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Tuesday, September 16, 2008

Tech crisis coming after Wall Street plunge?

Sep 16 2008 12:38PM | Permalink |Comments (23) |

Words like "obvious," "foreseeable," and "inevitable" came to mind Monday as the Dow Jones Industrial Average fell more than 500 points following "Bloody Sunday." When financial institutions like Lehman Brothers go bust after weeks of struggle and Merrill Lynch can no longer stand on its own two feet, any economics 101 student will tell you its time to brace yourself—and your portfolio.

And tech, like nearly every other sector, was spattered with blood on the market's slashing. The Philadelphia Stock Exchange Semiconductor Sector Index (an index of 19 large semiconductor stocks, also known as SOXX), shrank by 3.2% to close at 311.76 on Monday.

Company by company, things weren't much better. IBM fell from its Friday close of $118.97 to close at $115.19 Monday afternoon. Intel (INTC) went from $20.16 Friday afternoon to $19.36 on yesterday's closing bell. And Apple (AAPL) went from $148.94 on Friday to $140.73 after the Wall Street plunge.

But what do these three stocks, as well as many other tech stocks, have in common? As of 1 pm eastern, the three bellwethers are all on their way back up. Yes, IBM, INTC, and AAPL are far from high-flyers on Wall Street, but they are inching, albeit slowly, toward Friday prices. SOXX is also on the climb, playing around 313 in mid-day trading today.

Has Wall Street sunk tech? No, not yet. But whether we stay afloat has much more to do with human behavior than Lehman or Lynch. The public has been hearing "recession," "mortgage crisis," "economic uncertainty," and "Freddie and Fannie losses" tossed about excessively in recent weeks. Monday's stock decline will most likely fuel consumers' already fired-up fears. As we enter the holiday buying season, that fear could manifest itself at Best Buy and Fry's. It could also impact IT spending budgets for 2009, as businesses take a more conservative approach. Those points, in turn, will impact IBM, Intel, Apple, and the mass of tech companies out there.

Look for any ripple effect as companies begin to estimate December quarter growth in their September results next month. And in the meantime, try not to panic. While not doling out buy-sell advice here, what happened yesterday from a tech point of view was not the 1929 stock market crash or even 1987's Black Monday. Longer term, tech stocks hold promise. Whether consumers and businesses force a tech crisis is yet to be seen, though.

What do you think? Share your thoughts on Wall Street's impact on tech below.

--Suzanne Deffree, Managing Editor, News

*Editor's note: FYI, I don't own tech stocks. It's considered unethical for a journalist to hold stock in what they report on.

Reader Comments

at 9/16/2008 2:06:54 PM, ibmer said:
Outsourcing may well be the cause of many of the current World Problems. Third world countries are becoming more affluent, they can and do purchase automobiles and consume more natural resources than ever before. The world economy has been put on edge due to the rapid expansion. Job losses in the US due to outsourcing have put many hightech jobs overseas with workers unable to find comporable jobs. Our government must take a stand and receive substancial revenue for every outsourced job. When will we wake up?

at 9/16/2008 2:15:45 PM, Larry M said:
Look, IBMer! It's not the government's job to hold your hand. There will always be jobs for those with highly-honed, up-to-date skills. (From another IBMer)

at 9/16/2008 2:26:03 PM, Jong said:
I will agree with ibmer. While the reasons to offshore into other countries may have started out a good idea it has really turned into a mistake. We all want to pay less for products but, if given the choice, we would rather pay more for products if we could keep the jobs we need to pay for the products we buy.

Since 1998 the multi-nationals in the USA have had a tremendous push to get cheaper labor. Now it is backfiring on them. Overseas labor advantages have been cancelled by increased transport costs. Slowly we will start to see the tide turn but not soon enough. The advantage for offshoring will only remain an advantage if we have jobs to pay for the products. DUH!

