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Clouds loom for IT shares

Clouds continue to hang over the IT sector as forecasts emerge of declines for semiconductors, mobile devices and online retail sales.

The Nasdaq stock exchange, home to many IT companies, closed yesterday up by 67 points, or 4.6 percent, as market observers said investors took advantage of low prices of tech company shares to snap up what they hope will be bargains. The US markets will be closed today as the country celebrates Thanksgiving, and markets will have an abbreviated trading day Friday.

Several high-profile tech vendors had a good day on the market yesterday. Top advancers on the Nasdaq included Cisco Systems, which rose 5.2 percent to $16.23. A day earlier, the company said it would close plants over the holiday period to save money, leading to a broad tech-sector sell-off as concerns about faltering demand weighed on investors. Shares in Apple climbed nearly 4 percent to $94.35.

Up until Wednesday, however, the Nasdaq Composite Index stood at about half the level it was at in November last year, and historical perspective shows that it will take time before confidence is restored to the tech sector. The Nasdaq reached it highest point ever, 5048, in the first quarter of 2000, and slid for more than two years before hitting the 1110 level in the trough of the dot-com bust in the third quarter of 2002.

Market observers point out that the slump earlier this decade was marked by actual declines in IT spending, rather than merely a slowdown in growth. As bad as the economy is, many industry analysts have not forecast an absolute, across-the-board drop in spending, yet.

This week IDC analyst Gard Little said in a research report that "services spending will not contract as it did in the previous economic downturn, however the effects of the current economic crisis will reduce spending growth in the services market across the entire forecast period".

But industry analysts are cutting forecasts to reflect declines in certain sectors.

"We expect sales in 2009 to show a low single-digit growth contraction" from 2008 levels, said Gartner analyst Carolina Milanesi in a report on mobile-phone sales this week. A slump in mobile upgrades could have wide impact on IT, since mobile device usage has been a big driver for growth in tech overall.

Online commerce, another sector that helps bolster technology, is apparently floundering. This week, comScore forecast US online retail spending to be essentially flat during the last two months of the year - the important holiday sales season - compared with 2007. US online retail spending rose 9 percent through October, but spending so far this month dropped 4 percent.

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