Tech Recovery Is Plagued by Potholes

Call It a Comeback

Nevertheless, the March quarter contained lots of positives, and evidence that IT spending is unlikely to fall off a cliff.

The ratio of negative-to-positive earnings preannouncements (for all public companies) was nearly 50% lower than the historic average, and close to last year's record low, according to Thomson First Call.

Average deal sizes in software -- an indicator of willingness by customers to make a longer-term financial commitment to vendors -- stopped sliding, and in many cases increased. Goldman Sachs technology analyst Rick Sherlund called the shift "a function of improving IT spending conditions and customers' increasing propensity to spend on new revenue-generating projects, not just cost-reduction projects."

Spending by businesses for information technology-related hardware and software rose 16.2% in the first quarter, according to the U.S. Department of Commerce. While slower than the preceding four quarters, which were helped by easy comparisons, that's still quite robust.

"Our basic belief is that the economy is in good shape ... and that while we're not on a huge trajectory upward for IT spending, we're on a good overall upswing," said Chuck Jones, vice president and technology analyst at Stein Roe.

Finally, Microsoft, one of technology's bellwether companies, gave investors something to cheer about. Not only were the company's own fiscal third-quarter numbers good, but also CFO John Connors' upbeat remarks about PC sales to the business sector were something of an upside surprise.

"We believe Microsoft's surprisingly good results provide more support for our thesis that the overall IT spending environment is improving, with organizations not only increasingly willing to undertake new projects, but also increasingly investing in PCs," said Lehman Brothers analyst Neil Herman.

If companies continue to exceed expectations and provide robust guidance at the end of the second quarter, it will be hard to justify a bearish outlook. But until then, expect continued turbulence.

Hold on Tight The Nasdaq's up-and-down ride is likely to continue.

Source: Yahoo! Finance

Staff reporter Ronna Abramson contributed to this story.

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