IBM has been the stand-out among big technology stocks this year, the company which has shown itself best positioned to withstand the storm spreading from the financial markets. So it’s a mark of Wall Street’s bleak new pessimism that even Big Blue is taking a pasting this week (according to Reuters, there has been speculation that IBM is about to cut its financial projections: when investors are in a mood to sell, that kind of rumour is like a spark to dry kindling.)
The deflation in tech has come in distinct stages. The eye-catching drop this year in the shares of companies like Google, Research in Motion and Apple has been mainly the result of compressed multiples: confidence in stretched valuation levels tends to evaporate at times like this. That took a new twist this week, with fears about weaker consumer spending taking a dent out of Apple directly.
Now IBM. It’s earlier resilience was based on a belief that emerging markets would prove largely immune to the economic slowdown elsewhere, and that IBM had found the right formula for selling productivity-enhancing tech to customers that are looking to tighten their belts.
Wall Street’s reassessment makes sense. Noone knows yet how severe the credit contraction resulting from this bust will turn out to be, but corporate IT spending is highly geared to the credit cycle, and this one will be bad. It doesn’t help that the financial crisis is now spreading into the final quarter of the year: this is usually the period of the “budget flush”, and the accompanying seasonal surge in tech earnings as CIOs spend their unused cash.
For now, the speculation that IBM will cut its projections is just that – speculation. But if the market is right and IBM is not immune, what does it mean for everyone else?
