As evidenced by the above (courtesy of StockCharts.com), the technology-laden Nasdaq Composite index has been on a tear since March and has outperformed the S&P 500 since last November.
According to the conventional wisdom, that would indicate that stock investors see a much brighter future ahead for the technology sector, right?
I guess that also means the head of one of the largest technology companies in the world, as detailed in the following Associated Press report, "Microsoft CEO: IT Spending Won't Fully Recover," doesn't know what he is talking about.
Microsoft CEO Ballmer says technology spending won't recover to pre-crisis levels
Microsoft CEO Steve Ballmer said Monday corporate spending on information technology will not recover to levels seen in recent years before the global economic slowdown.
"The economy went through a set of changes on a global basis over the course of the last year which are, I think is fair to say, once in a lifetime," Ballmer told a meeting of South Korean executives in Seoul.
Spending on information technology, which accounted for about half of capital expenditures in developed countries before the crisis, was unlikely to rebound fully because capital was more scarce these days, he said.
"While we will see growth, we will not see recovery," Ballmer said.
Well, IT spending doesn't have to increase any more - you can simply do a lot more for a lot less because hardware is so cheap and if you're paying for most of your software you're probably a bit dim (or open to soft bribery).
That MS has based it's business model on vastly over-charging for under-performing product is only a real problem for them - if they fail it would be great for the industry. Whilst hardware has gotten cheaper per performance unit by orders of magnitude every few years, some software has continued to increase in price with only marginal (if any) benefit.
If the same price/performance improvements were applied to software, then your software would essentially be free, and run a lot faster, and have far fewer bugs. And oddly enough free software is what is eating Ballmer's lunch (apart from many very dumb decisions along the way, search and entertainment prime among them).
I suspect we'll have some sort of IT crash anyway. It used to be you spent about $AU3k on just the hardware for a really fast/top of the line personal computer , and I don't know what an OS cost - it came with it or was maybe $100. Then it was $2AUk for quite some time. Now you're struggling to spend $1AUK on hardware, yet the current 'premium' os is $500(!) plus another $1K to make it do anything (or $0 if you've got a brain and a cd burner for free software). The hardware manufacturers always had small margins but made it up on the 'premium' products but now the hardware is getting so ridiculously cheap there's really no reason to go for 'premium' product any more. Margins on software are just obscene, and they need to 'correct'.
And all i'll say about that plot is ... well, the market has a mind of it's own, and it doesn't seem to be in any way based in reality.
Posted by: Michael | November 02, 2009 at 04:06 PM
I think the tech stocks, which learned a lot in the 2000-2003 downturn, will continue to grow. When I take a look at the newsflow for the top tech companies, it's pretty clear growth is solid. Tech companies don't need a full recovery to grow nicely as, remember, we are still within a mega-trend of technology growth and a global technology buildout.
Posted by: Frank Cioffi | November 06, 2009 at 02:00 PM