Weak Corporate Spending Spells Trouble for Tech Stocks - Barron's

 |  Includes: EMC, HPQ, IBM, INTC
by: SA Eli Hoffmann

Annotated article summary from this weekend's Barron's. Receive all our Barron's summaries by signing up here:

Coming Soon: Tech's Summer of Discontent by Mark Veverka

Summary: Despite generally healthy Q1 hardware earnings, Plugged In editor Mark Veverka says the sector is in for a tepid summer at best. International Business Machines Corp. (NYSE:IBM) and EMC Corp. (NYSE:EMC) warned last week of weakening demand and slowing growth. Intel Corp. (NASDAQ:INTC) came through with gross margin gains, but it too will have to deal with corporate business' unwillingness to part with its cash. Price wars between Intel and rival Advanced Micro Devices Inc. (NASDAQ:AMD) are likely to get more vicious, agitated by weak enterprise spending and the companies' continued operation of fabs at capacities that exceed demand. BCA Research says hardware stocks should slide as the industry hits a 'major overproduction cycle' (hardware inventories are building at both manufacturing and wholesale levels), while Bill Whyman of International Strategy & Investment says 9% U.S. tech spending growth will keep tech shares flat at best. Whyman says Q4 may be a bright spot due to year-end budget-flushing and a weak U.S. dollar leading to gains for companies with strong international sales like IBM and Hewlett-Packard Co. (NYSE:HPQ). Even if he's right, the bigger question is: What will drive follow-through into 2008 in the absence of any new must-have technologies?

Related Links: NYSE Arca Tech 100 ETF Offers Challenge To QQQQWhere's the Money Flowing in Technology Stocks?Sector Earnings Trends: Impressive Growth for Materials, Tech , Healthcare