PALO ALTO, Calif. (CNN/Money) -
To get a handle on tech spending, sometimes the smaller names tell the best stories.
Sure, Cisco, IBM, Sun and the like offer a window on the tech world. But those big names have all sorts of "levers" available to them to massage performance. The unsung crystal balls are the distributors who sell goods for the big guys, companies like Tech Data (TECD: down $0.73 to $42.30, Research, Estimates), which reported rather dismal financial results Wednesday.
Clearwater, Fla.-based Tech Data isn't some fly-by-night outfit. In fact, it's considered the class act of distributors. It runs a lean operation and sells billions of dollars worth of goods -- some $16 billion worth on an annualized basis -- at relatively puny profit margins.
So what's the outlook?
"We are not seeing any tangible evidence of a rebound at this time," CEO Steven Raymund told investors Tuesday during a teleconference. He relayed the anecdote that about half of Tech Data's sales representatives see increased order activity but that the other half have reported slow going. "There's no identifiable pattern out there to suggest that business is either poised to pick up or for that matter to deteriorate further. It seems like we're fairly steady state at these levels for the moment."
And that steady state isn't so good. Tech Data reported an overall quarterly sales decline of 16 percent from the year-earlier quarter. Results in the U.S. were worse: down 22 percent. In Europe -- the bright spot -- sales were off 8 percent.
Separately, Tech Data offers a window on another situation, the merger of Hewlett Packard and Compaq (HPQ: up $0.24 to $19.24, Research, Estimates). Together, the two companies represent 36 percent of Tech Data's sales. HP hasn't been shy about saying it wants badly to sell more of its gear directly to consumers, in other words, bypassing the likes of Tech Data.
Should HP move down that road, it'd be good news for the new HP and bad news for Tech Data, which is predicting flattish to down sales for the current quarter.
If there was near-term hope for tech stocks, it'd be reflected in Tech Data's performance and outlook. It isn't there.
A phone utility in money-losing upstart's clothing
Have you ever heard of BroadWing (BRW: down $0.65 to $3.05, Research, Estimates), the Big Board-listed company that lost 30 percent of its market value Tuesday and then another 15 percent on Wednesday? If not, perhaps its former name rings a bell, so to speak: Cincinnati Bell.
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RECENTLY BY ADAM LASHINSKY
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That's right, low-flying BroadWing once was a plain old telephone company, one of the handful of local Bell companies that wasn't part of the AT&T system when Ma Bell was broken up in the 1980s.
In 1999, Cincinnati Bell merged with IXC Communications, a newfangled fiber-optic carrier that bulked up on debt, saw its market opportunity go poof, and now is spooking investors with debt-payment worries. It's a smaller version of the Qwest (Q: unchanged at $5.03, Research, Estimates) debacle, where the utility operations of U.S. West are all that's currently good about the debt-ridden company. Regulatory failure? Perhaps. But really it's capitalism at its best -- and worst. Regulated utilities don't fail; go-go telecoms do.
Adam Lashinsky is a senior writer for Fortune magazine. Send e-mail to Adam at adam_lashinsky@timeinc.com.
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