Wall Street Beat: Tech rides market optimism

Market reports issue caveats, but stress positive aspects of the IT market

So far this year, the technology sector is off to its best start in the stock market since 2000, right before the dot-com bubble burst, and even though analysts have been forecasting just modest growth in IT spending, there appear to be reasons for continued optimism.

Riding a wave of positive economic news, shares of computer companies on the Nasdaq closed Thursday up by 17.73 percent in aggregate, better than any other sector on the exchange. Tech stocks are also up higher in the Standard and Poor's 500, at 16 percent, than any other sector in the index. On Friday morning, tech stocks ticked up again, rising 10.14 to 1633.36 on the Nasdaq.

Shares of Apple, not only the superstar of the tech sector but the most valued company in the world in terms of market capitalization, are up 34 percent for the year. In trading Friday morning, three days after it announced its new iPad, shares rose by $3.42 to $545.40. The tech winning streak continued Friday for other IT bellwethers as well. IBM was up by $1.05 to $200.86, Intel was up by $0.25 to $27.09, Oracle rose by $0.18 to $30.25.

Much of the recent rise in share prices -- for tech as well as other sectors -- is due to general optimism stirred by positive economic news, after a very worrying year. In 2012, the specter of a sovereign debt default by Greece and possibly other countries raised the specter of chaos in financial markets, sparking huge market swings and depressing stocks, including shares of tech companies.

A poor economic outlook did not bode well for spending on IT. A stubborn unemployment rate in the U.S. did not help matters. Analysts forecast a slowdown in the growth of IT spending this year. Forrester, for example, projected a slowdown in the global IT market from 9.6 percent in 2011 to 5.4 percent in 2012 when measured in U.S. dollars.

But recent economic news has been positive. On Friday, Greece appeared to have sealed a deal with banks in the largest debt writedown in history, paving the way for bailout funds from Europe and the International Monetary Fund that will save it from default (at least, anytime soon). In the U.S., the Labor Department Friday said that the economy created a net 227,000 jobs in February, the third straight month of a 200,000-plus gain in jobs.

"The very large job losses during the recession have not yet been made up but we're chewing into them," said Neal Soss, chief economist for Credit Suisse, in a video interview with Yahoo Finance's The Daily Ticker. "We're really moving in the right direction."

While analysts are still issuing caveats for the tech sector, IT bellwethers have shown resilience in the face of economic doubts. Apple has stolen the show, because few companies of its size have been able to grow so rapidly. In its last quarterly earnings report, Apple said net income increased 118 percent from a year earlier, to $13.06 billion.

But in the last wave of earnings reports, covering for the most part the last calendar quarter of 2011, there were glimmers of good news among other IT stalwarts. EMC said fourth-quarter revenue increased 17 percent year-over-year to $5.6 billion. SAP said net profit jumped 176 percent to €1.2 billion (US$1.6 billion). IBM reported that net income was $5.5 billion, up 4 percent. Intel's revenue rose 21 percent to $13.9 billion.

This week, reports from a range of market research companies stressed the positive aspects of market conditions. On Friday, the Hackett Group released a report, "2012 IT Key Issues: Coming to Terms with the 'New Normal," that said companies "may see some breathing room in IT budgets and staffing in 2012."

"After several years of stagnant or negative growth, most companies are now projecting a 3-4 percent increase in IT budgets and staffing for this year, which can be seen as acknowledgement that IT is critical if companies are to execute on their aggressive growth plans," the report said.

Earlier in the week, the Semiconductor Industry Association (SIA) said that though worldwide semiconductor sales were $23.1 billion in January 2012, a 2.7 percent decrease from the month prior, the slump was a typical seasonal decline and that the rest of the year has the potential for an upturn for the sector.

"The month over month revenue decline for January is in line with seasonal patterns," said SIA President Brian Toohey. "A weakened global economy amidst inflation concerns and the European debt crisis continued to affect sales at the start of the year, but there are strong signs pointing to recovery and growth as 2012 progresses."

Semiconductor sales are expected to improve due to demand, an improved U.S. economic outlook and the end of floods in Thailand, which affected availability of hard drives, according to the SIA.

Though the PC market will experience modest growth this year, things are looking up for 2013, Gartner said in a report Thursday. The market research company said that worldwide PC shipments are on pace to total 368 million units in 2012, a 4.4 percent increase from 2011, and forecast shipments to increase at a higher growth rate by the end of 2013, when shipments are expected to reach more than 400 million units.

While tablet sales are booming, the PC market is paying catch up, Gartner said. "The real question is whether Windows 8 and ultrabooks will create the compelling offering that gets the earlier adopter of devices excited about PCs again," said Ranjit Atwal, research director at Gartner.