Posted on: Monday, June 11, 2001

Tech slump may go global

USA Today

Tech firms already thrashed by a weak U.S. economy now are warning of a global epidemic, signaling a recovery may take longer than previously hoped.

Compaq Computer stoked worries last week when it was the latest in a string of tech firms to warn that foreign markets, especially Europe, are slowing. And Hewlett-Packard said it might not even be able to meet estimates for flat revenue this quarter because Latin America and Asia, in addition to Europe, are weak.

Tech troubles from overseas are disappointing, because companies and investors had hoped Europe would cushion the U.S. slowdown.

"People (last year) claimed Europe would be immune to the U.S. slowdown," said Henrik Strabo, American Century's chief investment officer of international equities. "That's obviously not the case."

It's unclear how much worse things can get. Market research firm IDC says tech spending growth in Western Europe, which had been estimated at 11.1 percent this year, could drop to just 7.9 percent.

The global spread of tech woes is hard to ignore:

• Compaq, which gets a third of its revenue from Europe, said it doesn't know how bad things will get. The European slowdown could drag on until the end of the year, said Ian Link, manager of the Franklin Technology fund.

• Hewlett-Packard spooked investors by warning China is weakening. Trouble there was a surprise, said John Jones, analyst with Salomon Smith Barney.

• Merrill Lynch last week slashed current-year earnings estimates by nearly 10 percent for Manpower due to Europe's rising unemployment and layoffs. The staffing firm gets 69 percent of its revenue from Europe.

• Prudential Securities warned last week that Europe might be entering an industrial recession.

• Sun Microsystems, a maker of computer servers, and chipmaker Altera both earlier this month warned of foreign troubles.

Link said the European slowdown won't be as severe as that of the United States because European companies didn't overbuy tech goods as much. But Strabo said fixing Europe won't be easy, since rising inflation there limits how much interest rates can be cut to spur demand. According to him, "with the world economy slowing, European (companies) are waiting before writing a big check for a piece of equipment."