Our Outlook for Tech & Communication Services Stocks
We strongly favor high-quality names in the current environment.
Data points coming out of the technology and telecom sectors continue to paint a mixed, somewhat sluggish, near-term demand picture. Firms that operate within certain subindustries, such as analog chipmakers, semiconductor equipment manufacturers, and IT services firms seem cautiously optimistic about the second half of 2012, while telecom equipment providers and enterprise hardware firms have sounded a decidedly pessimistic tone. Cisco Systems (CSCO), Hewlett-Packard (HPQ), Dell (DELL), and NetApp (NTAP) all delivered tepid outlooks in their most recent reports, as weakening demand from Europe and a stingy public sector in the U.S. are weighing on results. Still, Oracle's (ORCL) relatively upbeat outlook provided in late June suggests that there is growing global demand for enterprise IT products and services, provided that the value proposition is compelling. At this point in time, it's difficult to tell if we're at the very front end of a protracted cyclical slowdown or if the hardware vendors are simply experiencing a slight pause in demand, coupled with various firm-specific issues.
Grady Burkett does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.