Tech companies scramble in financial meltdown

By Jim Finkle - Analysis

BOSTON (Reuters) - Technology companies will be pulling out the stops to sign deals before the September quarter closes next week as customers spooked by the U.S. financial meltdown shy away from spending.

"It doesn't take much to keep people from signing a piece of paperwork because they are worried, and I would say concerns are incredibly high right now," said Rob Enderle, principal analyst with Enderle Group, which advises companies on purchasing technology products.

Some sales could get pushed past September 30, while vendors will be pressured to drop prices, a double whammy for tech suppliers.

AMR Research analyst Kevin O'Marah said that as many as one out of 10 technology deals expected to close this quarter could be postponed or killed due to concerns that the financial crisis will exacerbate existing weakness in the economy.

"You'll definitely see some drop off," O'Marah said. "Somebody who is thinking about a project that is maybe a borderline decision, this could be enough to cause them to say 'hold the presses. Let's just hold that.'"

U.S. investment banks have been selling themselves and seeking new investors, in the wake of mortgage crisis, causing fears to reverberate throughout the U.S. economy that business will slow and credit will dry up.

Technology companies have long had to scramble to close deals in the final days of each quarter, but it is always toughest when the economy is weak.

That is because buyers time their purchases on the theory that hardware manufacturers such as EMC Corp (EMC.N: Quote, Profile, Research, Stock Buzz), IBM (IBM.N: Quote, Profile, Research, Stock Buzz) and Hewlett-Packard Co (HPQ.N: Quote, Profile, Research, Stock Buzz) and software makers including Symantec Corp (SYMC.O: Quote, Profile, Research, Stock Buzz), VMware Inc (VMW.N: Quote, Profile, Research, Stock Buzz), McAfee Inc (MFE.N: Quote, Profile, Research, Stock Buzz) and Citrix Systems Inc (CTXS.O: Quote, Profile, Research, Stock Buzz) price their products like autos. Car dealers offer the steepest discounts at the end of the quarter so they can meet sales targets.

Tech companies generally deny that they discount more heavily at the end of the quarter, but that hasn't discouraged customers from waiting until the closing days of the quarter to sign deals.

Tim Ghriskey, chief investment officer of New York-based Solaris Asset Management, which manages about $2 billion, said that the rush at the end of the quarter tends to affect software makers more than hardware companies.

"Software companies notoriously either make or miss their quarter in the last few days of the quarter. Given the economic environment the risk of missing the quarter has definitely increased," Ghriskey said.

Talk of the economic uncertainty overshadowed Oracle OpenWorld, an Oracle Corp (ORCL.O: Quote, Profile, Research, Stock Buzz) users conference held in San Francisco this week and attended by some 43,000 customers of the world's third-largest software maker.

Nucleus Research analyst Rebecca Wettemann said that some IT managers she spoke to at the conference were delaying signing new deals.

"We were already seeing a push-out of deals in financial services. I think other sectors are now going to be a little bit slower," she said. "If something were already in progress, I think it will continue. But where the decision was going to be made at the end of the quarter, it is likely to get pushed."

Forrester Research expects some technology orders to be pushed out from the third quarter, and the firm expects things to get uglier in the fourth quarter as companies look at how their own business fared in the third quarter.  Continued...