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Personal Finance > Investing
Tech gloom will continue
October 2, 2001: 5:32 p.m. ET

The sector still faces troubles the Fed can't fix.
MONEY columnist David Futrelle
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NEW YORK (CNNfn) - It seemed like old times -- at least for a moment. As Tuesday's announcement on interest rates drew nigh, all eyes on Wall Street were on Alan Greenspan, just in case the enigmatic Fed chairman had a little surprise hiding up his sleeve.

He didn't: As expected, the Fed lowered interest rates a full 50 basis points -- half a percentage point -- the ninth cut this year, and the second since Sept. 11th. Noting that the attacks had "significantly heightened uncertainty" in an already uncertain economy, the Fed made clear that it was prepared to lower rates further to stimulate an economy that's been unusually resistant to stimulus.

Where's the recovery, then?

Indeed, rates are already at their lowest level since the early 1960s, but the signs of recovery are still nowhere to be found. Wall Street greeted the decision, a foregone conclusion, with a collective yawn.

As I've said in these virtual pages many times before, the Fed's cuts will ultimately help to boost the sagging economy. But they won't do much to fix what ails the tech sector, which has been grappling for many months with the twin bogeys of excess inventory and slack demand for everything from business software to high-speed routers to PCs.

And the latest news on the information-technology (IT) spending front isn't terribly encouraging. Industry watcher IDC has lowered its estimate for IT spending, saying it expects growth of only 3 percent this year, down from 11 percent last year and less than half the rate of increase it had previously anticipated.

The post-September plunge in consumer confidence won't help. Consumers were already holding back on the purchases of big-ticket tech purchases like PCs. And until demand picks up, we can expect tech earnings to continue to sag -- and tech stocks to stay in the dumps.

Compaq's bad weather report

While not even the most prescient tech watcher can predict when the downturn will come to an end, one thing I think it's safe to say is that we'll see a lot more of the sort of announcements Compaq Computer (CPQ: down $0.17 to $8.16, Research, Estimates) made after the bell Monday (see "Compaq sees Q3 shortfall").

Compaq, which has already seen its share price plunge precipitously as the result of its badly received merger plans with Hewlett-Packard (HWP: down $0.35 to $15.25, Research, Estimates), reported that its expected third quarter profit of 7 to 9 cents a share may drop to as much as a 7 cent loss on revenues -- down some 12 percent from the previous quarter.

CEO Michael Capellas blamed the miss largely on the events of Sept. 11, saying his company had been hit by what he called "a perfect storm," as both sales and shipping ground to a halt in the wake of the terrorist attack. 

It's not hard to believe that Compaq and other PC companies have suffered financially in the wake of the attacks, and Compaq officials in their conference call did acknowledge that the company (and its customers) had been temporarily distracted by the merger announcement. Plus, there was the typhoon that hurt suppliers in Taiwan.

But to many observers, Compaq's "perfect storm" sounded like the perfect excuse. AG Edwards analyst Brett Miller observed acidly in a research note that "the quarter's results were at risk prior to Sept. 11 primarily [due] to distractions from the pending merger, customer flight and product transitions."

Over the next few months, we can expect to hear a lot of tech executives blaming the events of September for their current woes. It will be up to investors to determine whether these executives are telling the truth -- or exploiting a tragedy to provide a convenient excuse. graphic





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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.