tech market

Network spending forecasts: Where’s the logic?

UBS and other Wall Street research firms are issuing fairly dire forecasts on tech and network spending in 2009. UBS has tech spending dropping a “minimum” of 6-11% in the year, and the consensus for networking (including the service provider space) is a decline of about 10%.

At the same time, the firms are talking about a mid-year recovery in GDP and saying that tech will lead by a quarter, which would mean this is all happening in one quarter of bad news! Wireless spending is expected to be off by 7%.

Frankly none of this makes sense.

• First, there are no credible indications from our Tier One surveys that any provider has actually planned to cut spending in 2009. What has happened is that they have decided to slow-roll projects through the end of Q1 to try to get more visibility on the impact of the economic crisis on their monetization.
• Second, there is very little chance that the spending would dip by 10% even if there were to be a protracted recovery period because operators generally spend in proportion to revenue, and nobody expects carrier revenue to decline at that rate.
• Third, we believe providers would be happy to increase capex in 2009 if they could get a handle on monetization, and it is in the mobile area where they have the best chance.

In the enterprise, we believe there may be more persistent and systemic problems, but again we doubt a dip of 10% would be likely under any set of conditions that have a reasonable probability.

Obama economic moves strengthen financial markets

The Obama economic plan, and economic team, are both taking shape and the Street likes what it has seen. Obama is set to name NY Fed chairman Tim Geithner as Secretary of the Treasury and Lawrence Summers as chief economic advisor. The former set up a major gain in the Dow on Friday.

The Obama camp has announced it will pursue a broad infrastructure-modernization and works program stimulus that could involve more than $600 billion and take two years. Over the weekend, the government decided to rescue CitiBank, removing the risk of a major bank failure from the market and signaling the end of the apparent policy of non-intervention that allowed speculators to hammer stocks without fear of being trapped by good news. The deal will involve U.S. guarantee of certain mortgage-backed assets, totaling over $300 billion and including some commercial mortgage-backed securities that appeared to be the new problem with Citi. The government will also get $7B in new preferred stock.

Many believe that the move was generated by Obama administration intervention, and in particular Geithner’s relationship with Paulson, and this was the strongest signal that there might not be a period of inaction between administrations. The auto industry, reluctant to agree to sweeping changes that Congress was likely to demand in return for a loan, is now lobbying for a loan program to automakers’ finance arms to spur demand again. The Fed is reviewing measures that would pump up the money supply via direct lending, and also lower long-term rates; these would presumably supplement the traditional rate cuts that are now nearly at an end as rates hit 1%. All this has made the markets happy; U.S. futures were higher this morning, Europe was strong and Asia mixed with Japan higher.

What are Yahoo’s options?

November 17 2008 regarding Yahoo.
The Economist has said in print what most people probably have been thinking: Jerry Yang must go. Their criticism is very much our own. Yang and Decker have not developed any meaningful strategy to replace the Microsoft deal they opposed. In fact, you could argue that their approach was to say that if the deal were not done, things would simply go on as before. If true, that type of progress would be unacceptable to shareholders. If not true, then what will be done?

We believe that many Silicon Valley firms believe they are still the “owners” of their own companies, when in fact they’ve done an IPO and are now responsible to shareholders. The problem is that there are few options for Yahoo. One good one that remains is a tight partnership with the telcos.

CIMI Corp. special report on economic crisis

Our report Surviving a Tech Market Nuclear Winter is now available. Click Here for a table of contents and report pricing. This 60+-page planner’s handbook to tech success in today’s challenging financial times covers a wide range of issues of concert to the enterprises and service providers.