April 03, 2008, 5:28 PM — The worst quarter for tech stocks in five-and-a-half years has ended, but even
though mobile technology and spending news sparked some hope this week, IT investors
can't breathe a sigh of relief yet.
Though tech company profits remained strong during the fourth quarter of 2007,
worries about the U.S. economy have depressed the value of vendors' shares.
The tech-heavy Nasdaq Composite Index dropped 14.07 percent in the first quarter,
the worst decline since the third quarter of 2002, when the Nasdaq plunged almost
20 percent in the wake of the dot-com bust.
This week, Research in Motion (RIM) results, some exciting technology at the
CTIA show in Las Vegas and an upbeat IT spending report from Gartner helped
get the second quarter off to a decent start.
RIM on Wednesday said in its financial report that during its fiscal fourth
quarter, which ended March 1, it added about 2.18 million new BlackBerry subscribers.
With fourth-quarter revenue more than doubling compared to 2007 and profit jumping
120 percent to US$412.5 million, it appears as though the company has not been
hurt by the U.S. economic slowdown. RIM shares jumped by $6.79 Thursday to close
at $123.58.
Noting that at CTIA, RIM introduced the Curve with Verizon followed by the
Curve 8830 with Sprint and the Wi-Fi-enabled Pearl 8120 with T-Mobile, Citi
Global Markets analysts Jim Suva and Kevin Dennean wrote in a research note
that they "continue to be impressed with RIM's ability to roll out successive
iterations of phones that continue to build on prior successful launches by
adding new feature sets tailored to individual carriers."
The analysts also said that the simultaneous announcement and availability
of Motorola's Z9 phone with AT&T was a hopeful sign that the beleaguered
device maker is speeding its product cycle. Motorola shares were up slightly
this week, lifted by rumors that India-based Videocon Industries is interested
in acquiring the device-manufacturing side of the business. Motorola shares
rose by $0.17 to close at $9.47 Tuesday after the Videocon reports surfaced,
and ticked upward the next few days. The company's decision to split its business
into device-making and network technology, announced last week, has been greeted
with enthusiasm.
Despite fears of shrinking demand, global semiconductor-chip sales rose 1.5
percent in February versus a year ago, totaling $20.44 billion, according to
a monthly report released Monday by the Semiconductor Industry Association.
Though prices are falling, units sold increased. Most growth was seen in Asia-Pacific
including China, which has overtaken the U.S. as the largest PC market.
IT budgets in Asia-Pacific are also growing more rapidly than elsewhere, according
to a Gartner global poll of CIOs released Thursday. For the tech sector, the
good news is that worldwide, the projected corporate IT budget growth rate for
2008 is 3.3 percent, unchanged from a previous survey. In the U.S., poll respondents
said budgets will grow this year by 2.3 percent, down from 3.1 percent in the
last study.
Industry insiders remain cautious. Investment brokerage USB, citing softening
demand in the U.S. corporate market, downgraded its rating on Cisco to "neutral"
from "buy." Cisco shares dropped by $0.73 to close at $24.23 Thursday.
After a rally on the Nasdaq on April 1, the first day of the quarter, analysts
waited nervously for a U.S. Labor Department report on Friday. But it won't
be until later in the month, when vendors start reporting first-quarter sales,
that IT investors will get an idea of whether the worst is over.
