US fiscal crisis seen hurting tech earnings
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Warning to investors: major U.S. technology companies could miss estimates for fourth-quarter earnings as "fiscal cliff" worries likely led some corporate clients to tighten their belts last month and refrain from spending all of their 2012 IT budgets.
Tech companies usually enjoy a spike in orders in December as corporations use money left over in their budgets to buy goods on their wish lists – information technology products that are nice to have, rather than essential. But the so-called year-end budget flush was not as deep in 2012 as in typical years, according to tech analysts and other experts citing conversations with corporate technology buyers and sales sources.
They said companies held back on IT purchases in December in part because of Washington's protracted negotiations to avoid the fiscal cliff, which is a package of automatic tax hikes and spending cuts that could have pushed the already soft U.S. economy into recession.
It took until late on Jan. 1 for House Republican lawmakers led by John Boehner to agree to a bill to avert the cliff, which President Barack Obama signed into law the next day.
"CIOs and CFOs were not making investments," said Andrew Bartels, an analyst with Forrester Research who advises corporate technology buyers. "If Boehner and Obama had been able to strike a deal by around Dec. 15, we would have had end-of-quarter investments."
Analysts say they expect tech spending to remain subdued through at least the first quarter, as businesses wait to see if Congress can resolve another looming fiscal fight, this time over the debt ceiling and federal spending cuts.
Wall Street has already significantly lowered expectations for the tech sector, which has been underperforming the overall market.
The Street now expects tech companies in the S&P 500 to report a 1.0 percent drop in fourth-quarter earnings, against an average 2.8 percent rise for companies in the full S&P 500. Three months ago, analysts were expecting tech sector earnings to rise 9.4 percent in the fourth quarter, according to Thomson Reuters I/B/E/S.