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Wall Street Beat: Economic uncertainty continues to plague tech

Chances appear higher for a recession that could put a damper on purchases for IT

By Marc Ferranti
June 8, 2012 02:32 PM ET

IDG News Service - Is tech heading into another downturn? Market watchers see signs of hope for the end of the year but they are hedging their bets.

The risk of a tech downturn following a widening recession in Europe andA slower economic growth in the U.S. and Asia have risen to around 30 percent, from about 20 percent a few months ago, according to Andrew Bartels, chief economist at Forrester Research.

While Bartels still has what he calls a moderately positive outlook for IT, he said in an interview Friday that he most likely will cut his forecast for tech purchases when Forrester issues its revised forecast next month.

Bartels thinks that a downward revision for U.S. purchases of technology, from 7 percent growth to about 5.5 percent or 6 percent, is called for. Taking Asia and Europe into account, a 1 percent downward revision for global tech purchases, to a growth rate of about 5 percent or 6 percent, will likely be in order. In its January forecast Forrester said that on a global basis, IT purchases will be US$2.1 trillion in 2012.

Meanwhile, tech investor confidence in U.S. IT companies is slipping. Despite a 0.62 percent uptick in the Nasdaq Computer Index as well as gains in the Dow Jones Industrials and Standard and Poor's indexes Friday afternoon, share prices of computer companies listed on the Nasdaq are about 10 percent lower in aggregate than they were two months ago.

"Investors are nervous," wrote Canaccord Genuity analyst Richard Davis in a research note Friday. "The weakness in the market has decisively shifted investors' gaze from 'how high is up' to 'how low can it go?' "

In an earlier note, Davis said "Sadly, the sub-10% probability of a wipeout in Europe that pulls the world economy back into recession is now closer to 25%."

U.S. President Barack Obama held a press conference Friday to address the European economic crisis, explaining why it matters to American companies. "This matters to us because Europe is our largest trading partner," Obama said. "If Europe goes into a recession that means we're selling fewer goods and fewer services."

In the U.S., economic indicators have been confusing. Thursday the U.S. Labor Department reported that new requests for jobless benefits fell last week for the first time in over a month. But late last week the Labor Department said that in May the unemployment rate edged up by a 0.1 percentage point to 8.2 percent.

The mixed news has sparked cuts in forecasts for tech vendor revenue. The forecast for IBM revenue this year was cut from $109.1 billion to $108 billion by Sterne AgeeA analyst Shaw Wu this week. "Our recent supply chain and industry checks indicate Europe, not surprisingly, is weakening due to greater uncertainty," he said.

Reprinted with permission from IDG.net. Story copyright 2014 International Data Group. All rights reserved.
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