Wall Street Beat: Quake Rocks Tech Stocks
The devastating earthquake and tsunami that hit Japan on March 11 took a tragic toll on human life but also rocked markets this week, sending shares of businesses, including technology vendors, on a rollercoaster ride.
By the end of the week, however, stocks were regaining lost ground as it became apparent that disruption to supplies of components from Japan might not be as great as had been feared initially.
The worst day of the week was Tuesday, when the tech-oriented Nasdaq dropped 33.64 points, the S&P 500 declined 14.52 points and the Dow plunged 137.74 points. It was the Dow's worst day since the middle of last year, when concerns about a double-dip recession hit the markets. Bellwether tech stocks declined along with blue-chip industrials. Apple, for example, had its third-worst trading day on record Tuesday, dropping US$15.42 to $330.01.
Japan does not buy a large percentage of U.S. products. The country buys about 5 percent of total U.S. exports. However, concerns centered more on component and equipment supplies from Japan as companies reported damaged or shut-down production facilities.
Japan in 2010 made up about 14 percent of worldwide electronic-equipment factory revenue, according to an IHS iSuppli estimate this week. In addition, "Japanese suppliers accounted for more than one fifth of global semiconductor production in 2010. Companies headquartered in Japan generated $63.3 billion in microchip revenue in 2010, representing 20.8 percent of the worldwide market," the iSuppli report said.
Another iSuppli report suggested that component shortages could constrain supplies of Apple's iPad. Five iPad parts are sourced from Japanese suppliers, iSuppli said. The components include NAND flash from Toshiba, dynamic random access memory (DRAM) made by Elpida Memory, an electronic compass from AKM Semiconductor, touchscreen overlay glass from Asahi Glass and the system battery from Apple Japan.
However, by Friday, good news was trickling out of the Japanese components sector. Shin-Etsu Chemical, which makes silicon wafers, reported that two of the four factories that were shut down after the earthquake were back in operation. Elpida Memory said a chip-testing and assembly plant located in northeastern Japan was back online after a power-outage closure.
Though power outages remain an issue for many component suppliers, the big scare for U.S. vendors appears to have passed. As analysts noted, many top-tier U.S. vendors are big enough to make prepayments that ensure a guaranteed supply and price for components.
"Supply-chain investments, cash balance, and tier-1 status should help Apple retain access to key components," noted equities analyst Andy Hargreaves of PacificCrest in a research note.
Other news on the financial front helped instill confidence in the tech sector this week. Intel, Cisco and SAP all reported this week that they would pay out dividends. It would be the first time Cisco has ever paid out a dividend. Big corporations do not pay dividends as often as they did decades ago, and the decision to do so is often seen as a sign that a company is confident about its sales prospects.
On the macroeconomic front, the U.S. Labor Department reported Thursday that first-time unemployment benefits fell to 385,000 last week, a bigger drop than had been expected and a sign that the recovery from the Great Recession is holding up.
The Nasdaq closed Friday at 2,643.67, up 7.62 for the day, its second day in a row of gains. The Dow and the S&P 500 also closed up for the second day in a row. It might take a few more days of solid gains before the tech sector recovers from the scare caused by the Japanese earthquake, however. Computer stocks on the Nasdaq, which a week ago were trading in positive territory for the year, are down by about 1 percent on average.