Wall Street Beat: Confidence in IT Stays Strong

Global economic concerns and worries about recovery in the U.S. have caused turbulence in markets over the past few months, weighing on IT and telecom company shares. But if it's any consolation for IT investors, confidence in tech appears to be higher than for other sectors, and industry forecasts continue to be positive.

In a vote of confidence for prospects in the chip market, GlobalFoundries on Tuesday said it will expand factory spending, adding US$3 billion to the $6 billion expansion plan it had already announced. There is something of an arms-race phenomenon going on among chip makers, who are trying to outspend each other as they see consumer and corporate spending on hardware continue to rise this year.

The world's top contract chip maker, Taiwan Semiconductor Manufacturing (TSMC), earlier this year announced $4.8 billion of new spending on plants and equipment. In addition, both Samsung and Hynix Semiconductor last month announced they would raise spending.

The manufacturers have reason to be optimistic, according to a forecast released Thursday by Gartner. Worldwide semiconductor revenue in 2010 will reach $290 billion, a whopping 27.1 percent increase from 2009 revenue, Gartner said. The outlook has improved from Gartner's first-quarter report, which forecast the global chip increase at 19.9 percent this year.

"Sequential semiconductor growth has been very strong over the last five quarters, well above seasonal norms, and manufacturing capacity is tight," said Bryan Lewis, research vice president at Gartner, in the report.

The optimistic forecast is due to an accelerating, broad-based recovery in all regions and most product categories, Gartner said. Gartner is also raising forecasts for PCs, mobile phones, automotive and select consumer products.

The Gartner forecasts dovetail with other reports on sales activity. For example, retailers of electronics and appliances in the U.S. are expected to increase sales of products by $953 million in June, July and August, amounting to a 4 percent increase over the same period last year, according to an analytics-based forecast produced by IBM. The total for the three months is expected to be $24.615 billion, compared to $23.662 billion last year.

Products in the survey include consumer electronics, PCs, as well as household appliances. IBM uses U.S. Census data and predictive techniques to help clients tackle issues of supply and demand, including planning for product mix, new store locations and staffing.

"My feeling is that based on their disposable income, people are feeling better about things and ... are freeing up their wallets," said Michael Haydock, who conducted the research. Haydock said that he believes the trend is "sustainable," though he cautioned that seasonality in retail sales -- the phenomenon where sales are bunched around holidays and certain times of year like the back-to-school season -- may become more pronounced.

As the economy recovers from recession, mergers and acquisition activity is staying hot, as companies seek to expand more quickly than they could through organic growth. The M&A activity could benefit some IT professionals, according to a report from Badenoch & Clark in the U.K. The uptick in M&A means that more businesses are consolidating systems and seeking IT staff with SAP-integrated planning skills, as well as market data specialists and IT professionals with business intelligence skills.

Hewlett-Packard provided an example of staff consolidation in the tech arena when it announced Tuesday that it would be laying off 9,000 workers. The layoffs will occur as HP consolidates data centers and management platforms used to deliver enterprise services, in the wake of its 2008 acquisition of EDS.

M&A has been especially strong in IT this year, as companies seek to quickly enter hot technology areas. Valuations have been high -- another sign of confidence for tech. On Tuesday, for example, IT security and data backup vendor SonicWall said it had entered into a definitive agreement to be acquired by an investor group led by Thoma Bravo, in a transaction valued at approximately $717 million. The deal represents a premium of approximately 28 percent over the company's prior closing price.

Despite the positive news, there remain serious questions about the global economy and the pace of recovery in the U.S. Worries about the national debt in southern European countries including Greece, Spain and Portugal are casting a pall over the prospects of further recovery in Europe. Meanwhile, the pace of recovery in the U.S. is not as strong as some have hoped for. For example, even though the Labor Department said Thursday that initial jobless claims fell by 10,000 to 453,000 last week, and payroll processor ADP said that private employers added 55,000 jobs in May, the numbers fell somewhat shy of expectations.

The job reports caused some turbulence in the markets Thursday but by the end of the day the major exchanges all closed higher, led by tech stocks. The Nasdaq bested the Dow and the S&P 500, rising by 22 points to close at 2303, due to strong gains by IT bellwethers. Among the leaders: Google rose $12.23 to $505.60; Microsoft rose $0.40 to $26.86; Cisco jumped $0.37 to $23.72; and Oracle rose $0.20 to $22.84.

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