Europe and Asia Will Play Spoiler to a Late-Year Rebound - TheStreet

Europe and Asia Will Play Spoiler to a Late-Year Rebound

It will be more of a slide than a dive, but overseas tech markets are sinking.
Author:
Publish date:

Carly Fiorina said it months ago. Michael Capellas andScott McNealy threw their hands in the air and provided the amen chorus. It's not only the U.S. economy that's melting down. Hexed technology companies insist that even a second-half recovery in the U.S. won't be enough to offset slowing growth in Europe and Asia.

In the past two weeks, hardware makers have reiterated the evidence brewing for months that sluggish conditions in the U.S. have spread around the globe. The latest economic data coming out of Europe, as interpreted by

Morgan Stanley

, show growth tapering off from 3.3% in 2000 to 2.2% in 2001, a more reasonable descent than the U.S.

GDP's stunning stop from 5.0% growth in 2000 to 1.1% growth in 2001. But Asia is beginning to catch on as well, as the

Pacific Economic Cooperation Council

predictions blame stingy U.S. spenders and economic shockwaves for a decline from 5.7% growth last year to an estimated 2.9% in 2001.

Merrill Lynch's

chief investment strategist, David Bowers, says that "investors may be surprised at the extent to which the global economy weakens in the second half of the year," especially given what he observes is "the growing sense that the worst of the global slowdown is behind us." Pay attention to our neighbors: Europe and Asia will spoil the rebound.

Still, it's likely to be a kinder and gentler slowdown outside of the U.S. In a June 4 report, Morgan Stanley described a softer decline for the Continent, saying "the magnitude of the pullback in Europe will not match that of the U.S. given European spending did not reach the 'feverish' rate of the U.S."

U.S. hardware stocks have declared the idea of an overseas slowdown the gospel truth over the past two weeks, after

Sun

(SUNW) - Get Report

blamed deteriorating conditions in Europe in the past two months for a poor upcoming fourth quarter and

Compaq

(CPQ)

Wednesday said the European outlook was worsening. Also on Wednesday

Hewlett-Packard

(HWP)

widened the scope of its laments, issuing a warning that

disappointing Latin American and Asian sales would hurt its third-quarter results. H-P cautioned about

European softness in February.

Following suit this week, market researcher

IDC

took down its forecast for worldwide computer sales from the previously expected 10.3% growth to only 5.8% for 2001. IDC highlighted as contributors a fall in European consumer spending and the deceleration of Asian buying after two good years.

Computer hardware isn't the only technology sector suffering from

European exposure. As in the U.S., telecom-equipment makers were on the front lines of the slowing.

Ciena

(CIEN) - Get Report

faced concerns about the viability of some of its customers last fall and rivals

Nortel

(NT)

and

Lucent

(LU)

have suffered from exposure to another region filled with weakened customers. Wireless handset provider

Ericsson

(ERICY)

threw anticipated slowing European cell-phone sales into its cauldron of troubles this spring.

Additionally, a jumble of companies from long-distance/broadband provider

XO Communications

(XOXO)

to Internet pioneer

Excite@Home

(ATHM) - Get Report

have

canceled plans to expand into Europe, based on their own cash crunches and a soggy outlook for economic success on the Continent.

UBS Warburg

Global Technology Strategist Pip Coburn says companies may be going overboard in blaming the economy for the bulk of their woes, however. "The No.1 problem right now is that we're in a transition between technologies -- old world to new world. We're going from voice to data, midband to broadband, circuit-switched to packet-switched," he says, adding that technologies may take several years to roll out, stock market impatience be damned. "If you're H-P or Sun or Dell you're not apt to talk about

that, you'll say the economies are slow. Because if you talk about a secular slowdown, a major delay between transitions, people start applying lower multiples to your company. You're not going to hear that the PC is going to erode away, and it's no longer a long-term investment theme. People are not saying that, not Carly Fiorina or Scott McNealy."

Notably absent from the cackling is

Intel

(INTC) - Get Report

, which held its second-quarter revenue guidance

steady Thursday after the market closed. Intel CFO Andy Bryant pointed out that the U.S. was still too weak to help the numbers, but that Intel hasn't "seen any geography surprise us with a big step down or with softness." Intel pointed to European troubles when it warned of a first-quarter shortfall in March.

It will take more magic than anticipated to pull off those second-half rebounds, with Europe and potentially Asia piling on the troubles.