This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

China Slowdown's Ripple Effect on Foreign IT Vendors

TAIPEI ( TheStreet) -- Tales about the slowdown in China's economy have maundered on for two years and we all must have priced it into our positions by now, I thought lazily this week. That jaded view was suddenly shattered by a new report.

The slowdown from breakneck growth of 9% to 10% over the decade from 2001 is squeezing real businesses, according to evidence from tech industry market research firm IDC. The American market research company forecasts IT spending growth of 9.5% in China this year, down from a previous prediction of 12.9% growth and a "sharp" deceleration compared to the past four years. Watch out if you sell PCs, servers or IT services to China.

China's GDP is supposed to grow 7.8% this year, the International Monetary Fund says. Also, just for statistical fun: IDC says worldwide IT spending will rise 4.6% this year, less than a previous forecast of 4.9% and last year's 6%.

Managers of large firms in China can cut IT spending, from the boss's new BlackBerry to replacement of an entire office-wide system, as that cost-cutting technique is "easily scalable," says Jay Jacobs, research analyst with Global X Management in New York.

"A slowdown in China is certainly putting negative pressure on revenue in the region, and in order to keep profitability I am not surprised to see a reduction in IT spending," Jacobs says, anticipating a shift from initial investment in new technology to replacement of existing systems. "This makes it easier for companies to cut back on expenditures and simply extend the life of their existing IT infrastructure."

About 10% of global IT spending takes place in China, where some 600 million people use personal computers and 1.2 billion (most of the population) have mobile phone accounts. Specifically, IDC says, China makes up 16% of world PC spending and 23% of smartphone spending.

Stephen Minton, vice president with the IDC Global Technology and Industry Research Organization, calls China's cutback on IT outlays part of a "classic spending reduction cycle" in response to the broader slowdown.

That means making PCs and servers last longer and extending upgrade periods, Minton says. He says this trend already showed in the first half of the year.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AAPL $94.27 -0.76%
FB $101.00 1.47%
GOOG $684.12 0.89%
TSLA $143.67 -3.09%
YHOO $27.10 1.04%


Chart of I:DJI
DOW 15,914.74 -99.64 -0.62%
S&P 500 1,851.86 -0.35 -0.02%
NASDAQ 4,283.5920 +14.8290 0.35%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs