Updated from 9:49 p.m. EDTWith the earnings season just a week old, hopes of an imminent tech turnaround are fading as some of the industry's biggest hitters acknowledge that IT spending is still far from healthy. Despite solid results from Apple ( AAPL), eBay ( EBAY) and Google ( GOOG), there is still plenty of unease in the sector. "We remain more cautious than most about the state of the world economy," said Microsoft ( MSFT) CFO Chris Liddell during a conference call to discuss the company's third-quarter results Thursday. "We believe that the recovery will be slow and gradual -- trading conditions will be difficult through this quarter and possibly the rest of this calendar year." The software giant, which registered its first-ever year-over-year revenue decline, took a hit from weakness in the global PC and server markets, although revenue from enterprise customers remained stable. EMC ( EMC) CFO David Goulden described the economy as "unprecedented and unpredictable" during a conference call to discuss his firm's first-quarter results. "In Q1 we saw customers carefully scrutinizing what they spent and only buying what they need," he said. Storage has traditionally been perceived as one of the more recession-resistant parts of the tech sector, thanks to firms' explosive data growth, although EMC missed analysts' first-quarter revenue estimate and saw its profit plunge 23%. Chipmaker Texas Instruments ( TXN) also saw its first-quarter profit and revenue tumble on shrinking demand, but beat its expectations. Texas Instruments CFO Kevin March told The Street.com that his firm saw continued strength in 3G base-stations, and growing demand for notebooks, some handsets and LCD-based high-definition TVs. This growth, however, was all in Asia.
March was unwilling to predict when the broader tech turnaround will finally hit. "It would probably be too early to give that just yet," he said. "We would like to see that increase in demand in other end equipment and other parts of the world -- we still don't have tremendous visibility from our customers." Talk of a broad-based tech turnaround may have been premature, particularly considering the scale of the economic downturn. The International Monetary Fund (IMF), for example, warned this week that the global economy will shrink 1.3% this year, with a slow recovery only taking hold next year. Pat O'Malley, the CFO of hard-drive maker Seagate ( STX) told TheStreet.com that customers are still getting over the impact of last year's economic meltdown, which he described as a unique and "scary" time. "Ninety days removed from that period of high uncertainty, there's more certainty, but it's not where we want it to be," he said, adding that he is hopeful of a recovery. "The capital markets are starting to fix themselves; from where I was 90 days ago, I feel much more comfortable." Seagate met analysts' sales guidance but swung to a $273 million loss in its third-quarter results. O'Malley has noticed amid the recession is that Seagate's tech industry customers are buying smaller drives for netbooks, notebooks and desktops. "We had a lot of demand," he said. "People don't stop creating storage, but they are saying 'give me a lower-capacity drive.' "
Other parts of the tech sector are also feeling the pinch, with networking specialist F5 Networks ( FFIV) seeing a 3% year-over-year decline in second-quarter revenue. "Trying to call it right now is very, very difficult," John McAdam, the F5 CEO, told TheStreet.com. "There's no question that data center spending is tough and it's hard for me to believe that it's not going to remain
like that during the year." Like many tech firms, F5 saw fluctuating demand throughout the quarter, although the company managed to push its operating margins above 27%. Our product gross margins are very, very strong and we're still hitting a reasonable revenue line," he said. "I don't think it's all doom and gloom." Despite a harsh economy there were other hints of confidence elsewhere across the sector. Tech bellwether IBM ( IBM) missed analysts' first-quarter revenue estimates, but reiterated its bullish 2009 earnings guidance. IBM did not offer second-quarter revenue guidance but CFO Mark Loughridge repeated the company's commitment to 2009 earnings of $9.20. "If anything, I feel more confident about that today than I did a quarter ago," he said, during a conference call Monday. Even EMC, which saw its first-quarter revenue decline 9.2% year-over-year, thinks that tech spending is coming back, albeit slowly. "I do believe that we're at or very near the bottom from an IT spending point of view," said Joe Tucci, the company's CEO. "Q2 will continue to be sluggish but the second half of the year will improve."
With customers' restructuring programs maturing and U.S. government stimulus packages kicking in, EMC foresees a flat sequential second quarter, but a stronger last six months of the year. Clearly, the tech turnaround will be a marathon, not a sprint.