Technology companies hit by Wall Street turmoil
Technology and information providers, already grappling with penny-pinching customers, were dealt another blow this week with the bankruptcy of Lehman Brothers and the takeover of Merrill Lynch, reports Reuters on eWeek's Web site
Losing two venerable Wall Street firms and big spenders for cutting-edge technology is troubling for the tech industry's biggest players, which have been coping with companies scaling back budgets for software and hardware upgrades this year.
Research firm Financial Insights, owned by IDC, said information technology budgets for hardware, software and tech services shrank by 6 percent due to Lehman's collapse and Merrill's sale to Bank of America.
"The number of potential customers continues to shrink, while institutions themselves become more complex," Financial Insights wrote in a report.
The technology staples of Wall Street ? Cisco Systems Inc. for networks, EMC Corp. for data storage, IBM Corp. for services, Microsoft Corp. for software ? are all likely to face some loss of business.
"Companies started cutting back information technology budgets a while ago so they are already pretty thin," said Forrester Research analyst Ellen Carney, who looks at the financial services market. "The writing has been on the wall."
But while tech companies cannot escape the impact from the financial sector meltdown, analysts said they could benefit to a certain degree from work on integrating computer systems at banks like Bank of America Corp.
Also, for the vendors a merger can often lead to a struggle that sees one end up with a larger business while another risks being squeezed out altogether.
For example, Bank of America uses SAP AG for its business software, while Salesforce.com has a contract with Merrill to provide a similar service to 25,000 of its employees.
Salesforce declined to comment on how it will be affected by the Merrill buy-out and Lehman bankruptcy.
The financial sector will continue to spend, according to analysts, although the focus may not be on buying new computer equipment but investments for projects to make systems work more efficiently and software to help decision making.
Virtualization software, which allows a single computer to act like multiple machines, remains a hot area of spending because it helps companies save money and get the most out of existing equipment. Virtualization leader VMware Inc. and Microsoft, which built virtualization technology into its new computer server software, are expected to benefit.
Another area of heavy investment is expected to be business intelligence or analytics software, which helps executives make decisions. Major corporate software providers like SAP, Oracle Corp. and Microsoft are trying to integrate those features into their business software.
"(Wall Street firms) still need to invest in the competitive tools to remain productive," said Sean O'Dowd, a senior analyst at Financial Insights.
O'Dowd notes that commercial banks tend to spend more on basic technology than investment banks, who invest more in high-growth, advanced technology. Specifically, Bank of America has a reputation for building its own technology versus buying from outside vendors.