Posts Tagged ‘tech spending’

Tech Spending to Decline in the U.S., Says IDC

November 12, 2008

This IDC announcement isn’t too surprising. With all the turmoil in the U.S. economy and many big companies filing for bankruptcy, it had to hit demand for technology. Historically, tech spending is tightly correlated to earnings of the S&P 500. And with earnings coming down, that means tech spending is going to take a hit.

We saw this during the dot com bust and we’re seeing it again. The only question is: Will tech spending take a bigger hit than during the dot com bust or not? My educated guess is that won’t be as worse since last time around the implosion was centered around tech. This time the industry is taking collateral damage. It’s the source of the storm.

The numbers support my hypothesis. Even though IDC forecasts about a 1% drop in U.S. tech spending in 2009, during the dot com and telecom bust, US tech spending declined 6% in 2001 and 5% 2002. Let’s hope IDC does not roll out another lower revision.

The silver lining is that IDC still expects tech spending to grow globally.

IDC Expects Worldwide IT Spending Growth to Slow Significantly, But Remain Positive, in 2009

FRAMINGHAM, Mass., November 12, 2008 – Worldwide spending on information technology will slow significantly in 2009 as a direct result of the global financial crisis that began in September 2008. According to a newly revised forecast from IDC, worldwide IT spending will grow 2.6% year over year in 2009, down from IDC’s pre-crisis forecast of 5.9% growth. In the United States, IT spending is expected to decline to 0.9% in 2009, much lower than the 4.2% growth forecast in August.

Here’s the full press release.


The Coming Tech Recession?

January 22, 2008

Despite today’s 75-point basis point cut by the Fed, it looks like the U.S. economy is headed for a recession. Which raises the question: How bad would the recession be for the tech industry? 

My bet is that such a tech downturn would be short and not that painful–not nearly as long and painful as the last tech downturn from 2001-2003/2004.  Why? Well, this time there is no dot com bust, no telecom meltdown and no Y2K overhang. In other words, this tech recession, if it happens, is all about a general economic slowdown, and has little to do with tech fundamentals. That means when the economy picks up again, probably in second or third quarter, the growth rate of the tech industry will revive again. Currently, tech research firm IDC is forecasting around a 4% growth rate for the US tech industry, down from 6.6% last year.

If a recession took hold, IDC analyst Stephen Minton says we’d end up with no growth “as long as the recession was short and lasted 2 to 3 quarters.” During the dot com and telecom bust, US tech spending declined 6% in 2001 and 5% 2002.  Of course, the slowdown would effect some markets more than others.

What are the bright spots? “Some of the fastest growth came from smart phones, especially outside of Europe,” says Minton. “Software is the fastest growing sector: infrastructure, security, virtualization, applications like business intelligence.”

IDC’s recent survey showed front-end applications could see cutbacks if tech budgets are scaled back. But infrastructure programs like security and virtualization could hold up. “CIOs are very reluctant to scale back spending there,” says Minton. “Infrastructure and data center projects would be least likely to see cutbacks. But the programs that touch end users could see cutbacks.”

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Why Hewlett-Packard is Goldman Sachs’s Top Tech Stock in 2008

January 16, 2008

Most investors have been dumping technology stocks this year like a bad date. But if you are bullish on technology, what would you invest in?

In a research note published on Jan. 3, Goldman Sachs technology research team recommended Hewlett Packard as its top tech stock for 2008 (in addition to IBM, Ingram-Micro, and Seagate). Why? GS says HP lies at the intersection of three trends:

1. Tech valuations remain low; Goldman says the overall price to earnings ratio of tech hardware stocks is below the S&P 500.

2. PCs have more staying power than people realize, even with “further slowing in the US and Western Europe.”

3. Tech demand from small and medium-sized businesses should outpace corporate spending in 2008.

 I would add two more reasons to be bullish on HP.

1. Excellent management: Mark Hurd has been working wonders over there.

2. Overseas Exposure: HP maintains the highest percentage of overseas sales of any large cap tech company, deriving 67% of its sales from outside the slumping US. That compares to 61% for IBM, 45% for Cisco, 44% for Dell, 39% for Microsoft and 32% for Yahoo!

Wall Street Newsflash: Laura Conigliaro, one of the smartest tech analysts on Wall Street, has recently changed jobs and become co-director of U.S. research at Goldman Sachs. David Bailey, who told me the news a few days ago via email, has now taken over coverage of tech hardware. Congrats Laura and David!

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