When is the government going to wake up and step in to help corporations make the choices to stay here? When we as citizens finally say, "I am mad as hell and I am not going to take it anymore."

at 9/16/2008 2:42:41 PM, NowayanIBMer said:
Outsourcing represents one of the largest peaceful transfers of wealth from the rich to the poor in human history. We should celebrate the runaway success of globalism. Are there problems - of course. But I believe the benefits to all of mankind greatly outweigh the small price we are paying.

I believe it's just a matter of time before the train wreck catches the tech industry. I'm seeing signs all over Silicon Valley of companies pulling back on spending plans due to mixed or negative signals from customers. Expect lots of pessimism in 4th quarter conference calls.

at 9/16/2008 3:00:54 PM, Greed Experiment said:
How many times have we observed this transformation and analyzed the outcome ? this is all a MASSIVE experiment, the outcome of which is speculation at best.. HMMM speculation.. GREED is doing just fine with CEO's fresh off their FAT BUSH TAX CUTS are selling out US jobs, with various levels of competitiveness, for personal profit. some of the competetive employees (baby) are thrown out with the complacent parasitic ones (bath water)

at 9/16/2008 3:09:50 PM, azmat said:
living beyond our means has been the bane. these financial engineers (how dare they call themselves engineers!?) created unfathomable financial instruments that had their weak products mixed in the strong, and all seemed to get the ''rating'' of the strong -- UNTIL the first weak one gave way. at the national level we have been fighting a ''war'' (or terror, drugs, civilizations) financed by china -- every war in history funded by anything other than the treasury has ended in the financier taking over the country (sort of that is what happened when the bristish took over india 300 years ago). we have a few tough years ahead of us. hold on to your cash.

at 9/16/2008 3:13:15 PM, azmat said:
NoWayAnIBMer: NO it is not transfer of wealth from the rich (countries) to the poor (countries) - it has been transfer from the poor and middle (in rich countries) to the rich (in both the rich and the poor countries - but mostly in the rich countries) This is time for those who can feed themselves to focus on innovation -- and be set to ride the next wave in about 4-5 years,

at 9/16/2008 3:45:43 PM, Meredith Poor said:
A point made by Barry Goldwater in the 1960's is the government represents 40% of the economy. This is the sum of local, state, federal, and other taxing entities that are, to some extent, oblivious to the behavior of stock markets. Someone working for IBM might be outsource to India, but the teacher, nurse, police officer, and auto mechanic living down the street are safe from that. These people only lose their jobs when the local coal mine, factory, refinery, or saw mill shuts down and a large number of local residents move. Whereever they move to will pick up the slack. ~~~ It's interesting to see, even now, billboards and TV infomercials showing people how to make 'big bucks' in real estate or stocks. Evidently we haven't run out of suckers yet. C'est la vie.

at 9/16/2008 3:53:32 PM, ProportionateTaxCutsMakeSense said:
For Greed Experiment, this is how the tax cuts for the rich actually work. As even you should be able to fathom,the cuts had nothing to do with this situation.

Sometimes politicians, journalists and others exclaim; "It's just a tax cut for the rich!" and that is just accepted to be fact, without question. But what does that really mean? Just in case you are not completely clear on this issue, the following might help.

Let's put tax cuts in terms everyone can understand. Suppose that every day, ten men go out for beer, drink the same amount, and the bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this:

The first four men (the poorest) would pay nothing.
The fifth would pay $1...
The sixth would pay $3...
The seventh would pay $7.
The eighth would pay $12.
The ninth would pay $18.
The tenth man (the richest) would pay $59.
So , that's what they decided to do.

The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve. "Since you are all such good customers," he said, "I'm going to reduce the cost of your daily beer by $20."Drinks for the ten now cost just $80.

The group still wanted to pay their bill the way we pay our taxes so the first four men were unaffected. They would still drink for free. But what about the other six men - the paying customers? How could they divide the $20 windfall so that everyone would get his 'fair share?'

