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Wall Street Beat: Tech stocks up despite dire PC, server outlook

Marc Ferranti | June 3, 2013
Optimism about cloud technology and mobile devices fuels the enthusiasm.

Despite dismal forecasts for PCs and servers, tech stocks have been doing well on optimism about cloud technology and mobile devices.

A fresh batch of dire forecasts for the hardware market came out this week, yet tech stocks have continued to lead markets to new heights this month.

The Nasdaq Computer Index, which tracks 394 tech-related companies, was on track Friday to close out May with an approximately 4 percent gain for the month, about 9 percent up for the year. In midday trading, the computer index was at 1689.86, up 5.82 points for the day.

Though tech got off to a slow start this year, it has outpaced other sectors recently as the Dow Jones Industrial Average and the Standard and Poor's 500 indexes hit milestone highs. In midday trading Friday, four of the five tech companies in the Dow were trading up. Microsoft, IBM, Cisco and Intel were up, while only Hewlett-Packard was trading down from its opening.

Though Intel, like HP, is affected by the fortunes of the PC market, company watchers have gotten excited about its upcoming Haswell chips, designed with laptops and tablets in mind. Intel will be talking more about Haswell next week at the Computex trade show in Taipei.

The rise in investor optimism in tech has come in the face of a darkening picture for PCs. Just this week, IDC forecast worldwide PC shipments to decline by 7.8 percent this year. In its prior report, IDC forecast a 1.3 percent decline, followed by a gradual increase in volume.

The new report, however, also calls for a decline of 1.2 percent in shipments next year. What's worse, IDC said shipment volume will hit only 333 million in 2017 -- below the 349 million shipped in 2012 and a peak of more than 363 million shipped in 2011.

In the near term, the wait for Windows 8.1, which is expected later this year, will likely depress PC sales for the third quarter, according to Sterne Agee analyst Vijay Rakesh.

"We believe similar to the Win8 launch last year in October, which held back PC OEMs and ODMs from aggressively pushing PCs at back-to-school, a Win8.1 refresh could be holding the supply chain back," wrote Rakesh in a research note this week, discussing major PC makers and for-hire contract manufacturers.

Meanwhile, the market for bigger machines has not been doing well either. In the first quarter, worldwide server shipments declined 0.7 percent year on year, while revenue declined 5.0 percent from the first quarter of 2012, according to Gartner.

"The first quarter of 2013 was certainly not a strong period for the server market on a global level," said Jeffrey Hewitt, research vice president at Gartner, in a report this week. "The only regions to post increases were Asia/Pacific and the United States."

 

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