IT demand is weakening, warns Dell

Credit crunch taking hold…

Two of the biggest computer vendors, Dell and Ingram Micro, warned on Tuesday that demand was weakening, adding to worries that the crisis on Wall Street would hurt corporate and consumer spending.

While neither company mentioned the financial sector specifically, they were the first major US technology companies to warn investors since a series of financial shocks in recent days. Lehman Brothers collapsed, Merrill Lynch is being taken over, and insurer American International Group is fighting for its survival.

Furthermore, analysts expect bleak outlooks for the December quarter.

Cross Research analyst, Shannon Cross, said: "It sounds like things are really starting to slip everywhere. Both consumer and corporate end-demand are slowing. The question is how long it lasts."

She said: "Dell and others in the industry have exposure to the financials, and that impacted them. When you see these failures on Wall Street and the concerns that people have about banks, I think it does cause people to pull back a little on their spending."

Tech shares fell broadly on Tuesday morning, with Dell losing 10 per cent and Ingram Micro down four per cent. Business software maker VMware fell nine per cent and computer memory chip maker Micron Technology plunged 12 per cent.

Dell, the second-largest maker of personal computers behind HP, already posted a steep drop in fiscal second-quarter profit and said in August that customers were holding back on purchasing decisions.

"The company is seeing further softening in global end-user demand in the current quarter," Dell said in a brief statement on Tuesday, ahead of a presentation at a Bank of America investment conference later in the day.

Dell expects to incur costs to "improve competitiveness", reduce headcount and invest in infrastructure and acquisitions but gave no specific financial forecasts.

Ingram Micro, the world's biggest computer products distributor, cut its third-quarter profit and revenue outlook, saying economic softness in the summer was continuing into September and pressuring operating margins.

Ingram Micro chief executive Gregory Spierkel said in a statement: "In Europe, we are not seeing the typical September bounce-back from the summer holidays. North America seemed to be relatively stable in the summer months but we're experiencing broad-based softness in September."