A compromise on the U.S. stimulus package, an upbeat subscriber forecast from Research In Motion and news of a big investment plan by Intel this week did little to cheer IT investors about prospects for the tech sector, as vendors and analysts continue to curb expectations for sales.
Though the congressional compromise on the U.S. economic stimulus package -- which has provisions for spending on IT -- has been hailed by some supporters of President Obama as a political achievement, investment analysts are not convinced that it tackles the root causes of the recession or that it will spur the economy.
"What a curious disconnect between the people who follow Washington and the people who follow Wall Street," said Jim Cramer, founder of thestreet.com, on the site's Wall Street Confidential video report. "All this does is jack up the deficit. It had no recognition of the decline in commercial mortgage in this country ... no recognition that housing is at the root of things."
The recession continues to curb technology spending for consumers and businesses. Chip shipments will drop by about 15 percent this year compared to 2008, according to a preliminary report from IDC this week. Global chip shipments during the fourth quarter of 2008 dropped 11.4 percent from the year-earlier period, the report said.
The decline in the chip market runs parallel to a drop in spending on PCs, which is having a chain-reaction effect on components and suppliers. For example, chip-manufacturing equipment company Applied Materials Tuesday said it had a loss of US$132.9 million in the quarter ended Jan. 25, compared with a year-earlier profit of $262.4 million. Like many vendors, the company did not issue a quarterly forecast.
Meanwhile, Intel on Wednesday hailed a US$7 billion investment in U.S. plants, but some industry watchers pointed out that the money represents a long-expected move to 32-nanometer technology, and that the funds do not involve new jobs or new facilities.
In this climate, the best that some investors seem to hope for are reasonable plans for cost cuts to weather the storm. The data storage manufacturer NetApp Wednesday reported a disappointing quarter, missing analysts' forecasts as it posted a loss of US$75 million. However, shares in the company rose by $1.20 to close at $16.40 Thursday as analysts applauded company plans to cut costs, which include a 6 percent workforce reduction.
Likewise, after Qwest reported Tuesday that third-quarter profit declined 49 percent from a year earlier to US$185 million, investors cheered its plan to curb costs by laying off 1,700 jobs, pushing company shares up by $0.08 to close at $3.37.
In a bit of good news for the mobile sector, Research In Motion Wednesday raised its forecast for subscriber growth in the quarter ending Feb. 28. The company said the number of additional subscribers for its BlackBerry device would be 20 percent greater than its earlier forecast of 2.9 million. The forecast was welcome in a sector that is expected to suffer a decline in handset sales. However, even this good news came with a dark side: RIM also said profit for the period will likely be at the bottom of its forecast.
At the end of an earnings season that was short on vendor optimism, investors decided to stress the positive, sending RIM shares to close at US$50.42 Thursday, up by $1.66.
Overall, however, the mood of IT industry insiders as measured by the Nasdaq exchange, home to many tech companies, is sour. The Nasdaq has been stuck at the 1500 level for several weeks as vendors reported a string of bad financial reports and layoffs.
Prior to the last quarter of 2008, when the great Wall Street investment banks collapsed, the Nasdaq had not been at this level since 2002. A year ago, as economic clouds gathered, the exchange was at the 2000 level.