Wall Street Beat: Economic Concerns Shadow Tech Profits

Earnings reports from dozens of IT and telecommunications companies, including bellwethers like Microsoft, Apple and Nokia, offered good news this week, but tumult in the markets shows that IT investors still have big concerns about lingering weak spots in sales and the continued stability of the economy.

By Marc Ferranti
Thu, January 28, 2010

IDG News Service — Earnings reports from dozens of IT and telecommunications companies, including bellwethers like Microsoft (MSFT), Apple (AAPL) and Nokia, offered good news this week, but tumult in the markets shows that IT investors still have big concerns about lingering weak spots in sales and the continued stability of the economy.

On Jan. 8, the tech-heavy Nasdaq exchange hit the highest point it had seen since September 2008, before Wall Street collapsed as banks went out of business. But even though many tech companies have reported better-than-expected fourth-quarter results in the past two weeks, share prices of computer and telecom companies have slumped.

The Nasdaq slid in the past two weeks from 2318, its 15-month high point, to close at 2179 on Thursday. Even shares of Apple, which had a solid earnings report Monday and launched its long-awaited iPad tablet computer Wednesday, dropped on Thursday.

Doubts about President Obama's plans to limit the scope of the big U.S. banks, concerns about continued mortgage foreclosures and high jobless rates, and the weight of long-term debt on the U.S. have all contributed to concerns about the economy. Reporting better-than-expected results for the end of last year, tech companies are generally expected to help lead the economy out of the recession, but many industry players still expect a long slog ahead.

"When you have a financial crisis like that, it's years of digging out," Bill Gates said Monday in an interview on the TV show "Good Morning America." "We're having a slow recovery and everybody's frustrated by the pace of the recovery. But I don't think the government could change and magically make it speed up a lot," he said.

Even though most market researchers are forecasting a rise in worldwide IT spending this year, there are clouds on the horizon.

Much of the expected increase in spending is a result of changing foreign exchange rates. The spending increases have been made in terms of dollars, which are expected to decrease in value this year, magnifying the results of sales made outside the U.S. Also, much of the increase in spending is expected to come from the consumer side. The uncertain economic outlook is putting a damper on IT spending plans for businesses, market researchers note.

IT budgets will essentially be flat this year, increasing by about 1.3 percent compared with 2009 levels, according to Gartner. While there are some signs of recovery in the 2010 projections, these will not overcome last year’s cuts, Gartner said in a recent report.

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