Sun and EMC forecasts follow gloomy US trend

A downturn in IT spending in the United States has forced Sun Microsystems and storage vendor EMC to warn of lower than expected...

A downturn in IT spending in the United States has forced Sun Microsystems and storage vendor EMC to warn of lower than expected earnings.

Paul Donovan

However, the vendors and analysts observing them claim that IT spending remains stable in Europe and the UK.

Sun Microsystems now predicts earnings in the third quarter of the year of only $225m (£155m), after earlier forecasting $480m. The company also warns that turnover will increase at between 10% and 13% to around $4.5bn, compared to an earlier growth forecast of 30%.

EMC has also revised its annual revenue forecasts downwards, projecting growth of 25% to 35% to $12bn, after earlier claiming it would grow by between 33% and 38%.

Michael Lehman, vice president of corporate resources and company finance officer at Sun, said, "In our collective experience, we have not seen such a widespread and sudden change in the overall demand picture in the US as we are witnessing today."

He reiterated the company's commitment to increase research and development spending by 20% but confirmed that recruitment was now slowing with predictions that the 1,500 to 2,000 staff taken on in the third quarter would fall to just 500 in the fourth quarter.

Mat Hanrahan, an analyst at Bloor Research, put the poor results down to the slowdown in the US economy, the collapse of dotcom companies and Sun's drive to become a leader in software as well as hardware. "Sun is bound to have been hit by the collapse of so many dotcoms, which has left a lot of kit lying around, so slowing demand," he added.

Charles Homs, senior analyst at Forrester, suggested it was possible to read too much into the Sun results. "The entire industry is going in the same direction and Sun are in a better position than many of their competitors to cope," he said. "Many are using the demise of the US economy as an excuse, but this can be overstated," Homs added.

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