Technology

As the broader U.S. economy plods along sluggishly and the dollar has sunk, American multi-national companies like IBM (NYSE: IBM) and Accenture (NYSE: ACN) have seen international markets drive their growth. However, as the combination of weakening European economies and the strengthening dollar eliminate this growth source, companies will have a difficult time meeting analysts estimates for 2009. For example… Accenture: Revenues from the EMEA region (Europe, Middle East and Africa) increased 23% in U.S. dollars, but only 11% in constant currency. So even without constraints on demand, the revenue growth would be cut in half. IBM: The company has also benefited from the weakening dollar and stronger euro. Its European business grew at 17.9% in dollar terms, but only 6% in constant currency. Both Accenture and IBM will see the growth contribution from these regions more than cut in half in the coming quarters at a time where the domestic business is continuing to languish. In short, 2009 has the potential to be a tough year for multinationals. If the Euro/Dollar exchange rate holds constant at 1.545 (shown in the chart below), the year-over-year growth of the euro drops to 3.2% in the first quarter of 2009.

Companies typically don’t offer guidance for 2009 until the end of 2008, but this trend is large enough that it will be addressed sooner than later. For example, in its conference call where it issued financial guidance for the coming quarter, Hewlett-Packard (NYSE: HPQ) mentioned that its projections are based on exchange rates as of the end of July and that currency fluctuations could cause revenue to be below guidance. Management also addressed the profit issue and said that even in the case of a strengthening dollar, the company would meet earnings-per-share projections. This may yet prove to be accurate, but it would come at the expense of potential earnings upside. Since the end of July, the dollar has appreciated 4.6% versus the euro and considering the market’s current volatility, investors should remain more cautious than dismissive of the impact of this trend.