Skip to main content

Five signs tech slump no where near over

Markets reacted with euphoria to the Fed's announcement after yesterday's FOMC meeting.

Still, it is difficult to get too excited about the immediate prospects for the tech industry. Here are five signs that the tech downturn will not end quickly.
  • Tech companies are cutting their workforces. If there were any chance that the tech downturn was drawing to a close and that demand was going to rebound, companies would be holding on to their experienced employees. They are not. Every day there are new announcements of layoffs in all sectors worldwide. Today it is RF Micro in the US. Yesterday it was Taiwanese IC distributors. Last week AT&T announced plans to cut 12000. There are expectations AMD will announced more layoffs next month. Even Google is reducing staff. The list goes on.
  • Tech companies are cutting production. Companies always adjust production in response to changes in demand. The production cuts being announced lately are so large that they merit announcement to the media. RF Micro is in the spotlight today with a production cut. Yesterday Toshiba and SanDisk announced two week shutdowns and cuts in production of approximately 30%. DRAM vendors have already cut production.
  • Tech companies are cutting prices in order to shed inventory amid weakening demand. Margins are becoming a secondary concern. There are reports that spot prices for polysilicon and solar cells are plunging as producers in China try to unload product at any price. We have already seen plunging prices for memory chips.
  • Insider buying is dwarfed by selling. This past weekend the Wall Street Journal had some interesting information in their Insider Trading Spotlight section. They provided a breakdown by sector. For tech, there were 1,070,544 shares purchased versus 72,158,381 shares sold in the previous week. If the tech slump was close to a bottom, there should be a lot more insiders buying their stock. The fact that so much selling is still going on is alarming.
  • Semiconductors sales are projected to endure a sharp decline in 2009. Semiconductors are the canary in the coal mine. With the exception of the software and services sectors, the rest of the technology industry is dependent on semiconductors in order to make the hardware work. If semiconductors are not in demand, it is a sure bet the hardware further up the tech food chain isn't in demand either.
The five signs listed above are an indication that tech company CEO's do not see a quick end in sight for the current downturn. The corporate strategies of reducing headcount and production are typically utilized as demand is recognized to be falling, not when things are perceived to be about to improve. Proving the negative outlook of company managers is the lack of insider buying despite the fact that share prices are already beaten down.

Enjoy the current rally while you can. The problems in tech are far from over.

Disclosure: none

Comments

Popular posts from this blog

Unlock Stock Market Profits - Key #1

This is the first in an ongoing series of articles where I discuss what I feel are keys to successful investing. It is based on a post that provides a summary of the ten keys that individual investors should use to identify profitable stock trades. (Click here to read the original post)

There are two basic steps to investing. First, you need to find stocks that seem to have some potential. Then you have to determine whether these stocks are actually good investments. There are many stocks that at first glance look interesting, but further research reveals that there are too many negatives to warrant taking a position.

This first post in the series starts at the beginning: getting good investment ideas.

Key #1: If something special is happening to a stock, it will be reflected in some kind of unusual activity in the markets.

As individual investors, we will never be the first to know; however, unusual activity can be an early sign that allows us to follow the Wall Street professionals and …

Unlock Stock Market Profits - Key #4

This is the fourth article in a series of posts describing 10 tools to help you identify and evaluate good investing ideas. It is based on a post that provides a summary of the ten keys that individual investors should use to identify profitable stock trades. (Click here to read the original post)

With this fourth post, we will continue another step along the path of finding stocks that seem to have some potential. The first post in the series discussed how to use unusual activity to identify investing ideas. The second post described how to use stock screeners. The third post described how to use lists of new highs and new lows. This post will focus on identifying social or business trends in order to find investing ideas.

Information on new trends might turn up anywhere. In conversation with friends or business associates, in newspapers or magazines, on TV or though your work. The key is to be aware of trends and how they start, stop or change. We'll start by describing what to lo…

Interactive Ads - Google one-ups Yahoo again

Google's (GOOG) press release describing the expansion of a beta program for what are being called Gadget Ads has again shown that Google is unparalleled at melding technology and advertising to benefit its bottom line. Gadget Ads are mini-web pages or "widgets" that can be embedded within publisher pages.

I have written in the past on Yahoo's (YHOO) Smart Ads and how, by more precisely targeting site users and adjusting ad content accordingly, they provide a much desired evolution of the banner or display ad format.

Though Smart Ads and Gadget Ads are not really the same, I think it is fair to say that Google has seen the challenge of Smart Ads and has chosen to leapfrog Yahoo by rolling out its own update to the display ad format.

The evolution of the Gadget Ad --

One of the trends on the Internet over the last year or so involves software developers creating "widgets" which can be hosted within web pages and blogs. Widgets can be pretty much anything that ca…