NEW YORK-Technology executives around the world are preparing
for economic troubles to deepen.
Many hope that their products will prove indispensable for
customers and see emerging economies as sure-growth markets.
But low- and middle-income US consumers are struggling, and
the relative strength of US corporations may not last, executives said at the
Reuters Global Technology, Media and Telecoms Summit in Tokyo, Paris and New
York this week.
Virgin Mobile USA Inc., the prepaid mobile phone service
company, expects economic problems to last into the first half of next year for
its mostly young customers.
Oil - and gasoline - prices keep breaking records, groceries
are taking larger chunks of paychecks, and the mortgage crisis is still
shuddering through the US economy. That is especially difficult for low- and
middle-income groups, said Virgin Mobile USA Chief Executive Dan Schulman.
"People are really and truly trying to make ends meet at the
end of the month," he said. "There are debts to be paid."
Far beyond Main Street, the Wall Street banks and other
financial titans will need room to raise new funds, since credit is tight, said
Rick Simonson, chief financial officer of cell phone maker Nokia Oyj.
"It seems since last summer people have been trying to call
the bottom for financials. It seems they haven't quite been found yet in terms
of the restructuring and the capital raising that has to go on there," he said.
And even those who see a relatively strong corporate America
still investing in products to cut risks or improve efficiency are girding for
tougher times.
"If you read some of the written stuff, you would've expected
that the US basically spent absolutely no money in technology, and that is
absolutely not true," said John Chen, chief executive of software maker Sybase
Inc.
But he is not planning on an economic revival in the second
half of the year. "I have to prepare. When I run a business I have to assume
that it's not going to be pretty," he said.
Fujitsu Ltd Senior Executive Vice President Chiaki Ito said
he was concerned that the costs of absorbing the crisis in subprime mortgages -
the risky home loans that have gone bust for many US and U.K. lenders - could
divert government funds usually spent on technology.
"I am extremely worried about the indirect effects of the
subprime problem," he said. Meanwhile, manufacturing faces risks from rising
food and fuel costs. "If costs go up, this could trigger a recession," he added.
Technology was expected to outperform all rival sectors in
the S&P 500 index in the second quarter, even though earnings won't be as high
as Wall Street initially targeted, according to Thomson Reuters data.
Second-quarter earnings growth of 15 percent was seen decelerating to 12 percent
in the third and fourth quarters and rise to 18 percent in full-year 2009.
Still, the case of economic nerves has spread to many
customers, executives agreed. "Most of the presidents (I've spoken to) have
expressed concerns," said Tadahito Yamamoto, president of Fuji Xerox, the office
equipment unit of Fujifilm Holdings Corp.
Hope - and success so far - for many companies is based on
smaller economies that are increasingly investing at home.
US companies with wide international exposure like
International Business Machines Corp. have benefited from stronger economies and
a weak dollar. Big Blue says that infrastructure projects in the developing
world are key.
"If I were in a business model where I needed double-digit
growth out of the G7 to drive my performance, I would be in a cold sweat," said
IBM Chief Financial Officer Mark Loughridge, referring to the Group of Seven
nations.
But Loughridge said an economic tremor in such big, advanced
economies would not necessarily be felt by emerging ones. "I personally see less
kind of linkage, dependency between the established markets and the high-growth
markets," he argued.
Indeed, telecoms company Telstra Corp. Ltd. said the
Australian economy was booming. "They can't hire enough people," chief executive
Sol Trujillo said.
In addition, many technology executives cling firmly to the belief that their
products are must-haves - whether they are cell phones that are kept when home
phones are canceled, software to make vast computer "server farms" handle more
work with less energy, or services to fend off vicious new attacks from hackers
who are trying to steal money rather than just make trouble. -Reuters
