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80,259 News Articles

Wall Street Beat: Economy weighs on chip, PC sector

Storage software provides a bright spot

After several days of gains, tech stocks dropped Thursday as markets declined on disappointing news from Europe, where government officials are meeting to try to solve the sovereign debt crisis afflicting several countries in the euro area.

Computer stocks on the Nasdaq were down in aggregate by 1.54 percent for the day. The Dow was down by 198.67 points, closing at 11,997.70, and the S&P 500 declined by 26.66 points to 1234.35.

Though the European Central Bank announced that it cut its key lending rate to 1 percent from 1.25 percent, it declined to increase government-bond purchases, despite rumors over the past few days that it was going to do so. Bond purchases were expected to bolster the economies of Greece and other countries, such as Italy, plagued by high sovereign debt.

A default by even one country could throw the euro area into turmoil and have a huge impact on imports of goods, including technology for both the consumer and corporate markets.

The uncertain economic environment played a big part in Gartner's decision to cut its forecast for worldwide semiconductor revenue this year. On Thursday, the market research company issued a forecast for global semiconductor sales to reach US$309 billion in 2012, a 2.2 percent year-over-year increase, down from its previous projection of 4.6 percent growth.

"With continuing concern over the future of the eurozone affecting the global economy, the high degree of uncertainty impacting spending by both consumers and enterprises looks set to continue, bringing with it significant implications for the semiconductor industry," said Bryan Lewis, research vice president at Gartner, in a report.

Other forces are at work, however, including manufacturing oversupply and natural disasters, Lewis added.

Gartner also noted that its forecast for PC production unit growth for 2012 is now 5 percent, down from 10.1 percent in its previous forecast. The weak economic backdrop had a role in the forecast reduction, but floods in Thailand have resulted in a hard-disk drive shortage that has slowed the PC market even further, Gartner said.

Gartner also said that smartphones will dominate 2012 semiconductor growth, and the company revised its forecast for mobile-phone production unit growth for 2012 up to 7.5 percent from its earlier projection of 7 percent.

Earlier in the week, the Semiconductor Industry Association (SIA) endorsed the World Semiconductor Trade Statistics (WSTS) organization's autumn 2011 global semiconductor sales forecast, which projected semiconductor sales to grow to $302 billion for 2011, a 1.3 percent year-over-year growth rate. The SIA put a positive spin on the news, noting that semiconductor sales are hitting the $300 billion mark for the first time.

"Despite a challenging global economic environment this year and the natural disasters that have impacted production in Asia, the semiconductor industry has demonstrated impressive resilience," said Brian Toohey, SIA president, in a statement.

While the hardware and components market has flagged this year, the software sector has provided a bright spot for technology. This week IDC issued a report estimating that enterprise storage software revenue reached almost $3.5 billion in the third quarter, a 9.7 percent year-over-year increase. It was the second-largest revenue-generating quarter in the nine years that IDC has been tracking the market, falling behind only the first quarter of the year, the company said.

EMC, Symantec and IBM were the top-ranking storage software suppliers, with market shares of 24.5 percent, 15.3 percent and 14.0 percent, respectively, IDC said.

"The market has broadly exited the recent phase of product refresh, yet sales continue to increase at impressive rates as users and suppliers come together to help improve the way organizations utilize, manage, and protect their valuable corporate data and storage resources," said Eric Sheppard, research director with IDC's Storage Software program, in a press release.

Meanwhile, on the networking front, Ciena on Thursday reported fiscal fourth-quarter revenue of $455.5 million compared to $417.6 million for the same period a year earlier. The company posted a net loss of $22.3 million, narrowing its year-earlier loss of $80.3 million.

Excluding one-time items, Ciena's fourth-quarter income was $3.3 million, or $0.03 per share. Though earnings per share were below the $0.06 forecast by analysts polled by Thomson Reuters, sales beat the $450.2 million consensus estimate. Company shares were up by $0.12 for the day Thursday, closing at $12.03.

Ciena noted that 45 percent of its users are now based outside of the U.S. One of its big customer wins for the quarter was the selection of the company's 40G bps (bit-per-second) technology and WaveLogic coherent optical processor for Russian carrier GlobalNet's metro optical network upgrade.

"While macroeconomic uncertainty remains, we are taking market share because customers recognize our differentiation and the strong alignment of our portfolio with their network architecture priorities," said Ciena CEO Gary Smith in the company's earnings statement.


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