30% in Q408 & Q109.That means that the model is now missing equally on the downside and upside which indicates that it’s found a stable level.Given the probable YoY currency tailwind in the 2ndH, we expect a majority of vendors to beat their guidance midpoint and the model estimates. BPO and Compute-Intensive Services: BPO is struggling (-1.7% for 2009), largely a function of a -3% decline in compute-intensive processing services (payroll and payments processing) which have declined in the recession. The Turnaround?: Barring a Dell catastrophe, we're getting our feet under us and heading back to the surface. Compared to Q209, both the As-Reported and Constant Currency Models are showing a very marginally less negative Q309 and a discernible uptick almost into positive territory YoY in Q409 (vs. a weak Q408). Judging by vendor guidance, their sentiment is just marginally more positive than in Q2. However, with currency moving back their way, we expect more vendors will beat the guidance midpoints and my models.Look at the constant currency growth rates to get the true picture of how well the market is really doing. 2010 Picture - The 1H09 data thusfar points to a 3.6% growth rate in 2010 in constant currency.The Hardware forecast edged up to +1.1% in 2010. Software will rebound to +7.4% and Services to +3.7%. On an as-reported basis, one should expect better results, especially for Hardware and Services.
Reporting in the Next Few Weeks – Dell (August 27th) rounds up what’s left for the model for this Quarter. Hardware had the pleasant surprises.Two weeks ago, we were looking for: ·Cisco - $8.03B (-23% YoY) – (Cisco came in at $8.54B, 6%pts better than predicted) ·CSC - $4.11B (-7% YoY) – (CSC came in at$3.90, 5%pts worse than predicted) ·HP -$27.01B (-19% YoY, (Including EDS in the comparable 2008 period, the Product model hit the nail on the head - $27.1B.Hardware was better, Software and Services worse than predicted) ·Lenovo - $3.04B (-28% YoY) (Lenovo came in at $3.48B (>10% better than predicted) ·Dell – $12,391B (-25% YoY).
Methodology - The Ralph Finos Consulting WW IT Industry Spending Model uses historical quarterly as-reported revenue data (5 year minimum) and vendor guidance from ~125 publically held North American-based IT vendors and/or their reported business segments to create a statistical forecast for IT industry growth.The aggregate revenue in the model is ~$750B – ~ 50% of annual IT Spending worldwide.Forecasting is done for individual companies and then aggregated to various product sectors.
August 10, 2009 Model Stays the Course
Worldwide Information Technology Spending Estimated Decline in 1stH 2009 is -11.6%
Adjusting 2ndH 2009 for July Currency, As-reported Revenue for all of 2009 to be -6.7%
Expect +3.7% Growth in 2010
Overview –SAP, Cisco, Fujitsu, CSC, Unisys, Symantec, Microsoft, ADP, and Symantec results were incorporated into the Ralph Finos Consulting estimates over the past 2 weeks.The model has been holding steady on a 1stH 2009 WW IT Spending estimate decline of -11.6%.Assuming that the July exchange rates are sustained throughout the 2ndH of 2009, the as-reported 2009 forecast is for a -6.7% decline for 2009 and a modest +3.7% recovery for 2010.We appear to have found the bottom, but its still soupy.The SAP and Microsoft results hammered the software forecast down.HP and Dell will be finishing up the quarter over the next 2 weeks.
The revenues of 55 of 114 (48%) of IT vendor business units met or exceeded their forecast Q209 estimates and/or the midpoint of their own guidance (vs. 72% falling short in Q109). Currency has been an important factor (around a -7% impact – depending on the product) in driving down growth for Q1 and most of Q2.However, the comparative strength of the dollar in Q3 & Q42008 will be advantageous for vendors for their Q3 & Q42009 comparisons.So watch for some better than expected as-reported revenue news in Q309 and way better in Q4 – but a significant portion of that will be a currency impact.Watch the constant currency results for the real story.
Product Highlights – The as-reported 2009 forecast (adjusted for July currency) for the products: ·The 2009 Hardware forecast is for a -13.3% decline vs. 2008. ·Weak Microsoft and SAP results helped drive Software into negative territory (-0.7%). ·Services will be -2.5% vs. 2008.
