Wall Street Beat: Market jitters slam tech

This week, the biggest market declines since the Sept. 11, 2001, terrorist attacks in the U.S. caused a crisis of confidence in sectors including technology, leading IT investors to reassess what’s in store for the year.

Considering that most analysts are predicting moderate — about 6.5 percent — global growth in IT product sales this year, vendors have been riding high recently. Key technology suppliers reported better-than-expected earnings in 2006, and IT companies in general enjoyed seven straight months of market gains capped last week by a six-year high in the tech-heavy Nasdaq exchange.

But share-price gains for this year were wiped out this week as a precipitous decline in Chinese markets Tuesday led to panic selling around the world. The Nasdaq closed Tuesday at 2407.86, down 96.66 points for the day and 117.08 down from its six-year high last Thursday. The question for IT is whether the decline signals an overdue correction for valuations on technology suppliers: Given the modest prospects for overall revenue growth, have investors been a little too exuberant?

“Yesterday’s 3-5 percent drop in the popular stock averages is a wake-up call for a market that had become far too complacent, in our view,” said Banc of America Securities analyst Tom McManus Wednesday.

The Nasdaq slid again Thursday as Dell reported disappointing results for its fourth fiscal quarter ended Feb 2. Dell posted net income of $673 million, compared with $1.01 billion a year earlier. Revenue declined 5 percent from a year ago to $14.4 billion. Analysts polled by Thomson Financial had been expecting $14.9 billion in revenue.

Despite the warnings and the grim news from Dell, however, there still appears to be underlying confidence in the tech sector.

For example, traders applauded Oracle’s announcement Thursday that it would buy business intelligence software vendor Hyperion Solutions for $3.3 billion. Oracle shares closed at $16.78, up by $0.35. This is a big endorsement for strength in that sector. Often, an acquiring company suffers share price declines on the assumption that a big buy will negatively affect earnings even in a healthy market.

And on Thursday alone, companies in various sectors of IT received kudos from analysts in the form of stock forecast upgrades. CAD maker Autodesk was upgraded to an outperform rating by Robert W. Baird & Co.; business software developer BEA Systems was upgraded from underperform to peer perform by Bear Stearns & Co.; and telecom equipment maker Ciena was upgraded from neutral to overweight by JP Morgan & Co., which noted that the optical market continues to recover faster than expected.

Soothing remarks about the overall U.S. economy from Federal Reserve Bank Chairman Ben Bernanke to Congress on Wednesday also helped prevent a further big decline in markets. He said he was still looking forward to “moderate” overall growth this year. So far, “moderate growth” has been good enough to stoke investments in IT. If that’s an indication of things to come, this week’s sharp declines might end up being seen as only a brief correction.