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Wall Street Beat: Forecasts call for tech to trend upward this year

Spending increases are forecast for software, smartphones and tablets

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After a year in which tech stocks boomed but overall IT spending barely eked out single-digit growth, market forecasters are adopting an air of cautious optimism for 2014.

While few if any analysts are brave or foolish enough to predict that tech vendor shares will continue 2013's dizzying rate of ascent, there appears to be consensus that the PC market decline will level off somewhat, while spending on software, smartphones and tablets will continue to increase.

IT investors had a great 2013, as tech stocks rose along with the rest of the market. The Standard and Poor's 500 index came close to gaining about 30 percent for the year, and the Nasdaq Computer Index was not far behind.

Meanwhile, stocks have gotten off to a faltering start in 2014. On Thursday the Nasdaq Computer Index closed down 1.37 percent for the year. In midday trading Friday the index recovered somewhat, up by 0.64 percent for the day.

The Dow Jones Industrial Average and the S&P 500 were down in midday trading Friday, in the wake of a government report showing that the U.S. economy added only 74,000 jobs in December, below expectations. Some economists, however, are considering the report to be an outlier in light of recent, more upbeat data.

Of the four tech stocks in the Dow, Microsoft and IBM were up and Cisco and Hewlett-Packard were down in midday trading.

With the latest jobs report, the U.S. unemployment rate is 6.7 percent, its lowest level since October 2008. Some of the recent decline in the unemployment rate can be ascribed to workers simply dropping out of the labor market. But since October, the unemployment rate dropped six-tenths of a percent, a significant decline.

Lindsey M. Piegza, chief economist at Sterne Agee, forecasts "positive, but modest" growth for the U.S. economy in 2014.

"The growth outlook over the next six to 12 months looks relatively benign given that headline growth has been stubbornly near 2 percent since the end of the Great Recession," Piegza said in a recent research note.

The U.S. will take the lead for major markets, according to Forrester Research chief economist Andrew Bartels.

"While the US economic expansion has not been robust, it has been and will continue to be more solid than growth elsewhere, and that has sustained tech market growth," Bartel said in a blog post. "Only the small tech markets of Eastern Europe, the Middle East, and Africa did better than that in 2013, with Latin America also doing well in 2014 after a sluggish 2013. "

Global spending on technology will increase year over year by 6.2 percent in U.S. dollars, to $2.22 trillion in 2014, according to a recent Forrester forecast. That compares with worldwide IT market growth of 1.6 percent in 2013.

The main IT trends of 2013 are still essentially in place, according to Bartels. In short, "Software leads, hardware slips, and services follow software," Bartels wrote.

"Business and government purchases of software will post the fastest 2014 growth (7.8% in US dollars, 7.1% in local currency terms) of any tech category, followed by IT consulting and systems integration services (7.3% in US dollars, 6.6% in local currencies)," Bartels wrote. "Computer equipment will lag, with only tablets posting strong growth, though laptops and other PCs will see a modest recovery."

On its part, Gartner forecasts that global spending on IT and telecom products and services will increase 3.1 percent year over year, compared to only 0.4 percent in 2013. The figure is much different from Forrester's because Gartner also includes telecom products.

Worldwide spending for IT and telecom will total US$3.8 trillion, Gartner said. Like Forrester, Gartner said that much of the growth will be driven by enterprise software.

The biggest disappointment for the IT market in 2013 was the decline in PC shipments. Both IDC and Gartner reported this week that PC shipments plunged by about 10 percent.

"Total shipments have now declined for seven consecutive quarters, and even the holiday shopping season was unable to inspire a turn in consumer spending," wrote IDC analyst Loren Loverde in the market researcher's report.

However, the consensus among market researchers is that the PC market's decline will slow this year.

"Although U.S. growth slipped a little in the fourth quarter, other regions all improved, reinforcing our view that growth rates will continue to improve gradually during 2014 despite remaining in negative territory," Loverde said.

On its part, Gartner forecasts that PC shipments will decline 7 percent to 277.94 million units this year.

Meanwhile, tablet shipments will increase from 179.5 million to 263.5 million units and mobile phone shipments will rise from 1.8 billion to 1.9 billion units, Gartner said. While the increase in mobile phone units doesn't seem big, just about every mobile market analyst agrees that smartphone shipments will rise at a faster rate than the overall phone market.

Earnings reports from major vendors, meanwhile, are due to start appearing in a few weeks, and the ensuing flood of data will help give a better sense of what's in store for the rest of the year.



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