Bill Snyder
"Don't think it's just the handset and hardware makers who suffer when telco tanks. Standard & Poor's, for example, has a strong sell on Verisign(VRSN Quote - Cramer on VRSN - Stock Picks), which derives more than half of its revenue from communications," says Scott Kessler, the head of S&P's technology equity research.
What's more, IT spending by large businesses, which grew by an estimated 6% during 2006, is expected to slow to 2.8% this year, according to Gartner, a market research and IT consulting firm. Earlier in the year, Gartner figured that spending in 2007 would match the previous year's pace, but analysts reduced their estimates in late December. Enterprises will be spending more on nondiscretionary "run-the-business" items such as rising energy costs and stiffer regulatory requirements, so they'll have less money left for new strategic technology investments, says Jed Rubin, director of Gartner Consulting. It's worth noting that the earnings season is still very young. Only about 15% of the S&P 500 has reported, including 14 of 76 tech vendors. There is, though, an unsettling statistic compiled by AG Edwards analyst Gary Mobley. He found that of the 72 semiconductor companies that gave guidance for the December quarter, just three of the 24 that updated their outlook had boosted guidance, while 15 lowered guidance and six companies stood pat. Meanwhile, shares of those companies, as measured by the Philadelphia Semiconductor Index, have appreciated by 18% in six months. "I guarantee you that business isn't 18% better," said one fund manager with big positions in the sector, who asked to remain anonymous. Brightening the outlook a bit are expectations that Microsoft(MSFT Quote - Cramer on MSFT - Stock Picks) will report a strong quarter next Thursday, and sentiment that the huge amounts of cash still sitting in the hands of private-equity firms will continue to support the market. S&P's Kessler notes that the cost of options, which acted as a lead weight on earnings comparisons in 2006, will be normalized in 2007. Although cautious, Kessler says that fundamentals in tech are still reasonably strong, companies are generating a lot of cash, and he expects earnings to increase by an average of 20% during the year. Even so, it was a very tough week, with the prospect of more pain to come.| TechWeek Scorecard |
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| Index | Closing | Change |
| Nasdaq Composite | 2451 | -2.1% |
| Philadelphia Semiconductor | 458 | -5.2% |
| Goldman Sachs Software | 183 | -2.7% |
| TSC Internet | 248 | -2.7% |
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