Tech stocks give up gains made in 2007

Microsoft’s $1.2 billion acquisition bid for Oslo-based Fast Search and Transfer and a dour report on Amazon marked the new year’s first full trading week in the United States, as technology company share prices continued to slide.

The increase in tech share prices that occurred in 2007 — a banner year for IT company earnings — appears to be in danger of evaporating, as fears of a general downturn and bad news on the consumer front resound among industry insiders. U.S. Federal Reserve Chief Ben Bernanke’s announcement on Thursday that he would move to cut interest rates to spur growth provided only a temporary halt to a decline in the Nasdaq Composite Index, which closed Friday at 2,440, down 212 points from its close at the end of 2007.

This week, investment banking firm Goldman Sachs forecast that the United States will suffer a recession this year. Company analyst David Kostin reduced his recommendation for the amount of technology stocks that investors should keep in their portfolios, from 19 percent to 15 percent.

Investors usually like to keep a good percentage of their holdings in tech stocks to hedge their bets. IT companies are truly global, with major U.S. vendors earning about 50 percent of their revenue outside their home countries.

But inside the United States, tech companies are getting hit with a double whammy: a predicted weakening of consumer spending because of falling home prices and a resulting crisis in financial markets. Up to 18 percent of U.S. and global tech spending comes from financial companies, according to Forrester Research.

Turmoil in the financial markets will likely dampen tech buyouts from private equity investors, according to the 451 Group’s Tech Banking Outlook Survey, released this week. But that might not stop cash-rich technology companies from continuing to shop for deals, it noted.

On Tuesday, Microsoft announced that it would buy enterprise search software company Fast Search And Transfer for 6.6 billion Norwegian kroner ($1.2 billion). Microsoft said it will integrate Fast Search’s high-end search technologies into its enterprise infrastructure offerings, including SharePoint Server 2007 business productivity platform.

Microsoft is locked in a search battle with Google, not just for general Web searches but also for businesses. Fast Search shares got an immediate boost on the Oslo exchange, where its price jumped from 13.35 kroner to close at 18.80 kroner Tuesday. The deal did not keep Microsoft shares from sliding in a generally down market for tech, however.

On the consumer side, investors were particularly spooked by comments on Tuesday from AT&T CEO Randall Stephenson, who said the company has had to stop servicing an increasing number of customers who did not pay their bills. The company closed Tuesday at $39.07, down by $1.96 for the day.

The news did not bode well for other technology companies that sell to consumers. Citing uncertainty about U.S. consumer spending, American Technology Research Monday put a “sell” rating on Amazon, which then on Tuesday fell by $2.66 to close at $85.22 on the Nasdaq.

Even companies that received positive reports from analysts this week were slammed by the general market slide. Lazard Capital Markets started its coverage of virtualization-software darling VMware, which had a successful IPO last month, by issuing a “buy” rating on Tuesday. VMware’s share price jumped by $5.39 to close at $79.89 Wednesday, but slid back to $77.53 by the end of the week.