Wall Street Beat: Tech sector faces turbulent market

Tech closes out the first half of the year only modestly up compared to other sectors

Closing out June, tech stocks are up for the year but have not enjoyed the full fruits of a bull market that has boosted the Dow to its best first half since 1999, right before the dot-com crash.

The tech sector also faces what some analysts predict to be a rough few quarters, amid doubts about the economy and market forecasts for a tough year for tech sales.

Tech stocks were up Friday, with the Nasdaq Computer Index, which tracks more than 300 tech-related stocks, closing at 1615.46, up 2.21 percent. It was a mixed day of trading, however. Of the five tech bellwethers on the Dow Jones Industrial Average, Intel and Hewlett-Packard closed up for the day, while IBM, Microsoft and Cisco were down.

Unusually, compared to what's been happening so far this year, tech was up while other sectors were down Friday. The Dow and the Standard and Poor's 500 were both down for the day.

The market as a whole has done well this year so far, however, despite recent turbulence caused by remarks from the Federal Reserve Board. Since May, Fed officials have cautioned that as the economy shows signs of recovery, they may wind down initiatives mean to fuel the recovery from recession. These include the Fed's policy of maintaining low interest rates as well as its "quantitative easing" program of buying about US$85 billion in bonds per month to boost the stock market.

Last week, for the first time, Fed Chairman Ben Bernanke laid out a timeline for winding down purchases of mortgage bonds and treasuries, possibly next year. The remarks led to a big stock selloff, with the broad Standard and Poor's 500 index declining 2.5 percent last Thursday, its worst drop up to that point since November 2011. Still, stocks have done well this year, with the Dow up by about 14.5 percent and the S&P up about 13 percent. In comparison, the Nasdaq Computer Index is up only 4.5 percent for the year.

It's a far cry from last year, when tech led markets for much of the year. This year, forecasts of relatively slow sales have hurt confidence in tech. The hardware sector is especially under pressure as users spend more time on tablets and smartphones, eschewing pricier desktop and notebook computers.

This week, Gartner forecast that worldwide desktop and notebook computer shipments will total 305 million units in 2013, a 10.6 percent decline from 2012. It expects the PC market including ultramobiles to decline by 7.3 percent.

The downward trend is offset by tablet shipments, which are expected to increase 67.9 percent, reaching 202 million units, while the mobile phone market will grow 4.3 percent, with shipments of more than 1.8 billion units, Gartner said.

So while there is good news amid the gloom, the shift from traditional PCs represents a wrenching shift for the market.

"Consumers want anytime-anywhere computing that allows them to consume and create content with ease, but also share and access that content from a different portfolio of products. Mobility is paramount in both mature and emerging markets," said Carolina Milanesi, research vice president at Gartner, in the report.

There will be winners and losers as the market changes. For example, BlackBerry's attempts to recapture its past glory as a mobile market leader are faltering.

On Friday, BlackBerry said it suffered a US$84 million loss during the three months to June 1. The company shipped 6.8 million smartphones in the quarter, 2.7 million of which were running the new BlackBerry OS. But many analysts were hoping for a profit and sales of at least 7.5 million phones. CEO Thorsten Heins asked for more time in a conference call to discuss the results, saying that "BlackBerry 10 is still in the early stages of its transition."

But the market reacted violently, as BlackBerry shares plunged by 27.76 percent to close at $10.46.

Meanwhile, the software market was supposed to be a bright spot for tech this year, but recent results point to a rough quarter for enterprise vendors. Last week, though Red Hat reported a solid quarter, Oracle revenue was soft, and Tibco's sales and profit declined year over year.

Though Oracle reported a 10 percent year-over-year increase in profit, to $3.8 billion, revenue for the three months ending in May was flat at $10.9 billion. Tibco said revenue for the period ending June 2 was $245.8 million, down from $247.4 million a year earlier, while net income was $8.7 million, down from $26.5 million.

Both companies gave conservative guidance for the next quarter. As earnings season gets under way in earnest in a few weeks, other tech vendors are likely to do the same.

"With the up and down gyrations of Japan, Europe still bumping along the bottom and angst (which we believe is premature) over Fed tightening in the U.S., no sane CFO will put out a big September quarter guide," wrote Canaccord Genuity analyst Richard Davis in a research note. "Investors' nerves are still raw from the choppy March quarter. With software modestly underperforming the market so far this year, the likely reaction from investors will be to sell first and wait for an obvious catalyst to step in."

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Tags business issuesMicrosoftIBMciscofinancial resultsinteltibcoRed HatHewlett-PackardOracle

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Marc Ferranti

IDG News Service

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