Wall Street Beat: Tech rises on sales, economic news

Surveys outline a strong quarter for enterprise hardware

Tech stocks looked strong Friday morning on the back of a week of upbeat surveys on small business and online spending, positive news about enterprise hardware and hopeful reports on U.S. employment and the European debt crisis.

In midday trading, the tech-heavy Nasdaq rose by 12.16 points to 2636.39, the Dow jumped by 33.52 to 12,053.55 and the S&P 500 increased 5.87 to 1250.45. In aggregate, computer vendors on the Nasdaq were up by 0.27 percent. U.S. markets appeared to be closing in on their biggest week of gains since March 2009 after a Friday morning U.S. Labor Department report that showed industrial jobs increased by 120,000 in November, while unemployment dropped to 8.6 percent, its lowest point in two and a half years.

The big economic news of the week happened Wednesday, when the U.S. Federal Reserve, together with European central banks, worked out a plan by which banks could borrow dollars more cheaply. The idea was to ease pressure on European banks, which over the last year have been operating under the possibility that Greece and possibly other countries in the Euro zone would default on their debt. The news pushed the Dow up into positive territory for the year, and help buoy several key sectors, including financials and tech. As of Friday morning, tech stocks on the Nasdaq were up about 2.5 percent for the year.

The big fear for tech is that a weak economy and continuing employment woes will dampen spending on IT. This year, hardware has been especially hard hit by tepid spending, particularly on the consumer side.

Despite overall economic uncertainty, there were glimmers of good news about spending this week. A survey from Computer Economics showed that in the U.S. and Canada, IT operational budgets should grow about 2.0 percent at the median for small organizations next year, though growth for midsize and large companies would be only 0.5 percent and 0.8 percent, respectively.

"Small-business spending often precedes a recovery, so this is a positive indicator," said Frank Scavo, president of Computer Economics, in a report. "But there is a great deal of economic uncertainty, due in part to the European debt crisis, which leads IT executives to remain cautious with their spending and hiring plans."

Consumer online spending has also been strong in the runup to the end-of-year holidays. Industry watchers said online sales surpassed US$1 billion on Cyber Monday, after the U.S. Thanksgiving holiday weekend. ComScore reported on Monday that U.S. consumers spent $12.7 billion online since Nov. 1, a 15 percent year-over-year jump.

Meanwhile, revenue for total worldwide disk storage systems posted year-over-year growth of 8.5 percent in the third quarter, totaling about $7.6 billion, according to an IDC report this week.

"The third quarter of 2011 was a strong quarter for Enterprise Storage, posting solid growth in factory revenue and signaling a return to 'business as normal'," said Liz Conner, an IDC analyst, in a report.

There are some shadows on the hard drive market, however, caused by floods in Thailand. Western Digital said it has partially resumed drive production in Thailand, but also warned that some of its operations were still under water. The vendor said worldwide hard drive shipments in the fourth calendar quarter would be around 120 million, far short of the estimated demand of 170 million to 180 million units.

Hard-drive maker Seagate also warned of supply issues, noting that although it does not have factories in Thailand, it uses components made in that country. However, the company also forecast that next quarter production should go back to pre-flood levels and for its fiscal third quarter forecast $3.75 billion of revenue, beating analysts' consensus estimate of $3.25 billion, according to Thomson Reuters.

Both IDC and Gartner this week reported that global server market revenue is on the upswing, though Hewlett-Packard's share of that market slipped.

Worldwide server shipments in the third quarter of 2011 grew 7.2 percent year-on-year to 2.3 million units, while revenue increased 5.2 percent to $13 billion, according to Gartner.

HP's server revenue declined 3.6 percent year-over-year to about $3.8 billion. The company, the biggest IT vendor in the world by revenue, confused market watchers during the quarter after it fired CEO Leo Apotheker, who had hatched a plan to spin off the hardware division. New CEO Meg Whitman, former CEO of eBay, has since said that the company would likely retain the hardware business.

Tags business issuesservershardware systemsfinancial resultsComputer EconomicsComponentswestern digitalprocessorsHewlett-PackardComScoreGartnerseagateIDC

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Marc Ferranti

IDG News Service

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