Eurotech: Is The Euro Zone Slowdown Finally Bashing Technology Leaders?

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A man touches a display box at the Intel booth during the Computex 2011 computer fair
Intel's leaked specs of SSDs 710 and 720 makes it one the most powerful competitors in the SSD market.

Eurosclerosis may finally have hit the technology sector.

Last year, CEOs of top companies including Cisco Systems (Nasdaq: CSCO) and Oracle (Nasdaq: ORCL) suggested the European economic crisis would have to temper demand for new products and services.

It didn't happen.

Now, as companies headed by International Business Machines Corp. (NYSE: IBM), the No. 2 computer maker,  Intel (Nasdaq: INTC), the No. 1 chipmaker, and Qualcomm (Nasdaq: QCOM), the biggest designer of mobile chips, report their quarterly results, it's clear the crisis is starting to bite.

As more financials come in, the question is whether the trickle will turn into a torrent.

IBM, which has been selling products in Europe since 1911, reported sales in the sector it labels Europe-Middle East-Africa fell 2 percent, to only $7.6 billion, as sales elsewhere rose respectably. Still, sales in both the UK and Spain rose 10 percent, although they were flat in Germany and fell slightly in France.

Indeed, in the so-called BRICS countries -Brazil, Russia, India, China and South Africa - the Armonk, N.Y. computer services giant reported sales soared 16 percent as those in the Americas rose 7 percent.

Still CFO Mark Loughridge urged investors not to look at Europe as a whole but as a series of separate markets. On balance, I think Europe to me looks pretty stable, he said.

Last year, IBM executives like Loughridge said they believed that even in the financial crisis, customers would still order new technology products to speed efficiencies.

Intel's Eurosales Dropped From Fourth Quarter

Intel, in Santa Clara, Calif., makes chips in Ireland, among other venues and sells to the global market for PCs, servers and, in the future, mobile electronics. While it reported a quarter with flat sales and a 5 percent slump in net income, orders from the PC sector dipped 5 percent.

Surely, some missed orders were from Europe, where the PC sector will likely report weakness. Intel said its sales to the PC sector fell. Meanwhile, analyst Uche Orji of UBS estimates Intel's European shipments fell 8 percent from the fourth quarter to only $1.8 billion, although they rose 8 percent from 2011.

Overall, Europe accounted for 14 percent of Intel's first-quarter results, the second-smallest after Japan's 9 percent. The rest of Asia accounted for nearly 60 percent of Intel's revenue because it's the center of computer manufacturing.

Still, said Intel CEO Paul Otellini, As we look toward the second half of the year...it's looking pretty good, especially because Intel expects to be shipping masses of new chips for smartphones and tablets, an expanding market for Intel, as well as new chips for PCs and servers. Europe hasn't sent up any red flags yet.

Qualcomm's Warning Could Ring True

Qualcomm, the San Diego, Calif., chip designer whose products are in millions of smartphones said second-quarter net income more than doubled to $223 million, or $1.28 a share, as revenue increased 29 percent to $4.94 billion.

Still, Qualcomm projected third-quarter results would be well below forecasts, with the result that its shares dipped nearly 4 percent after regular trading to $64.65. They'd already gained 23 percent in 2012.

Qualcomm's chips go into the mobile phone of virtually every manufacturer, including Europe's ailing Nokia (NYSE: NOK), which is betting the company on its new Lumia phones with Microsoft (Nasdaq: MSFT)'s Windows 8. That entry has been rough.

Europe's other big mobile maker, Sweden's Ericsson (Nasdaq: ERIX) , usually relies upon chips from Texas Instruments (Nasdaq: TXN). TI reports results on Monday.

Clearly, the Eurozone crisis is affecting the technology sector as it heads into the rest of 2012. The questions are by how much the slowdowns be offset by gains in the BRICS and Asia. Stay tuned.

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