Business Tech

Update at 9:12 a.m. PST, with comment from IBM.

T3 Technologies filed a complaint against IBM with European antitrust regulators on Tuesday, alleging that Big Blue is blocking competition by tying its operating system with its mainframe hardware.

T3, a maker of IBM-compatible mainframes for small to midsize companies, is asking the European Commission to investigate IBM's market pricing and alleged effort to eliminate competition by withholding its patent licenses for its mainframe operating system and certain intellectual property.

"Since November 2006, we have not been able to sell any of our hardware. No rational buyer would buy any hardware without software," said Steven Friedman, T3's president.

T3 currently offers maintenance and support for its existing IBM-compatible mainframe customers and integration services.

IBM, in a statement, contends there is no violation of antitrust laws:

IBM has not seen T3's alleged EU complaint. Nonetheless, IBM is confident that it is no violation of competition laws for IBM to rightfully seek to prevent another company from violating IBM's intellectual property rights. IBM has spent great time and expense developing its technology and will defend its intellectual property rights vigorously.

T3, a small, privately held mainframe company in Florida, alleges, however, that IBM is engaging in behavior that previously had been barred under the consent degree that the Department of Justice began to phase out in 1997 over a five-year period.

T3 began marketing its IBM-compatible tServer mainframe line in 2000, using software from Fundamental Software that was based on an IBM patent license.

But in 2005, T3 signed an agreement with Platform Solutions Inc. (PSI), which would enable the small mainframe maker to create a more robust mainframe system, Liberty, that would put it in further competition with IBM, Friedman said.

The following year, T3 was hit with a one-two punch, as it shipped Liberty. IBM said it would not license its operating system to PSI or to Fundamental Software any longer.

PSI and T3 filed a lawsuit against IBM in the U.S. District Court for the Southern District of New York in late 2007, alleging Big Blue violated the nation's antitrust laws and engaged in unfair competition.

PSI, however, was acquired by IBM in July. T3 is continuing with the lawsuit, which is scheduled to go to trial in mid-summer.

Since 2006, T3 has laid off 80 percent of its workforce in the U.S. and Europe, as its revenue has dropped by a similar proportion, Friedman said.

"IBM has left the industry with one (mainframe) vendor. They have successfully foreclosed all competition in this industry," Friedman said.

With the European Commission having recently shown it will pursue tying cases, such as in the Microsoft and Media Player case and now its recent objection to tying Microsoft's Internet Explorer browser with Windows, Friedman said he is optimistic the European Commission will investigate its complaint.

Growth in information technology spending next year is expected to go from a modest uptick to a virtual blip, according to a report released Monday by Gartner Research. Meanwhile UBS Securities predicts a more dire outcome.

IT spending is expected to grow 2.3 percent next year, a figure that's down from earlier projections of 5.8 percent growth, according to Gartner. The lowered forecast comes as the markets have been whacked particularly hard over the past two weeks and the credit market has tightened.

"Developed economies, especially in the United States and Western Europe, will be the worst affected, but emerging regions will not be immune. Europe will experience negative growth in 2009, the United States and Japan will be flat," Peter Sondergaard, global head of research at Gartner, said in a statement.

And while Gartner expects IT spending will be greatly affected in the fourth quarter as the economic climate has taken a toll in the past two weeks, the research firm does not believe the full year outlook will substantially change for IT spending.

UBS, however, has a different assessment on IT spending. In a research note released Monday, it forecasts a 5 percent to 15 percent drop in IT spending in 2008, over last year.

And here's why:

Two key trends driving spend lower include: 1) revenue pressures, write-offs and cash conservation that are causing financial institutions to look at technology spending for savings as it typically accounts for the largest non-personnel expense on the P&L and 2) people are thinking about buying less yet still being able to do more. Looking out to the December quarter, while the year end is typically the busiest period to close deals with vendors, expectations are that there are not likely to be purchases of any meaningful size in 4Q this year suggesting that the typical Q4 budget flush is unlikely to occur.

And 2009 may not fare any better, with UBS analysts noting while it is difficult to access the year at this point in time, the research firm would not be surprised to see IT spending fall by a similar 5 to 15 percent next year.

Within the hardware sector, UBS expects to see storage demand drop next year, but not to the same degree as servers, which tend to have excess capacity at companies, followed by desktops, which are viewed as purchases that can easily be delayed.

And within the software sector, security software is expected to actually post double-digit gains this year, as well as next.

UBS expects security software spending to rise 10 percent this year, over the previous year and jump to an additional 15 percent increase next year over the current year.

The reasoning relates to the economy and layoffs that are expected to ensue across the corporate landscape.

Companies tend to ramp up on security software during times of layoffs, in a move to prevent soon-to-be ex-employees from walking off with corporate secrets and customer lists. Businesses also tend to ramp up on security software during economic downturns to prevent hackers from taking down their operations, notes UBS.

IBM's third-quarter revenues coming out of Europe, the Middle East, and Africa are tracking on a similar growth pattern as the first half of the year, the company announced on Monday in a Securities and Exchange Commission filing.

Big Blue, which is meeting with European investors, said revenue growth during the first two months of the third quarter is "consistent" with the company's EMEA performance during the first six months of the year.

For IBM, that could bode well for its third quarter, given that the EMEA region accounts for roughly a third of its overall revenues.

Last quarter, EMEA revenues rose 20 percent, to $9.8 billion, and in its first quarter, EMEA performance was up 15.7 percent, to nearly $8.8 billion. While those figures appear impressive, when adjusting for currency rates, IBM posted a 7 percent revenue gain in the second quarter and a 4 percent gain in the first.

In its first quarter, IBM characterized that growth level as reflecting a "moderate IT-spending environment."

Big Blue is considered a bellwether stock, with investors looking to its financial performance as a potential indicator of how other hardware makers and chipmakers will perform in the same given quarter.

Sun Microsystems on Tuesday announced preliminary fourth-quarter results that were higher than Wall Street's expectations, sending its shares up more than 11 percent in after-hours trading.

Shares of Sun climbed as high as $9.83 per share in after-hours trading, up from a close of $8.80 a share during the regular session.

"In these difficult economic times, we continue to see customers across the world look to open software and hardware as a source of savings," Jonathan Schwartz, Sun's chief executive, said in a statement.

Sun said it expects to report fourth-quarter revenue between $3.7 billion and $3.8 billion for the period ending June 30, compared with nearly $3.84 billion a year ago.

Wall Street, meanwhile, expected Sun to generate revenue of $3.8 billion, falling in the high end of Sun's range, according to Thomson Financial.

On the earnings front, Sun said it expects to generate net income of 5 cents to 15 cents a share. After excluding special charges, the hardware maker expects fourth-quarter net income to be in the range of 25 cents to 35 cents a share.

Analysts, meanwhile, were expecting Sun to post earnings of 27 cents a share, according to Thomson Financial.

Sun expects to report its fourth-quarter results on August 1.