Tech Forecasts Slashed As Stocks Plummet Again

Forrester and Gartner slashed their forecasts for tech spending next year because corporate spending and consumer demand are likely to decrease in the current climate.

K.C. Jones

October 15, 2008

3 Min Read
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The Dow Jones Industrial Average plummeted for the second worst single day point loss in U.S. history on Wednesday, as volatility appeared to settle in as the new norm on Wall Street.

The Dow, the Nasdaq Composite, and the S&P 500 fell sharply as all sectors dropped on the bleak outlook and fears of a prolonged recession. The Dow closed down 733.08 points, or 7.87%, to close at 8,577.91 Wednesday. The S&P 500 slid 9.03%, or 90.17 points, to close at 907.84. The tech-heavy NASDAQ dropped 8.47%, or 150.68 points, to close at 1,628.33.

The slide followed the release of ghastly economic data. Unemployment rose to 6.1% in September, and nonfarm payrolls decreased for the ninth month in a row. IT spending forecasts have shrunk. And, retail sales slipped by 1.2%, in September -- a decline twice as bad as what forecasters originally estimated, while consumer prices remained higher than they were a year ago.

Consumer spending accounts for the majority of economic activity in the United States. As the U.S. Department of Commerce report came out -- marking the third month of sales declines -- retailers were bracing themselves for their worst holiday sales in years.

Electronic retailers recorded a 1.5% drop in sales during September, and that was not the only bad news for companies in the technology sector.

eBay shares tumbled 13.59% to close at $15.33, while Amazon stocks dropped 12.78% to close at $48.72 per share. Chips appeared hardest hit among technology stocks, while contract manufacturers appeared to suffer the least.

This week, experts slashed their forecasts for tech spending next year because corporate spending and consumer demand are likely to decrease in the current climate. First, a Gartner report reduced its IT spending forecasts, and Forrester Research followed suit Wednesday.

Gartner said spending would flatten out in the United States, while declining in Europe and growing slowly in emerging markets.

Forrester's warning was more severe for the United States. The company told vendor clients that IT spending will be hit by a "long and deep recession" with "several quarters of declines" in IT purchases ... "not just two or three quarters with little or no growth in late 2008 and first half 2009."

Forrester analyst Andrew Bartels wrote the report, which marked the first time the company has indicated the larger economic crisis could contract IT spending.

"Our tech market forecast already presumes the recession that is actually happening," Bartels explained. "Still, with the financial crisis now spreading around the world, risks have grown that the U.S. and other major countries will experience a longer and deeper recession than we had expected."

Forrester recommended an increased focus on U.S. markets and trouble in emerging markets.

U.S. Federal Reserve Chairman Ben Bernanke also warned of a long road ahead but vowed that the government would continue doing all it can to deal with the situation.

"We will not stand down until we have achieved our goals of repairing and reforming the financial system and restoring prosperity," he told the Economic Club of New York Wednesday.

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