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Posted by Andrew Bartels on August 19, 2011
Picking through economic news this week (French and German growth numbers; financial market turmoil; scattered US indicators) and the vendor announcements from Dell, HP, Lenovo, NetApp, and Salesforce.com, four trends emerge:
Meanwhile, the latest vendor earnings announcements confirm that the European tech market is in decline. Measured in euros, Dell's European revenues were down 13%, HP's down 7%, and NetApp's down 5%. These results are for quarters ending in July, so include that month. For all 45 vendors that we track (including those whose fiscal quarters ended in May or June), European revenues in euros were down 1%, with expectations of another decline of 3% in Q3 2011. For US vendors, the fact that the euro's value against the dollar was 13% higher than in Q2 2010 offset some of the sting. But the reality is that the European tech market is already in decline.
On the vendor front, it was a mix of really good news and poor news. HP's revenues from sales to US businesses and governments rose just 1%, while Dell's fell by 7%. On the other hand, Salesforce.com's US revenues rose by 41% and NetApp's by 29%. For the 45 vendors we track, Q2 2011 US revenues were 7% higher than the year before -- down a notch or two from the 9% growth in Q1 2011, but still strong. Overall, computer equipment revenues were up just 2%, with communications equipment revenues up similarly, but software revenues rose by 11% and services revenues by 8%.
We also got an answer to the question of why the Bureau of Economic Analysis's revised data on business investment in software showed a small 2% increase in 2010, when all other indicators were showing stronger growth. It turns out as I had suspected that the cause was a decline in what is called "own account" software, or software created by a business for its own use. We exclude that from our count of software, and include that in our data on IT staff salaries and benefits (which is how "own account" software is valued). Excluding own account software, business investment in commercial software rose by 5% in 2011 -- not quite as strong as the 8% growth that large software vendors' US revenues showed, but closer.
As long as Apple remains focused on the consumer market, Windows PC makers still have a good opportunity in the business and government market, where employees generally need the full functions of a PC, and not the more limited capabilities of a tablet (which may serve as a complement to the employee's PC). That would suggest HP should be considering ways of retaining its corporate PC business while spinning off its consumer PC business. Of course, that may not be feasible, given the common development and production systems for both. Moreover, since Apple is starting to move more aggressively into the business market, Windows PC makers will start to feel some pressure there as well. Overall, though, I think HP's strategy should be to exit the consumer business, not necessarily the PC business.
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