Wall Street Beat: Tech stocks hang on to gains despite mixed reports

Concerns about the economy and IT spendng hit tech stocks, but the sector remains up for the year

Buffeted by concerns about the economy and IT spending, tech stocks have gone on a roller coaster ride lately, but on the whole they've managed to hang on to gains they made earlier in the quarter.

The Nasdaq Computer Index, which tracks more than 390 tech-related stocks on the exchange, was up about 1 percent in midday trading Friday, on a generally up day for markets. That brought it up to its level of a month earlier, after 30 days of ups and downs. The Nasdaq Computer Index is on track to close Friday up about 7 percent for the year.

In midday trading, major indexes looked good Friday on news from the U.S. Department of Labor that the U.S. added 175,000 jobs in May. Although the unemployment rate increased slightly to 7.6 percent, market observers looked at the news was looked with favor.

The general consensus seems to be that the numbers were good enough to show that businesses are hiring, but not so good that it would cause the U.S. Federal Reserve bank to stop its "quantitative easing" program of buying up securities in order to prop up markets.

The Dow Jones Industrial Index rallied in midday trading, rising 1.12 percent. All five tech stocks included in the index were up: Cisco, Microsoft, IBM, Intel and Hewlett-Packard -- even though most of them are affected by the flagging PC market.

Slumping PC sales were implicated in yet another research report calling for IT spending to decline this year. JPMorgan Chase analyst Mark Moskowitz, in a research note, said that global IT spending will increase 0.6 percent this year, down from his prior forecast of 1.2 percent. Moskowitz forecast spending on PCs to decline 8.3 percent, down from the previous estimate of a 1.8 percent drop. The server and storage market will also flag this year, Moskowitz wrote.

Gartner, meanwhile, issued some worrying news about a segment of the software market, which usually gets credit for propping up IT spending.

The growth rate for revenue generated by worldwide business intelligence, corporate performance management and analytics applications/performance management software revenue declined in 2012, Gartner said.

"After a few historic banner years of spend in the BI software market, which culminated in more than 17 percent growth in 2011, growth was more subdued in 2012, at seven percent," said Garter analyst Dan Sommer in the report. Spending in this software category totaled $13.1 billion in 2012, according to Gartner. Tough macroconditions and confusion related to emerging technology terms led to "more muted market growth" than in previous years, Gartner said.

Economic uncertainty "led to increased budget scrutiny of both new as well as maintenance spending across the entire IT space, and BI was no exception," Sommer wrote. There was also confusion around "new hype terms" and questions about what tangible benefits the software would bring to companies, he wrote.

On the positive side this week, as usual, were expectations for the tablet and smartphone markets.

Smartphone shipments are expected to grow 32.7 percent year over year in 2013, reaching 958.8 million units, according to a report by IDC. For the first time this year, smartphone shipments will surpass those of so-called feature phones, IDC said. Smartphones are expected to account for 52.2 percent of all mobile phone shipments worldwide.

IDC expects this trend to continue as demand for mobile data and handheld computing spreads across both developed and emerging markets.

Otherwise, a forecast for increasing tablets sales this year helps offset some of the drop in spending on PCs, according to JPMorgan's Moskowitz.

Tablet sales, combined with smartphone sales, have a synergistic effect that drives the software market as well, according to Ronan de Renesse, an analyst at Analysys Mason. In a blog post this week, Renesse said that smartphone users who also have a tablet spend three times as much on apps as those who only own smartphones.

Multidevice ownership is also known to drive mobile data spend, de Renesse wrote.

Looking further out ahead, most analysts forecast IT spending, even in hardware and components, to rise next year. The Semiconductor Industry Association (SIA) this week announced that it has endorsed the positive view of semiconductor sales given by the World Semiconductor Trade Statistics (WSTS) organization. The WSTS projects worldwide semiconductor sales to reach $297.8 billion in 2013, a 2.1 percent increase from 2012.

"With modest but steady gains in semiconductor sales in recent months and stronger growth projected for the remainder of this year and 2014, the global semiconductor industry is heading in the right direction as summer approaches, despite a stubbornly sluggish macroeconomic environment," said Brian Toohey, SIA CEO, in a report.

From CIO: 8 Free Online Courses to Grow Your Tech Skills
Join the discussion
Be the first to comment on this article. Our Commenting Policies