In response to the global recession and in an attempt to curb spending, many corporations cut their technology budgets, to the detriment of exchange traded funds (ETFs). But now it looks like this trend could be coming to a halt.
Forrester Research indicates that spending on computer software, hardware and upgrades was one of the fastest-growing segments in the economy, boasting growth rates of 9% in 2006 and 13% in 2007. This phenomenon sure came to a halt in 2008, when growth rates dropped by 8%. Spending is expected to shrink another 3% this year.
The good thing is that this trend appears to have come to an end and stabilization is expected to hit the technology sector. Many companies are no longer trimming their tech budgets because they think that the economy is stabilizing or that it can’t get any worse, states Ben Worthen of The Wall Street Journal. Unfortunately, this stabilization could take awhile to become evident, and will most likely not be seen when tech behemoths Hewlett Packard (HP) and Dell (DELL) release their quarterly earnings over the next few weeks.
Looking into the future, most executives don’t anticipate an increase in their tech budgets. Instead they believe their budgets will remain relatively flat. This could mean good news for the sector in that revenues shouldn’t decline dramatically going into the future. Additionally, the sector is showing some attractive valuations. Lastly, the sector is known for its innovation and hoards of excess cash.
Only time will tell the true impact these corporate strategies will have on the sector. If you want to grab exposure to technology, take a look at the following:
- Technology Select SPDR (XLK): which is up 9.6% year-to-date
- First Trust Dow Jones Internet Index (FDN): which is up 25.6% year-to-date
Kevin Grewal contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.