IT vendors' September quarters could be very rocky

Edit: I followed this up October 6 in a note to Slashdot, after more data came in.

Back in the 1980s, I was a tech stock analyst. Indeed, I was the top-ranked computer software & services industry analyst -- they were lumped together into a single category then! -- in 1984.

That was a different era in many ways. $200,000 was a very large software purchase contract. IT spending overall was a relatively low fraction of overall capital spending, and not necessarily subject to economic fluctuations. And the whole investment research process was more freewheeling and fun ... but I digress.

These days, IT is a huge fraction of capital spending. If corporations decide to reduce capital spending, they will cut IT expenditures. And what's facing corporations right now includes:

• Extreme, extremely short-term uncertainty. There surely will be a financial rescue plan of some kind in the US, within a small number of days. But nobody can be sure today what form it will take.
• In a few cases, an extreme short-term cash crunch. The credit markets are in utter disarray, and will remain that way at least until the financial rescue plan shoe drops.
• Great longer-term uncertainty. Nobody really knows what's going to happen even after the rescue plan is put in place.

In some cases, the result will be a short-term purchase freeze, right at the end of the quarter. That sort of thing, to put it mildly, is not good for quarterly revenue targets. And in high-gross-margin industries like software and computer systems, even a small revenue shortfall can cause a big gap in earnings.

By much the same logic, individuals and small business may postpone their purchases of computers and gadgets as well. However, the vendors of such products generally don't have as much of a quarter's revenue crammed into the final two weeks as many enterprise technology vendors do.

There are all sorts of reasons for September quarter revenues not to totally crater, including:

• Maintenance revenue
• Professional service revenue
• Long-standing efforts to have quarters not be back-end-loaded
• Use-it-or-lose-it budgets
• Companies that have enough cash to just keep functioning normally for a while until it becomes evident whether or not the worst tumult is more than temporary.

So it's hard to predict which IT vendors will suffer this quarter and by how much.

But don't be surprised if some tech companies (pre)announce really bad September quarters.