2009 Analysis: One promising indicator is that only 48% of the reporting IT suppliers were at or above the model’s forecast or the midpoint of their own explicit guidance vs. <30% in Q408 & Q109.That means that the model is now missing equally on the downside and upside which indicates that in the net it’s found a comfortable level.Given the probable YoY currency tailwind in the 2ndH, the comparisons with Q3 & Q408 may look better than they really are. BPO and Compute-Intensive Services: BPO is struggling (-2% for 2009), largely a function of a -4% decline in compute-intensive processing services (payroll and payments processing) which have declined in the recession. The Turnaround?: Compared to Q209, both the As-Reported and Constant Currency Models are showing a very marginally less negative Q309 and a discernible uptick almost into positive territory YoY in Q409.Look for constant currency growth rates to get the true picture of how well the market is really doing. 2010 Picture - The 1H09 data thusfar points to a 3.7% growth rate in 2010.Hardware continues to be punished and will be around 0% in 2010. Software will rebound to +7.1% and Services to +3.4%.
Reporting in the Next Few Weeks – HP (August 18th), Lenovo (mid-August), and Dell (late August) round up most of what’s left especially the hardware story (collectively they represent ½ the Hardware Model).Two weeks ago, we were looking for: ·Cisco - $8.03B (-23% YoY) – (Cisco came in at $8.54B, 6%pts better than predicted) ·CSC - $4.11B (-7% YoY) – (CSC came in at$3.90, 5%pts worse than predicted) ·HP -$27.01B (-19% YoY, if one includes EDS in the comparable 2008 period) ·Dell – $12,391B (-25% YoY) ·Lenovo - $3.04B (-28% YoY)
Methodology - The Ralph Finos Consulting WW IT Industry Spending Model uses historical quarterly as-reported revenue data (5 year minimum) and vendor guidance from ~125 publically held North American-based IT vendors and/or their reported business segments to create a statistical forecast for IT industry growth.The aggregate revenue in the model is ~$750B – ~ 50% of annual IT Spending worldwide.Forecasting is done for individual companies and then aggregated to various product sectors.
Worldwide Information Technology Spending Estimated Decline in 1stH 2009 is -11.4%
Adjusting 2ndH 2009 for July Currency, As-reported Revenue for all of 2009 to be -6.2%
Expect +3.9% Growth in 2010
Overview – Ralph Finos Consulting estimates that 1H2009 2009 WW IT Spending was -11.4%.Assuming that the July exchange rates are sustained throughout the 2ndH of 2009, the as-reported 2009 forecast is for a -6.8% decline for 2009 and a modest +3.9% recovery for 2010.We appear to have found the bottom.
The revenues of 19 of 35 (54%) of IT vendor business units were short of the forecast estimates and/or the midpoint of vendor guidance (vs. 72% falling short in Q109). Currency has been an important factor (around a -7% impact – depending on the product) for Q1 and most of Q2.However, the comparative strength of the dollar in Q3 & Q42008 will be advantageous for vendors in Q3 & Q42009 resulting in as-reported YoY results having much less of a currency drag than the 1st half.
Product Highlights – The as-reported 2009 forecast (adjusted for July currency) for the products: ·The 2009 Hardware forecast is for a -13.5% decline vs. 2008 ·Software is doing relatively OK at +1.9% ·Services will be -2.5% vs. 2008
2009 Analysis: One promising indicator is that only 54% of the reporting IT suppliers were short of the model’s forecast or the midpoint of their own explicit guidance vs. >70% in Q408 & Q109.That means that the model is now missing equally on the downside and upside which indicates that in the net its found a comfortable level.Given the probable YoY currency tailwind in the 2ndH, the comparisons with Q3 & Q408 may look better than they really are. The Turnaround?: Right now both the As-reported and Constant Currency Model are showing a flat Q3 (very marginally positive) and a discernible uptick in Q4. 2010 Picture - The Q209 data thusfar points to a 3.9% growth rate in 2010.Hardware continues to be punished and will be around 0% in 2010 – rescued largely to RIM, Palm, & Apple iPhones. Software will rebound to +7.6% and Services to +2.7%. Reporting in the Next Few Weeks – IBM, Microsoft, Oracle, Accenture, EMC, Apple, RIM, Sun, and CA results are in – collectively with another 15 vendors representing 40% of the model.Fujitsu, Lenovo, CSC are some of the majors coming up soon.HP and Dell (collectively accounting for ~25% of the overall model and a higher % of HW) report in mid-late August.
July 2 WW IT Spending Update Early Returns for Q209 Holding Steady
The small (albeit important) sample of companies reporting their Feb-May Quarters in mid-June had some positive news – they generally hit the midpoint of their weak Q209 revenue guidance (or the model forecast).
