IT Leaders Optimistic Heading Into 2004

All we want for Christmas is a recovery. And according to the IT industry's top executives, we may just get it.

Speaking at the Raymond James IT Supply Chain Conference Thursday, Dec. 11, top executives from some of the largest and most important technology companies said they see small, but definitive, improvements in IT spending and the overall economic condition as 2003 comes to a close. Several chief executives and financial managers were optimistic heading into next year.

Distributors such as Ingram Micro and Tech Data said they see tangible signs of improvement in business. Ingram Micro president Mike Grainger said the company was seeing positive demand in several technology areas and that regions such as Europe were improving. "Security is hot. Storage is good. Laptops are good," he said. "And Europe is doing really, really well."

In addition, Kent Foster, chairman and CEO of Ingram Micro, said his company reaffirmed its fourth-quarter guidance of $5.7 billion to $5.9 billion with earnings between $0.21 to $0.24 per share. Foster said Ingram Micro is continuing to expand its growing components business in North America, which he saw as a lucrative area because of the strong white-box market.

Ingram Micro's largest rival, Tech Data, also offered a positive outlook for next year. The company last month reported a 15 percent revenue increase year-over-year for its third quarter thanks to stronger IT demand.Tech Data chairman and CEO Steve Raymund told attendees that the shift from channel sales to direct sales among vendors has stabilized, which has been a major concern for the distribution market this year. In fact, Raymund said Tech Data's HP sales, which represents the largest portion of the distributor's business, have increased.

Raymund also said his company has benefited from consolidation in the distribution market, such as the exit of Daisytek to Chapter 11 and HP's decision to reduce its number of distribution partners in Europe. As a result, Raymund said, Tech Data is looking at making more acquisitions in 2004. "We're kicking lots of tires out there," he said.

The world's largest PC company weighed in on the economy as well. Dell CFO Jim Schneider said IT demand is picking up, as displayed by Dell's impressive PC sales, and that the economic environment is much more positive than it's been in some time. "We do see the market improving," Schneider said. "We've seen five consecutive quarters where we are seeing reasonable year-over-year growth."

Schneider said that notebooks, which typically have higher margins, are replacing desktops, a view shared by distributors and customers alike attending the conference, such as Ingram Micro. However, Schnieder said he would like to see several quarters of growth before declaring the upturn is here to stay.

A keynote panel moderated by CMP Media's Technology Solutions Group president Robert Faletra discussed emerging trends for IT spending. Ron Melnyk, CIO of Kasper, a New York-based company that produces the Ann Klein brand of apparel and retail shops, said that his company is replacing aging desktop PCs with notebooks. "The mix is changing; we are moving a lot more toward laptops and mobile computing," Melnyk said.Meanwhile, the general consensus of distributors and solution providers is that enterprise growth will be in the single digits. That's a vast improvement from this year where spending was flat, if not slightly down, and 2001, where spending was sharply lower. Kasper, a $500 million company, will increase IT spending by slightly less than 2 percent, bringing its IT budget in at $9 million. A key part of that budget will go to consolidating servers, deploying business-intelligence software from Information Builders to better monitor the performance of the business and integrating software using IBM's WebSphere suite.

Other executives also highlighted growing demand for bellwethers such as PCs and microprocessors. Ray Sadowski, senior vice president and CFO at Avnet, said Avnet has seen improvement in semiconductor sales. Sadowski also said his company's first-quarter fiscal 2004 results represented the largest year-over-year revenue increase,11 percent,in about three years, giving the distributor cause for optimism.

In addition to vendors and distributors, solution providers also chipped in some optimism. Dendy Young, chairman and CEO of GTSI, says the growth in government spending on IT has helped his company thrive. "The government market we're in doesn't have huge ups or downs. It just increases year-over-year, and that's a good market to be in," Young said. "We see a lot of pent-up demand [with the federal government] and no concern for the deficit."

In addition, Young said he saw growth with some of his top vendors, such as Sun Microsystems and Panasonic. Young also said his company has gotten a boost from the seasonal upturn in government spending on IT. "We do more business in the last day of September than we do in the entire month of January," he said. "It really is Christmas."