News that the mega-vendors reported weaker than expected earnings last week is just one of many signals that this is not just a blip, but indicative of what could end up being a severe and global economic slump, says Info-Tech analyst Scott Bickley.

Bickley, practice lead and principal research director with the firm’s vendor cost and contract optimization practice, said yesterday that global issues such as the ongoing war in Ukraine and the energy crisis it has caused are part of a litany of issues impacting a multitude of sectors, including technology.

A hint of what might lie ahead on the tech front came late last month when Alphabet, Amazon, Meta and Microsoft all reported unfavourable earnings, the result of what organizations large and small are no doubt going to face – a looming recession.

Bickley, who is based in Reno, Nev., said aside from increased energy costs, there are also severe supply chain issues. “People lose sight of the fact that you can have 99 out of 100 components, but if you are missing one critical component, you cannot ship your product.”

An example of that is Cisco Systems Inc., he said, “where lead times, in a lot of cases, are almost over a year, so we are seeing a lot of their competitors pick up market share in the networking space.”

Other signals of a long economic downturn, according to Bickley, include:

A housing market that in the U.S. at least “is in the trash can and not coming back anytime soon, which means all of that economic activity that comes from a robust housing market is going to be depressed.”
Rising interest rates: “The bottom line is that nothing on the macro-economic stage improves until they get inflation under control, and that’s not anywhere in sight right now.”
Declining outcomes in a series of indexes that cover everything from consumer confidence to the buying intentions of purchasing managers. Results are bad, he said – the worst since the last major downturn in 2008 – and getting worse.
IT spending, which, when adjusted for inflation, is shrinking, unlike the seven or eight per cent hike that occurred last year. “It’s really down to focusing on the areas and priorities that IT (managers) are going to be looking at, and where they’re going to spend a shrinking budget.”

It will, he said, take longer than a couple of quarters to see any hint of economic recovery: “My personal take, and I may be a little more bearish than most, is that economically, we are now in a recession.”

As for hiring trends in IT, that could also be mixed. On one hand, said Bickley, the mega-vendors have all “pretty much paused hiring,” however, what is happening among venture capital-funded companies is far more extreme: “They are slashing jobs daily. I mean those guys are getting trashed, and merger and acquisition activity has basically come to a standstill.”

The one glimmer of hope on the hiring front is what he described as an “acute shortage of talent,” in areas such as security, data and analytics, and cloud engineering.

In terms of the channel, much of it will depend on what a VAR or integrator focuses on. If they are selling servers, PCs, tablets, or other devices, they are going to struggle, he predicted: “During COVID-19, everyone had to ramp up to work from home and volumes went through the roof. Now this quarter, PC shipments have dropped 20 per cent. The demand fall-off, combined with supply chain issues, are going to be very, very hard headwinds to overcome if you are a channel partner.”

Bickley’s advice to any VAR or integrator on the software side of the equation: Partner with the mega-vendors such as Microsoft, Salesforce, ServiceNow, VMware and others: “They should lean into their partner program, provide a higher level of value-added services. Also, qualify for deep discounts from those vendors, which they can then pass along to their clients.”

The post Big Tech Q4 earnings proof big trouble ahead on economic front: Analyst first appeared on IT World Canada.

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