Chip makers, which supply the entire IT hardware industry, are drowning in inventory too. Share prices are unlikely to recover before investors are able to discount a meaningful improvement in inventories. One early indicator of this, which has yet to occur, would be a clear peak in the inventory growth of semiconductors. Given the scale of the problem, the inventory problem may take several months to conclude. Between them, Alcatel and Ericsson have more than 10 billion euros of reported inventory.
Software is virtually free of stockpiling.
But it is not immune to a downturn in IT spending. Even Oracle, the database giant with a strong presence in e-business applications, has joined the list of tech companies to guide estimates down. True, degrees of safety exist. Programs that help businesses cut costs may prove more appealing at this stage of the business cycle than those aimed at boosting revenue. Big software houses also argue they will capture more spending now than smaller upstarts.