Wall Street Beat: Expectations Rise for Hardware, Chips

Though the recession still casts a shadow over the technology market, some upbeat reports about chips, PCs and mobile devices helped strengthen confidence in the sector this week.

Gartner on Thursday issued a forecast for global PC shipments that went well beyond prior estimates. It now expects unit shipments to hit 366.1 million this year, a 19.7 percent increase from 2009, and forecasts spending on PCs to reach $245 billion, up 12.2 percent.

In December, Gartner forecast 13.3 percent growth in PC shipments and 1.9 percent growth in spending for 2010.

The market will be "robust" for several years as consumer demand stays strong and businesses replace older PCs as the economy recovers, Gartner said.

"The PC industry will be overwhelmingly driven by mobile PCs, thanks to strong home growth in both emerging and mature markets," said George Shiffler, research director at Gartner. "Mini-notebooks are again forecast to boost mobile PC growth in 2010, but their contribution is expected to decline noticeably afterward, as they face growing competition from new ultra-low-voltage (ULV) ultraportables and next-generation tablets."

In a separate report Thursday, Gartner said that global sales of touch-screen mobile devices will exceed 362.7 million units this year, up 96.8 percent from 2009.

The Semiconductor Industry Association (SIA) kicked the week off Monday by reporting that global semiconductor sales in January were $22.5 billion, an increase of 0.3 percent from December sales. That might not seem like a big jump, but typically there is a drop in chip sales after the end-of-year holiday buying season.

What's more, January semiconductor sales increased 47.2 percent from January 2009, during the worst of the recession, when sales were $15.3 billion, the SIA said.

"Worldwide semiconductor sales in January increased significantly compared to one year ago, reflecting today's improving business environment for the industry," said SIA President George Scalise in the monthly semiconductor report.

"We are currently seeing strength across a range of demand drivers for semiconductors, including personal computers, cell phones, automobiles, and industrial applications," Scalise said. "If the current trends continue, there is upside potential for 2010 growth above our November forecast of $242.1 billion, but a growing global economy driven by consumer purchasing will be key to sustaining these trends," Scalise said.

Even though major IT companies like Intel, IBM, Microsoft, Google and Apple reported increases in sales for their last quarter, continuing doubts about the speed of economic recovery have kept a lid on vendor shares lately. In this climate the SIA and Gartner reports can only cheer tech investors.

The SIA report, for example, was widely credited with sparking an uptick in shares of chip vendors. At the close of markets Monday, Intel shares jumped $0.37 to $20.87, Advanced Micro Devices shares rose $0.30 to $8.21 and Texas Instruments shares increased $0.25 to $24.63.

The fortunes of chip, hardware and memory makers are closely intertwined, as Gartner and the SIA noted, and several vendors in those areas got a boost from analyst upgrades this week. UBS on Tuesday upgraded shares of Dell from neutral to buy, setting a price target of $16 per share and saying that company shares appear attractive at current levels. The firm said margins have likely bottomed out and should increase. Dell shares closed Tuesday at $13.68, up by $0.11, and stayed in that range through Thursday.

Memory maker SanDisk got upgrades from Wedbush Morgan on Monday and UBS on Tuesday. UBS said it expects handset growth to boost SanDisk earnings. SanDisk closed Monday at $32.63, up by $3.48, and stayed at the $32 level through Thursday.

Tech market news was not entirely upbeat this week. Networking vendor Ciena on Thursday reported a loss of $53.3 million for the quarter ending Jan. 31, compared with a year-earlier loss of $24.8 million. Company officials cited some delays in user certification for new platforms. Though that is not unusual, and revenue for the period rose 5.1 percent to $175.9 million, investors appeared to be spooked by a so-so forecast for the current quarter. The company forecast second-quarter revenue to be $185 million to $195 million. Analysts polled by Thomson Reuters were forecasting sales of $194 million. Ciena shares slumped by $0.58 to close Thursday at $13.97.

The tech-oriented Nasdaq closed Thursday at 2292, up by 11.63 points. However, even though tech companies have in the past week recovered some ground that was lost after the 18-month market high point in January, shares most likely will be on a rollercoaster ride for some time unless macroeconomic reports start trending steadily upward. On Friday, for example, tech stocks will be affected, along with the rest of the market, by the February jobs report due from the U.S. government.

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