Wall Street Beat: IT Gets Hit in Market Slump

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Major U.S. stock markets on Friday closed for a sixth straight week of losses, the worst weekly losing streak since the third quarter of 2002, during the dot-com bust.

Nasdaq computer company shares suffered some of the worst declines this week, to the point where they are down about 2 percent for the year. The Nasdaq composite closed at 2,643.73, down by 41.14, the worst decline in terms of percent of the major U.S. exchanges. Even Apple, whose announcement of a new operating system and iCloud Web-based hosting service at the World Wide Developers Conference this week spurred analysts to raise recommendations on the company, was down Friday afternoon by US$5.59 to $325.90.

The Dow Jones Industrials index slipped 172.45 points Friday afternoon, closing at 11,951.91, under 12,000 for the first time since March. The broad-based S&P 500 meanwhile, closed at 1,270.98, down by 18.02.

Reports about a weak housing and labor market have fueled fears that the recovery is sputtering out and will affect spending for a wide range of companies. A U.S. Federal Reserve survey this week, for example, said that residential construction and real estate continues to flag, and that wage increases are minimal even for skilled workers. The Fed's second round of stimulus, the purchase of $6 billion in bonds, is also ending, with no other government stimulus plan in sight.

Arguments between the European Central Bank and the German Finance Ministry over a new Greek sovereign debt rescue plan raised fresh concerns about the European economy as well.

But despite some trouble spots for IT, underlying news seems to indicate a fairly strong market. Networking equipment supplier Ciena, for example, on Wednesday said its preliminary results for the April quarter were worse than analysts expected. Excluding one-time gains and losses, net loss for the quarter was $22.4 million, worse than the net loss of $11.7 million in last year's second quarter.

But remarks by CEO Gary Smith indicate that the company sees a strong pipeline for product sales, and company shares Friday bucked the overall downward trend, trading up by $0.04 to close at $19.04 Friday.

Likewise, Texas Instruments on Wednesday lowered its guidance for second-quarter results. It said revenue would be $3.36 billion to $3.5 billion, compared with the prior range of $3.41 billion to $3.69 billion, while earnings per share would be $0.51 to $0.55, compared with the prior range of $0.52 to $0.60. But analysts seemed to take this in stride.

Canaccord maintained its Hold rating on TI, with analyst Bobby Burleson noting in a research report that "the shortfall was mostly attributable to weaker demand from Nokia for basebands and has little bearing on broader demand trends for analog or semiconductors in general."

Meanwhile, while IDC and Gartner this week reported reduced expectations for the PC market this year due mainly to weak consumer demand, there is a glimmer of hope for 2012 and beyond.

Worldwide PC shipments are expected by IDC to grow by just 4.2 percent in 2011, down from a February forecast of 7.1 percent. But for 2012 through 2015, growth is still expected to fall in the 10 percent to 11 percent range, according to IDC.

"The PC market has definitely hit a slow patch," said Loren Loverde, an IDC analyst, in the report. "Nevertheless, the long-term growth drivers -- first among which are growth in emerging markets, declining prices, and growing functionality -- remain intact, and the product and design innovations underway will keep PC growth healthy in the long term."

There was some good news on the macroeconomic front as well this week, with a government report Thursday showing that U.S. exports hit a record high of $175.6 billion in April, helped by a weak dollar.

And despite some of the dire news on the Fed report this week, Chairman Ben Bernanke seemed to take a measured stance. "The economic recovery appears to be continuing at a moderate pace, albeit at a rate that is both uneven across sectors and frustratingly slow from the perspective of millions of unemployed and underemployed workers," Bernanke said in prepared remarks to bankers Tuesday.

Even though IT was one of the sectors that took a market hit this week, IT financial results so far this year have been strong. Tech vendors in a variety of markets, including IBM, Intel, Google, EMC, Oracle, Apple and Qualcomm, recorded an increase in year-over-year sales figures, often beating analyst expectations.

Last year, IT stocks took a dive during the third quarter as fears of a double-dip recession weighed on investors, and then rose again as quarterly results showed that tech vendor sales were doing better than ever. This year may end up being a replay of last year's stock story.

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