The impact of global slowdown resulted in businesses cutting back, which ultimately resulted in a decline in technology stocks and exchange traded funds (ETFs).
Within the past few weeks, orders for business and consumer tech products have crumbled away, which led technology companies to lay off workers, reports Ashlee Vance for The New York Times.
This week, industry leaders leaders such as Intel (INTC) and Nokia (NOK) warned of slowing sales, prompting investors to quickly sell technology stocks. On Friday, the Nasdaq composite index fell 5%.
In the United States, tech companies account for 4% of total employment. Globally, companies and governments spend around $1.75 trillion on technology each year.
Technology fueled much of the last two decades’ gains in productivity and around half of capital spending by corporations goes to tech products. But with a frozen credit market, tech revenue from business and government consumers will dry up, causing tech companies millions of dollars.
Nokia, world’s largest cellphone maker, predicts global handset sales will fall in 2009. Intel, the world’s largest chip maker, warns that year-over-year sales in the fourth quarter could fall 19%.
Cisco (CSCO) noted a 9% fall in October sales compared with same month last year. They also predict revenue could plummet as much as 10% this quarter, compared to Wall Streets expectations of 7% growth.
But, it is noted that the tech industry is in much better condition compared to greater Wall Street. Tech companies are flush with cash and it is likely that some of the loose change will go toward acquiring struggling competitors.
Two tech ETFs affected by the slowdown include:
- Technology Select Sector SPDR (XLK): down 45.7% year-to-date with holdings of 4.8% in INTC, 6.9% in CSCO
- iShares Dow Jones U.S. Technology (IYW): down 46.8% year-to-date with holdings of 6.3% in INTC, 7.9% in CSCO