Winners And Losers In A Dangerous Economy

The economy is sputtering. The stock market is a roller coaster. And forecasts for IT spending growth in 2009 are lackluster (down to 2.3 percent from earlier projections of 5.8 percent, according to Gartner). Some vendors are saying "Slowdown? What slowdown?" But others are struggling -- either as a direct result of the sluggish economy or from on-going problems that put them in a precarious position to survive a serious downturn. Here's a look at nine companies who's fortunes seem to be going in opposite directions. We also take a look at their stock prices now and one year ago -- proving that stock values aren't always in sync with a company's real value.





Winner: IBM



IBM reported Oct. 16 that sales in its third quarter ended Sept. 30 grew a respectable 5 percent to $25.3 billion while earnings increased 20 percent to $2.8 billion. Big Blue's growth is being fueled by increased demand for its software (sales up 12 percent to $5.2 billion in the quarter) and services (up 8 percent to $14.8 billion). The downside? Sales from the company's Systems and Technology unit -- largely server and storage hardware -- dropped 10 percent in the quarter even after factoring in the 25 percent surge in sales of System z mainframe server products. At least IBM doesn't have to worry about the credit crunch: The company has $10 billion in cash in the bank.

Internet company Yahoo reported Oct. 21 that sales in its third quarter increased a miniscule 1 percent to nearly $1.79 billion. The earnings press release reads like a dispatch from Custer at the Little Bighorn: Cash flow down 24 percent, operating income down 53 percent and net income of $54 million compared to $151 million one year earlier. The will cut its work force by 10 percent or approximately 1,400 by the end of the year. CEO Jerry Yang and other execs blamed the economy for the poor performance. But let's face it, Yahoo's problems are much deeper than that. With Yahoo's stock languishing around $12, investors must be fuming over that spurned $33-per-share buyout offer from Microsoft.

Last month Oracle reported that sales grew 18 percent to $5.3 billion in its first fiscal quarter ended Aug. 31 while net income increased 28 percent to $1.1 billion. The only cloud on the horizon was a slowdown in new license sales for the company's applications. Through acquisitions and organic growth Oracle continues to gain market share in such key areas as database software and middleware. While Oracle isn't immune from a slowdown, its executives argue that in tough times customers cut IT purchases from small vendors and continue spending with core suppliers like Oracle. With Oracle's ability to offer such a ridiculously broad product line, that argument has merit.

Sun Microsystems releases its complete first quarter financial results Oct. 30, but it issued preliminary numbers on Oct. 20 and they are not good. The server and software manufacturer expects to report a net loss for the quarter ended Sept. 30 on sales between $2.95 billion and $3.05 billion -- down from $3.22 billion in the same period one year ago. The company has laid off hundreds of employees this year and seems to be in perpetual restructuring mode, especially as it tries to turn around its troubled storage system and OEM businesses.



As if that weren't enough, Sun co-founder Andy Bechtolsheim, who left the company in the mid-90s and returned in 2004 to help turn the company around, will go to part-time status as he becomes chairman and chief development officer at startup Arista Networks.

EMC reported Oct. 22 that sales increased 13 percent to $3.7 billion in its third quarter ended Sept. 30 -- the 21st consecutive quarter of double-digit growth for the information storage system manufacturer. EMC, which took a hit in the dot-com crash of 2001, so far shows few signs that the sluggish economy is having an impact on its sales. One reason for the company's success is its diversified product portfolio from its many acquisitions. While EMC's core storage system and storage management software business accounted for $2.9 billion of the quarter's sales, revenue from its RSA security software, its content management and archiving business, and its VMware virtualization software are becoming big contributors to the company's top line.

Back in July Lexmark warned that earnings for its second and third quarters would be lower than expected -- and the printer maker hasn't disappointed. For its third quarter ended Sept. 30 the company reported sales of $1.13 billion, down 5 percent from the same period one year earlier, and earnings of $36.6 million (down from $45.2 million). CEO Paul Curlander blamed "a more difficult global economic environment." While its business segment revenue rose 4 percent to $760 million, the company's consumer sales plunged 21 percent to $371 million -- the latter due in part to a slowdown in the inkjet printer market. For the current quarter Lexmark expects sales to be down from last year by a percentage rate in the low-to-mid teens.

When Sybase fell behind Oracle, IBM and Microsoft in the database market back in the 90s, many industry watchers wrote this company off. But through some savvy acquisitions in mobile computing (Mobile 365, Avantgo, Extended Systems, Xcellenet) and business intelligence/data management (Avaki, ISDD, Dejima), Sybase has successfully positioned itself as a software and services company focused on "managing and mobilizing information."



That's paying off: Sybase reported an 11 percent gain in sales to $284.0 million in its third quarter ended Sept. 30 and the company raised its guidance for revenue and earnings for all of 2008. Revenue from the company's messaging operation surged 30 percent to $44.7 million. Even sales of the company's core database software were strong.

In early October German software giant SAP warned that its third-quarter business dropped off abruptly in the last two weeks of September and the company experienced delays in closing deals with small and midsize customers across a broad range of geographies and vertical industries. SAP executives provided few details during a call with industry analysts on Oct. 6: The full extent of the slowdown won't be known until the company issues its earnings on Oct. 28. If customers are putting the brakes on IT spending, SAP won't be the only company issuing warnings about their financial performance.

Cash Machine

It's a Mac, Mac, Mac world. Apple wrapped up its fiscal 2008 on Sept. 27, reporting sales growth of 27 percent to $7.90 billion in the fourth quarter and net income growth of 26 percent to $1.14 billion. Sales for fiscal 2008 increased 35 percent to $32.48 billion and the company has an astounding $25 billion in cash -- two-and-a-half times IBM's stash. But the really impressive numbers are the sheer volume of stuff Apple is selling: 6.9 million iPhones in the fourth quarter, 11 million iPods and 2.6 million Macintosh computers. CEO Steve Jobs acknowledged that he doesn't know what impact the economy will have on sales, but given the strength of the Apple brand most potential customers will wait to buy an Apple product rather buy a cheaper alternative. He's right.