Despite market jitters, IT vendors get upgraded

Now that the dust has settled after last week’s stock-market plunge, industry insiders are looking forward to continued stable growth in the IT sector.

When a plunge in Asian markets last week caused panic share-selling around the world, IT investors reassessed the technology sector’s prospects for the year. IT vendors had enjoyed seven months of rising share prices up until last week. But last week, several leading analysts said that a long-overdue correction was occurring.

However, brokerages were upgrading their share-buying advice on bellwether IT companies, even as markets in general were declining. The upgrades continued this week.

For example, chip-equipment makers’ share prices are rising this week as analysts foresee user hardware spending increases through 2008.

Thursday, Applied Materials and KLA-Tencor shares rose after analyst upgrades. Morgan Stanley raised its rating on both companies to overweight from equal weight and raised its rating on the whole semiconductor capital-equipment sector to attractive from in-line.

On Wednesday, UBS AG upgraded its rating on Google from neutral to buy, saying that its recently declining share price makes it an attractive buy again. Merrill Lynch on Wednesday raised its share-price guidance on Yahoo on the strength of the company’s plans for Project Panama, a new way of ranking search results combining paid ranking and search result algorithms.

Also this week, JMP Securities raised it rating on AMD to market outperform from market perform, forecasting strong sales for new products.

In the telecommunications sector, AG Edwards & Sons upgraded AT&T from hold to buy, predicting that demand for wireless communications will spark growth.

Wireless broadband company Clearwire’s IPO, which garnered about $600 million for the company Thursday, was another sign of confidence in telecom.

Last week, even as markets were in turmoil, analysts issued upgrades in several sectors. Robert W. Baird & Co. upgraded Autodesk from perform to outperform; Bear Stearns & Co., looking at BEA Systems’ positive cash flow, upgraded the company from underperform to peer perform.

JP Morgan upgraded networking equipment maker Ciena from neutral to overweight, basing its decision on what it expects to be a faster-than-expected recovery on optical communications market.

The bottom line is that demand for IT products worldwide, while not expected to equal the heady days of 2000, is by most indicators expected to grow consistently this year into next. The transition to Vista and spending on Web 2.0 services are expected to help spur user demand, according to analysts.

“Barring any geopolitical issues that could arise, solid single-digit growth is expected in technology,” said Jim Lanzalotto, vice president of Yoh Services in Philadelphia, a personnel and outsourcing firm. The IT job market is generally seen to be a prognosticator of the IT market. “When companies hire, it’s because they see a need to put people in place for increasing demand,” Lanzalotto noted.

“We’re dealing with the leading indicator of the leading indicators,” Lanzalotto said.

In technology, there is demand this year especially for basic product development specialists, CRM specialists (particularly in the health care fields), IT project management, and Java and .Net specialists, he said.

High-end jobs requiring specialized skills are driving the IT job market overall, Lanzalotto said.

Lower-end jobs and specialties such as help-desk services are expected to experience weak demand in the U.S. as these jobs get outsourced, Lanzalotto said, though the services sector globally appears to be stable.

On the user-demand side, consumer spending in areas like upgrades to Vista will be the main growth driver, Lanzalotto said.

This story was updated on March 8, 2007