Wall Street Beat: IT gets hammered in Q1

Even though mobile technology and spending news sparked some hope this week, IT investors are waiting for first-quarter sales reports

The worst quarter for tech stocks in five-and-a-half years has ended, but even though mobile technology and spending news sparked some hope this week, IT investors can't breathe a sigh of relief yet.

Though tech company profits remained strong during the fourth quarter of 2007, worries about the US economy have depressed the value of vendors' shares. The tech-heavy Nasdaq Composite Index dropped 14.07 per cent in the first quarter, the worst decline since the third quarter of 2002, when the Nasdaq plunged almost 20 per cent in the wake of the dot-com bust.

This week, Research in Motion (RIM) results, some exciting technology at the CTIA show in Las Vegas and an upbeat IT spending report from Gartner helped get the second quarter off to a decent start.

RIM on Wednesday said in its financial report that during its fiscal fourth quarter, which ended March 1, it added about 2.18 million new BlackBerry subscribers. With fourth-quarter revenue more than doubling compared to 2007 and profit jumping 120 per cent to US$412.5 million, it appears as though the company has not been hurt by the US economic slowdown. RIM shares jumped by US$6.79 Thursday to close at US$123.58.

Noting that at CTIA, RIM introduced the Curve with Verizon followed by the Curve 8830 with Sprint and the Wi-Fi-enabled Pearl 8120 with T-Mobile, Citi Global Markets analysts Jim Suva and Kevin Dennean wrote in a research note that they "continue to be impressed with RIM's ability to roll out successive iterations of phones that continue to build on prior successful launches by adding new feature sets tailored to individual carriers."

The analysts also said that the simultaneous announcement and availability of Motorola's Z9 phone with AT&T was a hopeful sign that the beleaguered device maker is speeding its product cycle. Motorola shares were up slightly this week, lifted by rumors that India-based Videocon Industries is interested in acquiring the device-manufacturing side of the business. Motorola shares rose by $0.17 to close at US$9.47 Tuesday after the Videocon reports surfaced, and ticked upward the next few days. The company's decision to split its business into device-making and network technology, announced last week, has been greeted with enthusiasm.

Despite fears of shrinking demand, global semiconductor-chip sales rose 1.5 per cent in February versus a year ago, totaling US$20.44 billion, according to a monthly report released Monday by the Semiconductor Industry Association. Though prices are falling, units sold increased. Most growth was seen in Asia-Pacific including China, which has overtaken the US as the largest PC market.

IT budgets in Asia-Pacific are also growing more rapidly than elsewhere, according to a Gartner global poll of CIOs released Thursday. For the tech sector, the good news is that worldwide, the projected corporate IT budget growth rate for 2008 is 3.3 per cent, unchanged from a previous survey. In the US, poll respondents said budgets will grow this year by 2.3 per cent, down from 3.1 per cent in the last study.

Industry insiders remain cautious. Investment brokerage USB, citing softening demand in the US corporate market, downgraded its rating on Cisco to "neutral" from "buy." Cisco shares dropped by $0.73 to close at US$24.23 Thursday.

After a rally on the Nasdaq on April 1, the first day of the quarter, analysts waited nervously for a US Labor Department report on Friday. But it won't be until later in the month, when vendors start reporting first-quarter sales, that IT investors will get an idea of whether the worst is over.

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