They realized that $20 divided by six is $3.33. But if they subtracted that from everybody's share, then the fifth man and the sixth man would each end up being paid to drink his beer. So, the bar owner suggested that it would be fair to reduce each man's bill by roughly the same amount, and he proceeded to work out the amounts each should pay. And so:

The fifth man, like the first four, now paid nothing (100% savings).
The sixth now paid $2 instead of $3 (33%savings).
The seventh now paid $5 instead of $7 (28%savings).
The eighth now paid $9 instead of $12 (25% savings).
The ninth now paid $14 instead of $18 (22% savings).
The tenth now paid $49 instead of $59 (16% savings).

Each of the six was better off than before. And the first four continued to drink for free. But once outside the restaurant, the men began to compare their savings.

"I only got a dollar out of the $20," declared the sixth man. He pointed to the tenth man," but he got $10!"

"Yeah, that's right," exclaimed the fifth man. "I only saved a dollar, too. It's unfair that he got ten times more than I!"

"That's true!!" shouted the seventh man. "Why should he get $10 back when I got only two? The wealthy get all the breaks!"

"Wait a minute," yelled the first four men in unison. "We didn't get anything at all. The system exploits the poor!"

The nine men surrounded the tenth and beat him up.
The next night the tenth man didn't show up for drinks, so the nine sat down and had beers without him. But when it came time to pay the bill, they discovered something important. They didn't have enough money between all of them for even half of the bill!

And that, boys and girls, journalists and college professors, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.

David R. Kamerschen, PhD
Professor of Economics
University of Georgia

at 9/16/2008 4:24:45 PM, AutoIndustry-er said:
Almost everybody will buy the cheaper product if they think it is only the "other guy's" job that will need to be outsourced. When companies try to socialize losses after privatizing (pocketing) the profits, they are doing the same thing. Wearing the disguise of Capitalism, Greed has become the mantra of the USA, but it's not just in Corporate Management. "Everybody's" looking for the next goverment handout, the next loophole, the latest shortcut that will bring them gain, as long as it's someone else who has to pay for it. When people enjoy the benefits of waterfront property until there's too much water all-of-a-sudden, and then expect the "government" to bail them out: the rest of us are the "government" that pays for their irresponsibility. When people don't think twice about getting 100% financing for a house that they can't afford in the first place, NEEDing the market price to increase in order to be able to pay for it, they are taking a personal risk that the rest of us should not have to bail them out of. But when we invest in a company that's lending to these people WE are taking on that risk out of our own greed!
CEOs etc. don't care if some "babies" get thrown out with the bathwater, as long as they still have hot water for their bath. But every time you step into WalMart etc., you are throwing out your own bathwater.
I agree that things will only change "When we as citizens finally say, 'I am mad as hell and I am not going to take it anymore,'" but only if we actually put actions with our words instead of blaming everyone else while we rationalize our own contributions to the problem.

at 9/16/2008 4:37:34 PM, robocat said:
There is only one problem with the beer theory, we aren't drinking beer. We are trying to run a country. Based on the tax rates as there are in effect today, our daddy war bucks is paying less foir his beer than Mr. blue collar. One other point, who would you rather be dady war bucks, or the guy that can't affrod to pay for his own beer?

at 9/16/2008 9:26:50 PM, johnathamilton said:
Even Warren Buffet says his employees pay more tax than he does....

at 9/17/2008 5:43:34 AM, arclight said:
All: We ARE trying to run a country. Money still works the same way, though, regardless of whether or not we are talking beer or bombs or butter or whatever. So either poke holes in the econ prof''s numbers, or provide some other reason based in the numbers as to why his example is not useful, or else at least be honest and state up front that you don''t care how the numbers work, you just want what you want and you don''t care how fair it is to someone else. Just don''t waste time in emotional nonsense.

