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February 16, 2009updated 19 Aug 2016 10:06am

Recession hits IT

There has been a period of considerable disquiet on the financial markets of late, especially in the technology sector. While economies around the world are considered to be in some kind of melt-down, it's not only disappointing financial results

By Jason Stamper Blog

There has been a period of considerable disquiet on the financial markets of late, especially in the technology sector. While economies around the world are considered to be in some kind of melt-down, it’s not only disappointing financial results that have unsettled the IT market.

Earlier this month the co-founder and chairman of Indian outsourcer Satyam admitted to a multi-year, $1.4bn fraud reminiscent of Enron. In a quite remarkable five-page resignation letter, R. Ramalinga Raju confessed seemingly all, and claimed that he alone was in on the con. He said once he had begun the deceit, “It was like riding a tiger, not knowing how to get off without being eaten.”

He and his brother, Satyam’s managing director, are now behind bars while the fraud is investigated. Observers are also asking how Satyam’s auditors, the Indian branch of PriceWaterhouseCoopers, failed to spot the financial black hole. Satyam, by the way, is Hindi for ‘truth’.

But that’s not all. The press has also been full of news of large rounds of layoffs. Oracle is believed to have shed up to 500 from its North American operation, and Google, Sun, Microsoft and Seagate, to name a few, are also said to have made or be on the verge of making swingeing staff cuts.

The recession is clearly starting to hit the IT sector… [click continue reading for more]…

The UK subsidiary of telephone equipment maker Nortel went into administration, after its parent firm filed for US bankruptcy protection earlier in the month.

Nortel Networks UK, which is based in Maidenhead, said it had appointed Ernst & Young as its administrators. Nortel employs about 2,000 people in the UK, out of 30,000 worldwide. However, the administration order also applies to the firm’s operations in 16 other EU countries. All firms will operate normally while a restructuring plan is completed.

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Nortel is a key Olympic sponsor in the UK. Its deal with the London Olympic organising committee is believed to be worth about £40m in cash and services towards the 2012 games. An Olympics Committee spokesman said they were, “aware of the situation” and would, “work through it with Nortel”.

It’s not just networking and telecoms that is feeling the pinch. Intel’s preliminary qaurterly figures were disastrous. Preliminary fourth quarter results showed revenue down 23% year on year to $8.2bn, even lower than its previous expectations, as a result the company said of, “further weakness in end demand and inventory reductions by its customers in the global PC supply chain.”

You needn’t go far to find out why. Analyst firm Gartner said the PC industry suffered its worst growth rate since 2002 in the fourth quarter of 2008, as worldwide shipments totalled just 78.1 million units. “The US experienced steeper than expected shipment declines due to the recession,” said Mika Kitagawa, principal analyst for Gartner’s Client Computing Markets group. “The Europe, Middle East and Africa (EMEA) region was also affected by the economic slow down across key countries.”

Related sectors like peripherals will similarly be affected. Lexmark International warned its fourth quarter results will be lower than expected, for instance.

There was good news at least for open source maven Red Hat. Its quarter announced just before Christmas saw sales up 22% to $165.3m — still tiny for the open source market’s poster child, it must be said — while net income rose to $24.3m. During the quarter, Red Hat acquired Israel-based server and desktop virtualisation software developer Qumranet for $107m.

There have not been many notable acquisitions of late, given the economic climate. Just before the year-end, CA fleshed out its identity and access management product stack further with the acquisition of New York-based Orchestria, a niche player in the data loss prevention (DLP) market.

Indian IT services provider Wipro Technologies will acquire Citigroup’s arm, Citi Technology Services, for an all-cash offer of $127m, while Aladdin Knowledge Systems, an Israeli security company behind one of the most widely used USB-based authentication systems, was acquired by private equity firm Vector Capital in a deal worth $160m.

Israel-based Check Point agreed to acquire Nokia’s security appliance business for an undisclosed sum. More than 220,000 Nokia appliances have been installed at over 23,000 customers worldwide, but Nokia clearly didn’t see the appliances as core to its business.

In January, Sun Microsystems bolstered its cloud computing capabilities with the acquisition of Belgian organisation Q-layer, on undisclosed terms. Q-layer is said to automate the deployment and management of both public and private clouds (see this month’s CBR feature, Cloud Collaboration, for more on cloud computing).

Finally Autonomy acquired Interwoven for $775m.

This article first appeared in the January print issue of CBR.

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