Friday, November 14, 2008

Nokia, Sun Highlight IT Woes

It looks like tech isn't immune to the downturn after all. After Intel issued a somber warning earlier in the week, other bellwethers piled on with somber announcements of their own.

Nokia, whose 40% handset market share represents more shipments than the next three handset suppliers combined, took a hard look at recent demand, gulped, and predicted that fourth-quarter industry volumes will decline by about 20 million phones and that next year's shipments are likely to decline as well.

The contagion from this will spread to other sectors, as Nokia said it will cut spending on outside contractors and other professional services, according to InformationWeek.

Meanwhile Sun announced that it will cut up to 18% of its workforce, meaning more than 5,000 employees will lose their jobs. CEO Jonathan Schwartz said that the company is also making significant organizational changes, including the departure of Rich Green, Sun's top software executive.

Schwartz is putting a good public face on the changes by blaming the economy for the company's troubles, but most analysts believe the company was adrift in any case and that this shake-up was coming either way.

Sun may come out of this healthier, but like many of its peers, a lot smaller. ZDNet's Larry Dignan notes:

Sun said that its “new organizational alignment is a recognition of the comprehensive role software plays in the company’s growth strategy.” That’s where you get the Sun paradox–Sun makes most of its money from hardware. The transition is likely to be painful: Sun will have to get smaller as it transforms.
Om Malik outlines the specific changes Sun is making, but has a somewhat rosier view: "leaky oil tankers take a long time to sink, so there is enough time to patch stuff up."

The effects of the downturn aren't limited to hardware vendors. Even Google's seemingly relentless rise may be slowing; reviewing a handful of new analyst notes, Silicon Alley Insider's Henry Blodget says that while no one has turned bearish on the stock, "the tone has changed."

A short-term view is that customers will end up paying lower prices, but there's a cost. As customers cut spending and vendors react by cutting resources, R&D is the first line-item to suffer. And in the long run, that means less innovation and longer road to recovery.

And as John Maynard Keynes famously said, "in the long run we're all dead."

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