Wall Street Beat: Markets advance but tech trends stay stable
Intel, with the weakest share gains of the Dow tech stocks, scrambles in the mobile device market
IDG News Service - While U.S. markets have surged lately, with the Dow Jones Industrial Average hitting milestone after milestone in 10 straight days of advances, a relatively modest increase in the value of IT company shares reflects the reality that a rising tide will not lift all boats in the tech sector.
Though markets got off to a slow start Friday with major exchanges taking a dip in morning trading, the Dow hit another nominal (not adjusted for inflation) record Thursday, rising 83.86 points to close at 14,539.14. So far this year, there has been an increase in the share price for all five of the Dow's tech stocks: Hewlett-Packard, Intel, IBM, Microsoft and Cisco. IBM shares hit US$215.80 Thursday, a 52-week high.
But on the whole, the rise in the value of IT shares has been more moderate than that seen in other sectors. The Nasdaq Computer Index has increased 2.97 percent this year as of Thursday's close and was down 0.34 percent in midday trading Friday. That compares with a 7.93 percent rise in the Nasdaq as a whole and a 10.95 percent rise for the Dow industrials. The Nasdaq Computer index has been the weakest sector in the Nasdaq so far this year, beaten by, for example, banks, industrials and insurance stocks.
There is general confidence that tech company sales on the whole this year will rise as IT spending increases globally. Even taking the U.S. spending "sequestration" -- an across-the-board cut in government spending that is expected by most economists to slow economic growth -- Forrester forecasts that U.S. tech spending will increase in the 6 percent to 6.5 percent range this year.
Global software spending, at $542 billion, will fuel growth for IT this year, according to Forrester. Spending on computer equipment, however, drags down overall growth, increasing only 2.1 percent to $416 billion this year, Forrester said.
Part of the reason is the state of maturity of PCs. There is simply not that much of an increase in capabilities from model to model anymore -- at least not in the way there was years ago.
"For a generation, PCs have steadily improved their hardware performance and capabilities every year, with faster microprocessors, rising storage capacities and major increases in DRAM content," said Clifford Leimbach, memory analyst at information and analytics provider IHS, in a report this week.
"These improvements -- largely driven by rising performance demands of new operating system software -- have justified the replacement cycle for PCs," Leibach said. "However, on the DRAM front, the velocity of the increase has slackened. This slowdown reflects the maturity of the PC platform as well as a change in the nature of notebook computers as OEMs adjust to the rise of alternative systems -- namely smartphones and media tablets."
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