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News January 17,=20 2008, 5:00PM EST

Tech: Slow at Home, Growing Abroad

The strongest U.S. companies may be the ones with the = biggest=20 footprint abroad

By Olga Kharif, with Spencer E. Ante in New York and = Roger O.=20 Crockett in Chicago

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=20

Andy Martin

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Any hope that the surprisingly strong financial results from IBM (IBM) = signaled a=20 technology stock rebound was quickly dashed. After the stock market = closed on=20 Jan. 15, chipmaker Intel (INTC), another closely watched bellwether, reported = disappointing=20 financial results for the fourth quarter and a subdued outlook for the = future.=20 "It would be imprudent not to be cautious," said CEO Paul S. Otellini in = a=20 conference call with investors, citing concerns about the U.S. economy. = Intel=20 shares plunged 12.6% the next day.

It's a sign that already-rattled tech investors could face more = trouble=20 ahead. The technology-heavy Nasdaq composite index has tumbled 9% since = the=20 beginning of the year, dropping for 9 out of 12 trading days. Intel's = caution is=20 particularly worrisome because chip companies tend to be an early = indication of=20 what's ahead for the rest of technology. Apple (AAPL), = Microsoft (MSFT), = Motorola (MOT), and = AT&T (T) are = slated to=20 report their financial results in the next two weeks.

One key factor in how these companies perform will be geography. = While tech=20 spending in the U.S. is expected to slow down with the economy, spending = abroad=20 remains relatively healthy. As a result, the tech companies with the = most=20 exposure to overseas markets, such as IBM and Hewlett-Packard (HPQ), = stand a better=20 chance than those more dependent on U.S. consumers and companies. "Large = bellwethers with international exposure will probably fare better in = this type=20 of an environment," says Scott Kessler, head of tech sector equity = research at=20 Standard & Poor's (MHP).

With the housing downturn and credit crunch, Americans may struggle = to keep=20 up their purchases of computers, software, and other gear. In 2007 tech = spending=20 increased at roughly the same 7% rate in the U.S. and outside, according = to=20 research firm IDC. But this year tech spending in the States is expected = to=20 slide, while growth abroad maintains the same clip. IDC is currently = predicting=20 3% to 4% growth in the U.S., and analyst Stephen Minton warns it could = be much=20 lower. "If a recession took hold, we'd end up with no growth=E2=80=94as = long as the=20 recession was short," he says.

Which companies have the least exposure to the U.S.? IBM is among the = most=20 diversified abroad, with just 39% of its revenues coming from inside the = country. Other companies that get less than half their revenues from = home=20 include HP, Oracle (ORCL), and Sun Microsystems (JAVA), = according to=20 financial filings. In contrast, AT&T and Yahoo! pull in the majority = of=20 their sales from the U.S.

Of course, geography isn't necessarily destiny. Strong products = generate=20 sales even in a soft economy. Google (GOOG) and = Apple get=20 more than half of their revenues from the U.S., and both are expected to = see=20 strong growth in the year ahead. Intel says it gets 75% of its revenues = from=20 outside the U.S.

Still, for most of the tech companies dependent on customers at home, = the=20 year ahead looks full of challenges. "The U.S. economy is clearly = heading into=20 the sewer," says Roger L. Kay, president of consultant Endpoint = Technologies=20 Associates. "People don't know how customers are going to behave." =

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