For the time being we’ll stick with our current (May 31st) forecasts for WW IT Spending in 2009 (-8.8% as-reported revenue) and 2010 (+3.4%).But these early Q209 results suggest we’ve found the bottom. The bad news is that they are forecasting weaker sequential Q309s - so, the ride still looks bumpy.A steady diet of weaker Q309s from the vendors will hammer the 2010 forecast models, so, we’ll be watching closely. The March-May currency effect helped slightly.The April-June currency impact will do a little more to lessen the currency damage to the YoY compares.
The results so far:
Vendor
CQ209 Result
CQ309 Outlook
C2009 Outlook
Accenture
~+$400M over midpoint of guidance; even with -12% currency headwind
Their sequential guidance is for a decline of ~-$400M revenue.Expect them to come in flat in Q3 vs. Q209.
Currency impact dissipates in Q409, but we’re still looking at -13% in as-reported currency
Adobe
+$5M over midpoint of guidance
Sequential decline of ~$15M
-18% as reported results; -10% in constant currency
Oracle
New sales were ~+$85M of midpoint of guidance; Upgrades -$6M of forecast; Service -$90M of forecast
Sun results will muddy the picture
Sun results will muddy the picture
RIM
+$24M over midpoint of guidance
RIM guidance more modest than forecast
Great growth, but less than forecasted last Q
Tibco
+$2M over midpoint of guidance
Tibco estimate more modest than forecast model
A little weaker than last Q’s model, -7% in as-reported currency
Paychex
-$4M under midpoint of guidance
Model is weakening
-1% as reported, Model is weak
Looking forward, Intel is scheduled to report on 7/14 with IBM following a day later. By 7/24, we'll have about 1/3 of the vendors' earnings reports to feed into the model- so we'll see how we're looking at that point for Q3 & Q4.
New May 30, 2009 Worldwide IT Spending Forecast Update
Dell Disappoints in the Clean-up Spot
2009 Growth Estimate now at -8.8%
Look for a Q209 & Q309 Bottom and Q42009 Uptick
Expect +3.4% Growth in 2010 Model Slips to -10.3% for Q109 vs. Q108 Q209 expected decline to be -11.9% vs. Q208 2009 decline will be -8.8% vs. 2008
With all of the Ralph Finos Consulting IT Spending Market Model Q109 revenue accounted for, the model is baked for this period.We’re expecting a -8.8% revenue decline for 2009.70 of 97 (72%) business unit revenue reports were short of the forecast estimates and/or the midpoint of vendor guidance for Q109. Currency remains an important factor (approximately a -7% impact for Q109) and will continue to pull the forecast down at least through Q209.
We’re expecting slightly worse poor news in Q209 and some encouraging (less poor) results in Q309.Look for real - but small - positive performance starting in Q409 with a return to recognizable growth rates in Q110.
Watch the Currency: The model uses actual reported revenue so it forecasts in current currency rather than constant dollars. Currency has been unfavorable for the past two quarters which helps give the forecast a very negative flavor. However, the USD Index has declined significantly in the past week or two (down ~6% pts. since April1st), so perhaps there will be a bit of a currency tailwind for Q2.
However, even on a Constant Currency basis, the model only switches into positive territory in Q409 (+2% growth over Q408).Q110 is when the Constant Currency and the Current Currency model both will return to mid-single digit growth.
2010 Picture: The Model is estimating a 3.4% growth rate in 2010.Software will lead the way back (+7.3%) with Services (+3.5%) and Hardware (+0.7%) following. . 2009 Analysis: The key downside indicators remain the dominant forces in the forecast picture.To summarize the bad news:
72% (vs. ~70% last quarter) of IT vendor business units reported calendar Q109 results that were short of the model’s projection and/or the midpoint of their own explicit guidance. So the company/product models are still missing on the downside.The Q209 Forecast is currently more negative than the Q109 results, so if we are at the bottom we should see a turn in this gauge (i.e., vendors doing better than predicted).Hopefully we’ll see 50% hitting their numbers in Q209.
Hardware is being punished and will barely be in positive growth territory for 2010. Software has been strong. Services continues to be weak. In comparison, Business Process and Compute Intensive Outsourcing has a -2.4% 2009 growth rate forecast.
On the positive side, a currency tail wind may be forming for Q209
Q22009 early reporters:Accenture, Adobe, Oracle, Red Hat, RIM, and Paychex will report by the end of June. Since they represent ~16% of the Model's revenue, this will give us a preview of how the wind is blowing on the Q209 numbers.
Coming in the next few weeks – Update on the IT Value Migration Model and Industry Profit trends
