Wall Street: IT crawls to the end of a tough year

Amazon and Red Hat provide glimmers of sunlight

Though Amazon and Red Hat provided a few glimmers of sunlight the tech sector suffered through a turbulent week, with no signs of letup soon.

The macroeconomy, expected to stop overall growth of IT sales for the better part of the next two quarters, brought little cheer to the holidays. The US Labor Department on Wednesday, the day before markets were closed for a one-day Christmas break, reported that initial requests for jobless benefits rose to a seasonally adjusted 586,000 for the week ending this past Saturday, the highest level in 26 years. Meanwhile, total retail sales excluding automobiles declined from the year-earlier period by 5.5% in November and 8% in December through Christmas Eve, according to MasterCard's SpendingPulse unit.

IT is not immune from decreases in business and consumer spending. Overall online spending for November and December declined 1% compared to the same period a year earlier, according to comScore. Through December 21 of this year, online shoppers spent US$24.71 billion, compared to $24.96 billion in the year-earlier period, comScore says.

There were a few bright spots. US online spending over this past weekend nearly doubled from a year earlier, comScore says.

And on Friday, Amazon announced that the 2008 holiday season was "its best ever," reporting that more than 6.3 million items were ordered worldwide on the peak day, December 15. Last year Amazon said its busiest day, December 10, saw 5.4 million items ordered. The company did not immediately provide a comparison in terms of dollar totals, however.

Red Hat provided some good news for the software sector, which is expected to fare better than hardware during the next few quarters. For its fiscal year third quarter ended November 30, the company said on Tuesday that revenue totaled $165.3 million, compared to $135.4 million a year earlier, while net income climbed to $24.3 million from $20.3 million.

"Red Hat's low-cost, high-transaction business model continues its strong renewal performance," noted analyst Brent Thill in a Citigroup research note. Red Hat offers Linux services and an expanding portfolio of middleware software offerings.

Red Hat shares jumped by more than a dollar to close at $12.99 on Tuesday, then drifted down during trading the rest of the week.

The news for hardware this week was, as usual, not promising. US DRAM maker Micron Technology on Wednesday reported a decline for its most recent quarter. Micron reported a net loss of $706 million for the quarter ending December 4, worse than the $262 million loss it posted a year earlier. Sales were $1.40 billion, down from $1.54 billion.

Micron blamed low prices for DRAM chips worldwide, which is not surprising. Hardware and components sales are expected to decline in 2009. Earlier this month, IDC said worldwide 2009 PC sales would decline by 5.3%, and last week it forecast mobile phone shipments to decline by more than 2%.

In IT, hardware and components are expected to take the brunt of the US recession, since typically, hardware upgrades are the first thing cut when business budgets shrink.

Some bellwether components and mobile device makers this week announced bailouts of sorts. Hynix Semiconductor of South Korea said Wednesday it was granted a loan of 800 billion Korean won (US$600 million) from its creditors, to help weather the crisis and the DRAM downturn.

Smartphone maker Palm kicked off the week announcing it would receive a cash infusion of $100 million from venture capital firm Elevation Partners, to help launch new products in 2009. Palm last week reported revenue of $191.6 million for the second quarter ending November 30, down from $349.6 million it reported a year earlier.

But the recession is affecting all areas of IT. Gartner this month forecast that worldwide spending on enterprise software will reach $244 billion in 2009, down from its prediction of $253 billion made in September.

In the last year the tech-heavy Nasdaq index, at 1524 during Friday afternoon trading, has lost about 45% in value. Overall global IT sales are expected to barely climb into the positive territory by the end of 2009 assuming, as most economists do, that the recession comes to end by mid-year. If the macroeconomic news doesn't clear up over the next six months, users will need to brace for some IT suppliers to go the way of the failed investment banks.

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