September 1, 2005

Tech Spending May Suffer from Katrina, Costly Oil

NEW YORK (Reuters) -- Corporate demand for technology may be pinched by dramatically higher energy costs in the aftermath of Hurricane Katrina but the eventual rebuilding of New Orleans could take up some of the slack.

Companies are expected to have to dig even deeper to pay for energy -- from gasoline to heating oil to airline fuel -- in coming months after Katrina shut more than 90 percent of daily crude oil production from the U.S. Gulf Coast, normally the source of about a quarter of U.S. oil output..

"Every buck that they are forced to spend elsewhere is that much less money (spent) on other issues," said Barry Ritholtz, chief market strategist at the Maxim Group. "With technology it may not fall dollar-for-dollar, but you have to think that it's going to pinch a little bit."

Experts said the higher costs could force companies to delay signing contracts for software, medical equipment or networking hardware, and could make some firms choose between installing new systems and hiring staff.

Sprint Nextel Corp. was one of the first companies to say it faced unplanned financial costs related to the storm. The company, which operates wireless and wireline networks in areas hit by the hurricane, has said that parts of its network were damaged from flooding and power outages.

Dallas-based Tenet Healthcare Corp. has said its five hospitals in the New Orleans area and its hospital in the Mississippi Gulf Coast area suffered serious damage from the hurricane. The company said it cannot yet estimate the damage but anticipates costs will be "significant" even after insurance payments.

But some companies said they will continue to invest in technology since they reap more from cost-saving computer servers, for example, than from other expenses such as new buildings or travel.

"Technology is AMO's lifeblood and we have no intention of reducing our commitment to spending levels," said Steve Chesterman, spokesman for Advanced Medical Optics, which makes eyecare products and surgical devices.

And some sectors may see a burst of orders should a large plan be devised to rebuild New Orleans.

It is too soon to tell how much will have to be rebuilt, but with some 80 percent of the city underwater, according to officials, it is likely that everything from computers to communication networks to software will need to be repaired or replaced.

"It's a huge opportunity for the people who create these networks," said Mark Herskovitz, portfolio manager for the $2.2 billion Dreyfus Premier Technology Growth fund. "You have a 'green field' opportunity in a very large city, and you are starting from scratch."

White House economic adviser Ben Bernanke said on Wednesday that reconstruction of the damaged area is going to add jobs and growth to the economy.