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What Does the Recent Pickup in the Technology Sector Mean for the Economy?
Evidence that spending for computer hardware has strengthened significantly since last summer has been accumulating. The semiconductor sector seems to have led the upturn. Cymer (CYMI), which builds laser light sources for semiconductor production equipment, saw its order bookings increase as early as last year’s June quarter, and they have risen since then. Integrated circuit manufacturer Intel (INTC), considered a bellwether in the technology arena, recently reported a December-quarter surge in profits, driven by increased demand for personal computers that use its semiconductors. Consumer electronic device maker Apple (AAPL)enjoyed a more than doubling in its shipments of iPhone and a 33% increase in Macintosh computer sales in the period. Meanwhile, Hewlett-Packard (HPQ) saw an increase in its server and personal computer sales in the January quarter, and NetApp (NTAP) reported higher storage system sales in the same period.
A few factors appear to be driving the upturn in technology company sales. Economic uncertainty caused some commercial customers to postpone replacing aging computer equipment during the past few years. Some of these firms have apparently decided that such technology purchases can no longer be deferred, especially in light of the cost savings made possible by some computer hardware and software. The introduction of Microsoft’s (MSFT) new Windows operating system also seems to have spurred some companies and consumers to purchase new computers. And as always, some consumers find it hard to resist the lure of the hottest new, thin, touch-powered electronic devices.
No doubt, the pickup in the technology sector’s sales is a good sign for the economy, especially since a few technology companies, including networking gear manufacturer Cisco (CSCO), have announced plans to increase hiring. Corporations haven’t replaced all of their aging computer equipment yet, so technology spending has more room to rise. But economic sentiment, reflecting the latest business news, probably will influence both commercial and consumer technology purchases from time to time. Moreover, a pickup in other important business sectors, particularly in the depressed housing arena, is probably needed to support a sustainable, broad-based economic rebound. In sum, although recent technology company results are encouraging, a full-fledged economic recovery will likely require improvement in the performance of other industries.