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Big tech companies probably won't catch Wall Street's plague

September 17, 2008 |  2:17 pm
Traders at the New York Stock Exchange Wednesday

Share prices of most of the technology bellwethers closed down today as the U.S. stock market continues to digest the troubling financial news of recent days: Lehman Bros. filing for bankruptcy protection, the feds bailing out insurance giant American International Group, Bank of America picking up Merrill Lynch for a fraction of its value and other banks rumored to be in buyout talks.

It may be a bit premature to ask this question while we are still swirling in Wall Street's vortex of confusion, but will this crisis lead to less spending on products and services from technology companies? After all, the information technology sector is important, and its sudden decline at the beginning of the decade triggered an economic downturn.

Analysts say tech should weather the storm. Spending will be tight for corporate America, they contend, but the right kinds of technology companies should do fine.

Companies are setting their budgets now for the coming year, and they are going to be conservative when it comes to spending, said Scott Kessler, an equity analyst with Standard & Poor's. Still, he said, "technology has become an essential utility for the operation of businesses."

But there will be winners and losers, and ZDNet and others are looking into the crystal ball.

Clearly, any firm that serves Wall Street exclusively has known for a while that it was ...

... facing trouble. For example, look at India's IT outsourcing business. About 40% of the sector, or roughly 180,000 workers, is focused on serving the tech needs of the U.S. banking and insurance industries, said Alok Aggarwal, co-founder and chairman of Evalueserve, a market research company. Mortgage processing operations in India have already shut down after the troubles of Fannie Mae and Freddie Mac.

Although Aggarwal says his firm hasn't been directly affected yet, he too is worried. "There will be banks not spending as much on marketing this year," he said.

Others facing trouble are pure hardware companies, which "will face a higher revenue erosion," said Ashok Kumar, an analyst with Collins Stewart.

And, no matter what they sell, small firms might have a harder go of it. "Companies want to sign on with vendors they know will be around in years to come," Kessler said. "There’s nothing worse than picking a great product from a small company and see a tsunami wash them out to sea."

Ergo, the winners should be the giants, such as IBM, Hewlett-Packard and others that offer a mix of hardware, software and services to a variety of industries around the globe. The crisis on Wall Street could offer an opportunity for any technology or service that helps the financial industry with a changing regulatory environment.

That could be especially true as regulations increase, making companies pine for the good old days of simply tough oversight. "Compared to what it will be like, they will remember this time as one in which they were relatively unfettered," said Ellen Carney, an analyst with Forrester Research.

-- Michelle Quinn

Photo: Traders on the floor of the New York Stock Exchange on Wednesday. Credit: Richard Drew / Associated Press