The Global Economic Slowdown A Plague on High Tech


There’s been a serious deterioration in the fortunes of America’s leading technology companies triggered by low economic growth in the U.S., a slowing in China, the trauma of Japan’s earthquake and tsunami, contraction in India and Korea, as well as the coming austerity in Europe.

The downturn has impacted network manufacturers like Cisco, computer manufacturers like Hewlett Packard and retail office products chains like Staples and Office Depot. The sudden slowdown of tech orders is a shock that reminds me of the sudden decline of bandwidth orders in 1999-2000 that slaughtered the telcom industry. This is no joke and must be closely followed in the manner of Fred Hickey’s “The High-Tech Strategist.”

Hickey sees weakness all about and opportunities to take advantage by buying puts on technology leaders. Here’s a smattering of his discoveries:

Reductions in government spending on IT in almost every developed market hurts 20% of Cisco’s business, cutbacks in AT&T’s wireless capital spending, in declining Global Service contracts at IBM, and at the prospect of downward revenue and earnings guidance at Hewlett-Packard.

The world’s largest computer products distributor, Ingram Micro, missed sales and earnings estimates. Tech Data sees consumer PCs and notebooks showing weak orders in Europe. Staples has cut its full-year sales and earnings guidance. So are a raft of other companies. Inventories are rising and companies are reducing their suggestions for earnings levels going forward.

Semiconductor companies like Texas Instruments look to be vulnerable to cutbacks in customer orders, and could be ripe for taking a short trading position. Applied Materials CEO Michael Splinter is guiding lower earnings estimates to Wall Street based on the climate of uncertain political unrest in the Middle East and a reduction in consumer confidence about the global economy

With the end of QE2–and the vacuum in Fed stimulus, Hickey sees a grand opportunity to short the shares of technology companies, whose share prices already have been gapping in volatile fashion whenever the market gets a surprisingly negative piece of news about orders and earnings.

So, add tech to finance, housing and some retail shares as the core of the economy’s coming slowdown–and you’ve got the makings of a strong reversal in the stock market over the early part of the summer.




Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: