Oracle and Compaq hit by US downturn

Compaq and Oracle are the latest suppliers to suffer from the US economic slowdown, but there's a silver lining: customers can use vendors' problems as an opportunity to drive down prices.

Compaq issued a profit warning last week and announced a $150m restructuring plan that will cut 5000 jobs. Chief executive Michael Capellas said the actions were necessary to tighten supply chain management, and claimed they would "position [Compaq] well in the middle to long term".

First-quarter profits will be four per cent lower than in the same period last year, he added.

The company does not expect the UK to be hit hard by the job cuts. "The UK and Ireland subsidiaries are not making large-scale redundancy plans," said a Compaq spokeswoman. "One area that may be affected is the manufacturing plant in Scotland."

Oracle announced downbeat results for the third quarter, two weeks after warning that profits would miss Wall Street expectations. Revenue grew by $300m to $2.7bn, and profit rose 16 per cent to $583m, compared with the same period last year.

Despite hopes that the company's application software business would increase by as much as 50 per cent, its actual growth was 25 per cent. Database sales stalled with a mere six per cent rise.

Chief executive Larry Ellison was unable to offer any hope of an immediate upturn in fortunes. "The truth is, we don't know. We just don't know. Whatever the economy does, we'll do," he said.

The outlook for Oracle's staff is equally uncertain. "With the sole exception of research and development, Oracle should be reducing headcount in virtually every area," said Ellison.

Phil Dawson, program director at analyst Meta Group, thinks all this is good news for UK firms as suppliers look to boost flagging US sales in other countries.

"Users are in a strong negotiating position. We've already seen price cuts from companies such as Hewlett Packard," he said. "Companies should not defer IT projects or they will lose out."