Wall Street Beat: Spending, M&a Buoy Tech Sector

In the wake of a rough though arguably better-than-expected first half for tech earnings, investors appear to remain confident that IT vendors will lead other industry sectors out of the recession toward the end of the year.

In the wake of a rough though arguably better-than-expected first half for tech earnings, investors appear to remain confident that IT vendors will lead other industry sectors out of the recession toward the end of the year.

Some areas of tech, like high-end mobile devices, have proved to be remarkably resilient to the global downturn. Leading tech companies, most of whom still have plenty of cash reserves, are pushing ahead with acquisition plans. Meanwhile, reports on IT spending show that this recession has been easier on tech budgets than the dot-com bust earlier in the decade.

"The current recession, though reportedly more severe than any since the Great Depression, is actually not as acute in terms of IT spending as the 2001 recession," according to an IT Spending and Staffing Benchmarks report from Computer Economics, an IT metrics firm.

Only 45 percent of organizations are increasing IT operational budgets, confirming that the recession has indeed affected tech spending, according to the study. But the silver lining is that the figure is well above the 36 percent realized in 2002 in the aftermath of the 2001 recession. "This is because the 2001 recession was led by the technology sector," according to the study. The current recession was instead sparked by falling home prices and a subsequent crisis in the financial sector.

Parts of the tech market have done well this year. In the second quarter, smartphone sales surpassed 40 million units, a 27 percent increase from the same period in 2008, according to a Gartner report released Thursday.

Mergers and acquisitions have also sparked the enthusiasm of IT investors. Acquisitions can be seen as a sign that large companies are gaining confidence and betting big on hot new technologies. This year has been marked by both large strategic deals and smaller, tactical acquisitions.

On Monday, for example, business service management vendor BMC announced it was acquiring middleware maker MQSoftware, to better compete in the market for SOA (service-oriented architecture) projects. MQSoftware helps companies monitor IBM's WebSphere MQ series software, as well as other platforms. The value of the deal was not disclosed.

Also on Monday, virtualization vendor VMware said it was buying enterprise Java company SpringSource for US$362 million. SpringSource specializes in application development and management tools for the Web, emphasizing open-source software.

Meanwhile, with government data in the U.S. showing an overall easing of the recession, stock exchanges overall have risen since their lows in early March, but tech is leading the pack. The tech-heavy Nasdaq Composite index has risen by 29 percent so far this year, outpacing broader measures such as the Dow Jones Composite, which has climbed 5 percent, and the S&P 100, which has increased by 8 percent.

The Nasdaq Telecommunications index, meanwhile, has bounced up by 38 percent, and the Nasdaq Computer index has jumped a remarkable 41 percent.

Copyright © 2009 IDG Communications, Inc.

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