Tech Stocks Rally, but Spending Concerns Linger

Upbeat economic news strengthened investor confidence in technology this week, benefitting companies as diverse as eBay, Apple, Dell and Intel, but did not entirely dispel worries about corporate IT spending trends for 2008.

A mortgage-rate freeze announced Thursday by President Bush, who said his administration had reached an agreement with credit service companies and banks to maintain current interest rates on certain types of loans for five years, helped relieve anxiety about credit markets and boosted share prices of companies in a range of sectors, including tech. The Nasdaq Composite Index, weighted heavily with tech stocks, jumped 42.67 points Thursday to close at 2709.03.

Concerns related to the slump in housing values in the U.S. have roiled markets since this summer. Investors have been worried that loan defaults would lead to a tightening of credit, which would in turn crimp consumer and business spending and affect sectors including IT.

But macroeconomic and retail data this week also helped boost investor confidence. Automatic Data Processing and Macroeconomic Advisers on Wednesday released a report saying that private, nonfarm sector employment increased by 189,000 jobs in November. The three-month average change in employment for September through November was 123,000, up from 43,000 during the three-month period from July through September.

ComScore reported Wednesday that holiday season e-commerce spending from Nov. 1 to Dec. 2 amounted to more than US$14 billion, a 17 percent increase from the same period in 2006.

The Semiconductor Industry Association kicked off the week Monday with a report that worldwide semiconductor sales in October grew to $23.1 billion, up 5 percent from a year earlier, as growth in the Asia-Pacific region offset price cuts.

"Consumers are reaping huge benefits from continued rapid price attrition in key sectors of the semiconductor market," SIA President George Scalise noted in the report.

Thomas Weisel Partners analyst Kevin Cassidy, meanwhile, issued a research note saying that PC sales could exceed expectations as a result of increased demand from emerging markets. On Wednesday, he upgraded Intel from "market weight" to "overweight." Intel jumped $0.89 Wednesday to close at $27.22, and it gained another $0.76 Thursday to close at $27.98.

PC makers are doing well this week on the positive hardware news. Dell, for example, gained $0.64 Thursday to close at $24.95. Riding the wave of good news in both the retail and hardware sectors, Apple shares climbed this week, closing Thursday at $189.95, up $4.45 for the day.

Companies in the online sector also gained. EBay rose $0.42 Wednesday to close at $33.35, and jumped another $0.42 Thursday to close at $33.77, after Citigroup Global Markets issued a positive research note reiterating its "buy" rating and emphasizing "robust e-commerce trends and international unit growth acceleration."

But investors and analysts are still worried about corporate IT spending. Investment firm ChangeWave Research said Monday its latest poll of corporate IT spending plans, surveying 1,964 people involved in buying decisions, showed that 24 percent of respondents expect their organizations to increase IT spending in the first quarter of 2008. That is unchanged from the prior quarter but below the average 7-point "seasonal uptick" reported during the past four years.

In its end-of-the-year IT sector forecast, IDC on Thursday was pessimistic about overall worldwide spending growth in 2008. IDC said growth will range from 5.5 percent to 6 percent in 2008, down from 6.9 percent this year. Uncertainty about the economy will play a big part in crimping U.S. spending, IDC said.

It will take time to see what lasting effect the Bush plan will have on credit markets. Just before Bush made his announcement Thursday, the Mortgage Bankers Association released a report saying that the proportion of all mortgages in the U.S. that began foreclosure proceedings hit a record 0.78 percent in the third quarter.

IT vendors with the greatest exposure to a downside in corporate spending plans had a rougher ride than most tech companies this week. On Tuesday, for example, JMP Securities downgraded Oracle to "market outperform" from "strong buy." Oracle immediately lost $0.21 to close at $20.03 Tuesday.