"I wouldn't blame the software," says Steven Katz, CEO of PowerMarket, a maker of supply-chain software. Many systems are "relatively new and not fully deployed. They did what they were supposed to do with the limited data that was being put in and the limited number of people who had access to that data."
As a result, inventories started rising, climbing 29 percent at Cisco, 15 percent at Intel (INTC) and 28 percent at Nortel. Outsourcers such as Flextronics and networking partsmakers like PMC Sierra and Broadcom (BRCM) were also overwhelmed by their stockpiles.
The current downturn is pushing companies such as Motorola (MOT) and Flextronics to install new global supply-chain repositories to enable executives to view the entire picture.
It is also bringing about a new sense of discipline. For all its technical prowess, the forecasting failure illustrates just how much the industry still depends on human instincts and gut decisions - as the old Silicon Valley hardware company rubric goes, "Have a hunch, buy a bunch."
Forecasting software is only as good as the people who run it. It relies on subjective assumptions about economic growth. When growth is constant, the software tends to work well; otherwise, the software isn't as reliable.
Every quarter, executives collect data from their sales forces to estimate business prospects. With this sales data in hand, they assign probabilities to each deal: How big is it? Can a competitor steal it away? But doing so requires them to make assumptions about factors like market demand. "The thing we don't have is a crystal ball," says Oracle (ORCL) senior VP Jeremy Burton. "We don't have visibility into the state of mind of the man who signs the contract."
No crystal balls, indeed. Suddenly the same high-tech execs who've had no problem projecting huge growth through the boom years complain that they have little insight into the immediate future. HP's Fiorina said in February that "visibility remains extremely limited." Inktomi (INKT) CEO David Peterschmidt echoed to analysts last week: "As for visibility, there isn't any."
But as much as it sounds like an easy excuse - don't bother asking 'cause I don't know - there is something to it. The technology industry, in fact, has entered a remarkable phase, a time when many assumptions about technology's promise and prowess are proving wrong, and criticisms about the industry's weaknesses and bullishness are proving right.
The forecasting problem erupted because those who were supposed to know where the industry was heading didn't, but thought they did. Until their forecasts and strategies reflect reality rather than ambition, limited visibility is the best they can offer.
