The disappointing performance of tech’s biggest names reflects a trend that’s been in place for several years. Still scarred by the late ‘Nineties bubble, corporate technology buyers have continued to focus on making better use of the stuff they already have. What growth there is has concentrated on security, outsourcing key functions to consulting firms in order to cut staff, and meeting the demands of Sarbanes-Oxley and other new disclosure requirements. Meanwhile, consumers have gone on a home-equity-financed electronics shopping spree, snapping up DVD players, flat-screen televisions, digital camcorders, MP3 players, camera phones, laptop computers and other Asian-made gadgets. In fact, the Semiconductor Industry Association reports that more than half of the world’s chip supply now ends up in consumer electronic gear, shifting the historic balance away from corporate computing and networking hardware.
But 2006 could be the year when everything flips back. The macro backdrop is good for tech spending, but there will be a shift, which has already begun, from the consumer to businesses,” asserts Mark Zandi, chief economist at West Chester, Pa.-based Economy.com. “The baton has been handed off.” Zandi says real investment in information-processing hardware and software this year will check in at 10%, with similar growth likely for next year. Michael Mahoney, portfolio manager at EGM Capital in San Francisco, agrees that business capital spending has started to pick up — and asserts that the recovery is yet to be fully reflected in stock prices. In fact, Mahoney contends that if you simply bought shares in four tech giants — IBM, Cisco, Intel and Microsoft — your return for the next 12 months could reach 25%.