Wall Street Beat: Cautious Optimism Reigns for Tech

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Despite lingering concerns about global economic stability, analysts for the most part remain confident that IT will continue to lead markets out of the recession.

Global IT spending will increase by 3.2 percent in 2010, attaining the 2008 spending level of about US$1.5 trillion, IDC said Thursday. The research company said it based its prediction on a fairly conservative forecast -- an increase of 2.6 percent -- for global GDP growth.

Emerging markets will drive more than half the IT industry growth next year, IDC said in its 2010 predictions report. The so-called BRIC countries of Brazil, Russia, India and China will account for the bulk of emerging-market growth. IT spending will increase 8 percent to 13 percent in those countries, which by the end of the year will account for more than 10 percent of worldwide spending on IT, IDC said.

"High tech should lead us out of the Great Recession in 2010," said Frank Gens, chief analyst at IDC, on a conference call Thursday. The main themes for IT in 2010 will be recovery and transformation, he said.

"Recovery is the less interesting of the two themes," Gens noted, adding that many companies have "ambitious plans for transformation, challenging the primacy of the PC."

This year, the recession acted like a "pressure cooker" on IT, forcing IT professionals to closely examine new computing models, Gens said. Next year, recovery will release pressure on spending, enabling a number of "transformational tipping points," especially those related to mobile public network and cloud computing, Gens said.

But he dropped a note of caution into an otherwise upbeat report: "Don't get too relaxed," Gens said.

Despite general optimism, for IT investors there is a sense that the stock market may be getting ahead of reality. The tech-heavy Nasdaq exchange has flattened out somewhat in the past few weeks, on concerns that the recovery will be a drawn-out process.

"In my estimation, there is still close to an 80 percent probability ... that a second market plunge and economic downturn will unfold during the coming year," said John Hussman, president of Hussman Investment Trust, in a market comment this week. Among other factors, Hussman cited the high U.S. jobless rate.

Hussman's prediction is more dire than almost any other that market observers are making. But there are reasons to be cautious. Even though markets are stabilizing and companies are showing revenue growth compared to earlier in the year, for most vendors, third-quarter sales did not hit last year's levels.

Both IDC and Gartner this week reported that although the server market is stabilizing, sales levels for the third quarter were lower than the same period in 2008.

In the third quarter, the server market saw an increase of 13.8 percent in shipments and 10.2 percent in revenue when compared to the second quarter of this year, Gartner said in a statement Monday. But server shipments for the third quarter of 2009 dropped 17.1 percent, to 1.2 million units, from the same quarter last year, while worldwide server revenue for the same period declined 15.5 percent, to $10.7 billion for the quarter.

Likewise, though large tech bellwethers reported third-quarter results that for the most part beat expectations, very few vendors have reported already matching last year's sales. Cisco's John Chambers declared last month that an economic recovery "is well under way," but the company reported a quarterly sales decline to $9 billion from $10.3 billion a year earlier, for the period ending Oct. 24.

Still, there are increasing signs that people are spending again. For the first 30 days of the November-December holiday season, $12.26 billion has been spent online, a 3 percent increase compared to the same period last year, according to a

comScore report released Thursday.

Vendors themselves are spending heavily, which investors often take as a sign of confidence. Major vendors still have full coffers from record sales before the recession hit. Just this week, Nokia Siemens offered a counterbid for Nortel's optical assets in an attempt to snatch away the business unit from Ciena. While Ciena won an auction for the assets with a $769 million bid, Nokia Siemens has objected to the auction results and has offered $810 million for the Nortel unit.

In the home stretch to the end of the year, markets are off to a good start after the U.S. Thanksgiving holiday break. Though the broad Dow Jones Industrial Average declined Thursday -- perhaps in reaction to a weaker-than-expected service industry report from the Institute for Supply Management -- it had hit a record high for the year Tuesday.

And though the Nasdaq also slipped, closing at 2173, down by 11.89 for the day and 31 points under its high for the year, it is still well ahead of the broader indexes for the year. The Nasdaq composite index has increased 39 percent since the start of the year, while the Dow composite has gained 15 percent. For Nasdaq computer companies specifically, the results are even better, up 67 percent for the year.

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