Wall Street

Wall Street Beat: Talk of U.S. budget compromise boosts tech stocks

After a rollercoaster ride, tech stocks rebounded toward the end of the week following reports of a possible compromise on the political impasse over the U.S. budget.

The political pall hanging over tech and other sectors came amid gloomy reports of a continued slump in the PC market.

With the U.S. government shutdown in its second week and the possibility of a national debt default looming, tech stocks took a beating earlier this week. The government itself is a big purchaser of technology. In addition, the halt of federal expenditures has “a ripple effect” through the entire economy, noted Andrew Bartels, chief economist at Forrester Research.

Among other issues, the government is expected to reach its borrowing limit next week. After that, if Congress does not vote to raise the debt ceiling, the government will have to default on at least some debts.

“The U.S. economy would almost certainly decline in Q4 2013 and Q1 2014, with potentially continued declines or at best weak growth in the rest of the year,” said Bartels in a blog post. “Should this happen, U.S. tech spending would fall in 2014, with poor prospects after that.”

But stock prices in tech and other sectors rose Friday as news reports from Washington, D.C., indicated that a political compromise is within reach.

Officials say that Republicans in the House of Representatives are proposing that they would pass legislation to avoid a debt default and end the government shutdown, as part of a deal that would include benefit-program cuts, according to an Associated Press report Friday.

The Nasdaq Computer Index of more than 100 tech stocks rose 0.71 percent to close at 1,818.07 points Friday. Share prices rose for all five tech stocks included in the Dow Jones Industrial Average: IBM, Hewlett-Packard, Cisco, Intel, and Microsoft.

Growth in software, tablets

With PC sales flagging, the underlying confidence in tech is mostly due to growth in the the software arena and tablets.

“Software investment is on a solid growth path,” Bartels said. “This matters, both because software is the largest part of the U.S. tech market—apart from telecomm services—and because it directly impacts spending on IT consulting and systems integration services.”

Indian outsourcer Infosys, a major systems integrator and services provider, said Friday that third-quarter revenue increased 15 percent year over to $2 billion.

Market research reports this week, meanwhile, highlighted bad news for the PC market, though it was offset by good news for tablets.

Worldwide PC shipments totaled 80.3 million units in the third quarter of 2013, an 8.6 percent decline from the same period last year and the sixth consecutive quarter of declining world shipments, according to a Gartner report.

“Consumers’ shift from PCs to tablets for daily content consumption continued to decrease the installed base of PCs both in mature as well as in emerging markets,” said Gartner analyst Mikako Kitagawa, in the report. “A greater availability of inexpensive Android tablets attracted first-time consumers in emerging markets, and as supplementary devices in mature markets.”

A report from IDC was more upbeat.

Though IDC said worldwide PC shipments totaled 81.6 million units in the third quarter, a 7.6 decline year over year of 2013, the total was better than the 9.5 percent drop it had forecast. While shipments remained weak during the early part of the quarter, the market was somewhat buoyed by business purchases, as well as channel intake of Windows 8.1-based systems during September, according to the report.

Tech market watchers will get a better read on the health of the tech sector next week, as financial results pour from from companies including IBM, eBay, Google, Yahoo, Advanced Micro Devices and Intel.

For comprehensive coverage of the Android ecosystem, visit Greenbot.com.

Subscribe to the Best of PCWorld Newsletter

Comments