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Wall Street Beat: Bad news gets worse for IT

By Marc Ferranti , IDG News Service , 11/14/2008
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Despite a market rally Thursday, the financial news for IT just keeps getting worse, with bellwethers like Intel cutting revenue guidance, shares of high-flyers like Google sinking to multiyear lows, investment analysts downgrading industry darlings like Apple, and market researchers at IDC and Citigroup slashing forecasts.

The conventional wisdom up until now has been that since corporate IT budgets were slashed and stayed lean after the dot-com bust, there isn't much left to cut. Therefore, the thinking goes, the tech sector will suffer a slowdown but not an actual decline. However, market watchers are starting to seriously hedge their bets, revising their official expectations and in some cases forecasting declines.

Before a Thursday afternoon rally, probably caused by traders seeing opportunities to snap up historically low shares, the tech-heavy Nasdaq closed Wednesday at 1499, a new low for the year and a level not seen since the tail end of the dot-com bust five years ago. The new low point marked a stunning loss of confidence in the tech sector. Shares of Google sank to below $300 for the first time in three years.

Market analysts have continued to downgrade tech shares this week. Goldman Sachs downgraded Dell to "sell" from "neutral" based on expected declines in margins and earnings. Dell remains highly dependent on sales of hardware, which is typically the first thing cut when IT budgets are trimmed.

Goldman initiated coverage of Palm with a "sell" rating. It sees limited chance for a company turnaround since increasing competition will likely drive market-share losses, and the company's new software platform strategy remains unproven.

Credit Suisse cut its share price target for Apple to $120 from $135 to reflect a more conservative outlook for the personal computer industry.

One sign of tough conditions for hardware was Monday's announcement from electronics retailer Circuit City that it had filed for bankruptcy protection to try to turn around its bleak financial position.

The PC industry is under increasing scrutiny after Intel cut its fourth-quarter guidance Wednesday. Intel now expects revenue for the current quarter of about $9 billion, down from its earlier forecast of $10.1 billion, citing "significantly weaker-than-expected demand in all geographies and market segments." That would amount to the worst fourth-quarter sales decline in the company's history.

Intel's announcement gave Asian markets a shock, leading to a broad sell-off in regional markets that included a 5.3 percent drop in Tokyo and a 5.2 percent decline in Hong Kong. The international scene darkened further with the announcement Thursday that the German economy shrank over the past three months. Earlier in the week in Europe, mobile-phone vendor Vodafone Group reported a 35 percent decline in first-half net income and cautioned that full-year sales would fall short of earlier expectations.

On the networking front, Nortel on Monday reported a net loss of $3.4 billion for the third quarter and said it would slash 1,300 jobs.

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