Recession Expected to Hit Telecom in Second Half

Communications Equipment, Software to Absorb Biggest Impact

The cutbacks are coming. When the Dow dropped its worst-ever 777 points this week, it dragged with it stocks of every kind ─ except shares of Campbell’s Soup. (After all, what tastes better after a horrible day than comfort food? And cheap comfort food at that. Or are we just preparing for more soup lines?)

That said, certain tech companies – equipment makers and software developers in particular – might want to heat up some chicken noodle and decompress. Analysts say continued market uncertainty has enterprises and SMBs on edge, and that they’re likely to re-think their communications spending in the months to come.

How many quarters might this last? No one knows. And the longer people are uncertain about the economy, the more conservative business spending on all expenses, including communications services and gear, is likely to be. And the longer that lasts, the more uncertainty there will be on Wall Street, which affects stock prices for tech companies, among others.

Telecom Stocks Dive

Wall Street indices kamikazed on Sept. 29 after the U.S. House rejected the controversial $700 billion bailout bill – now conveniently re-spun as a “rescue package” – to save the financial services sector. A survey of 26 key tech stocks showed that only one – Clearwire Corp. (CLWR) – rose. The rest dove.

In terms of percentages, losses ranged from a low of 2 percent (Virgin Mobile USA) to a high of 18.66 percent (Dish Network Corp.). No matter whether the company in question was a service provider, an equipment vendor, a content developer or a MVNO – it took a hit. The situation improved on Sept. 30, however, as the Dow, Nasdaq and S&P bounced back a little amid new attempts at a bailout – or whatever you want to call it.

Whatever happens, money will be hard for companies to come by. Heck, if AT&T Inc. (T) is having trouble selling its short-term debt, what does that mean for a second banana like Vonage Holdings Corp. (VG)? And that trend looks to continue, just as business users look to keep closing pocketbooks.

“A business might not feel any kind of crunch today, but the moment they need money to fund a new CRM solution or to fund new network gear, the price they’re going to have to pay for it is something they’re not going to tolerate,” said Steve Hilton, vice president of Yankee Group’s Enterprise Research unit.

If Congress takes the wrong turn on the bailout – and of course there’s division over what’s right and wrong in all of this – America’s credit crunch could last for months or years, sources said. And while the expected two quarters of negative real GDP growth didn’t materialize in the first half of 2008 as many economists had forecast, the downturn is expected to arrive in the second half of 2008 and carry through 2009, according to Forrester Research Inc. (FORR). And that downturn will continue to slow businesses’ technology spending.

“Computer equipment will bear the brunt of the slowdown in 2008, but network equipment and software purchases, while still growing, will see slower growth in 2009,” wrote Andrew Bartels, vice president and principal analyst for Forrester, in a Sept. 24 report on the IT market outlook. Forrester analysts weren’t available for an interview on the final day of the third quarter.

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