Hardware spending leads way for revival

Spending by companies on technology hardware is bouncing back sharply from the global financial crisis with record results from Intel providing the latest evidence of the strength of the recovery.

Businesses are finally replacing ageing data-centre servers, desktop PCs and notebooks, after extending the length of their “refresh” cycles to conserve cash during the recession.

“We’ve felt for some time that this phenomenon had to happen,” said Paul Otellini, Intel chief executive, on new orders for desktop and laptop PCs, helped by Microsoft’s introduction of its Windows 7 operating system.

“These machines were just costing more to keep on the books than they were worth, in terms of being out of warranty and repairs.”

Mr Otellini said companies such as Google, Facebook and Amazon were fuelling a revival with big server installations in data centres to cope with booming internet traffic.

Intel saw a 170 per cent increase in sales in the second quarter of its Xeon microprocessors for data centre servers compared with the same period last year.

The trend is being helped by companies shifting the running of their applications and services to the internet “cloud” of remote data centres.

Meanwhile, IT departments are buying new-generation servers with more powerful processors that can do the work of 20 older servers.

This can reduce energy costs by 90 per cent and means the servers pay for themselves in savings in a matter of months.

Intel’s record sales, profits and margins augur well for other component makers and hardware manufacturers such as IBM, Dell and Hewlett-Packard in the current earnings season.

Research company Gartner this month trimmed its IT dollar spending forecast for 2010 to 3.9 per cent growth, down from 5.3 per cent, largely due to the weakness of the euro.

However, it raised its forecast for hardware spending growth to 9.1 per cent from 5.7 per cent.

“Hardware was first to feel the pain when the market crashed, what you are seeing here [with Intel] is the resumption of a lot of that spending for replacing ageing and broken machines,” said Richard Gordon, Gartner research vice-president.

Business investment in technology has been one of the biggest drivers of America’s economic recovery, contributing 10-15 per cent of total growth in recent quarters. “Business spending on equipment and software has risen significantly,” the Federal Reserve noted in its statement on June 23.