There''s plenty of places to raise logical questions about fiscal and tax policy, but to me at least it should be really simple: (1) If we are equal before the law, then the law should treat us equally with regard to how it taxes our income and assets (which means that the "progressive" taxation idea is fundamentally flawed, as are tax breaks for this or that entity, because none of these treat all taxable entities as equal before the law)

at 9/17/2008 5:47:18 AM, arclight said:
Comments chopped off: One unaccounted-for facet of outsourcing manufacturing is that we now don't have the ability to reconstruct certain critical pieces of our infrastructure (e.g. high-power trandformers for the grid), leaving us hostage to the good will of other nations if those pieces fail. Not a good place to be.

Finally, the report from GAO pegging our unfunded requirements for SS, Medicare, and Medicaid at ~$53 TRILLION tells me that the old emotional blather we engage in with regard to finance, manufacturing, and "fairness", is going to have to be replaced and pretty quickly with a no-nonsense facing of facts.

at 9/17/2008 6:34:40 AM, JWM said:
WE'RE SCREWED..

at 9/17/2008 7:39:02 AM, Thanks said:
hey ya'll,

Thanks for scarin the crap outta me and ruining my day. I want a free beer.

at 9/17/2008 7:47:46 AM, J.O. said:
Doom & Gloomers make the mistake of seeing the job market as a "zero-sum game." That is, they act as if there is a fixed number of jobs on earth and if a guy in one country gets a job, someone else had to loose a job elsewhere. While, no doubt, some folks in some industries get displaced, the total number of jobs can and will go up. If we assume that techies actually perform useful services and develop newer, more wonderful products-- then more techies means newer, more wonderful products are in store for us in the long term. Government intervention almost always distorts markets and provides perverse incentives which penalize the prudent and productive while rewarding the incompetent and corrupt.

at 9/17/2008 10:20:49 AM, Angry Man said:
The “buying beer” analogy is bogus because it equates tax rates with cost of goods. They are not related. When buying beer, compare the income of each of the ten people, not the tax rate. A tax rate of zero does not equate to everything being free for the poorest. Gasoline costs the poorest exactly the same as the most wealthy. Taxes buried in the cost of gasoline also do not vary based by the tax rate of income. Do the bottom 25% of income earners get all their needed goods and services for free? Well that is exactly what the beer analogy implies. In fact, all of us pay exactly the same for everything except the one instance of when we talk about income taxes. And that one instance is the only “break” we get to offset huge disparity of pay versus services performed. I will offer my analogy: Twinkie economics. In 1971 I had an unskilled, manual labor McJob that paid me 21 Twinkies per hour. As a designer of medical equipment today I now earn 31 Twinkies per hour. I make a whopping 50% more in buying power per hour doing engineering design, than as an unskilled manual laborer. That is all I get … 31 Twinkies per hour? It isn’t about the damned tax rate … it is about the income that has been depressed by outsourcing! I will accept the beer analogy when the cost of the goods and services I purchase are based on my income. When the most wealthy pay $4,000 per gallon of the same gasoline I buy for $4.30, we can talk. That is the pay differential. And I will accept the beer analogy when the countries to which we outsource jobs help pay for our military. After all, it is our military that keeps the “free” in “free market”. Let those countries to which we outsource jobs put something into the military hat. And one last thing … income from dividends is taxed at 15%. Only the high rollers can afford significant investments that yield excellent returns. The professor didn’t mention this in his beer analogy, did he? Do you pay less than 15% income tax on your income? No, I didn’t think so. This is just another bogus analogy from those who seek to enrich themselves at the expense of society as a whole. Parasites all.

at 9/17/2008 10:44:31 AM, washerman said:
When my dad got his first engineering job, his tax rate was less than 15% and his mortgage was for 3%. My first engineering job tax rate was closer to 25% to 30% and my first mortgage was 13.5% I don't expect to get Social Security even though I've been paying for almost 30 years. And the poor impact isn't as strong because my tax dollars (welfare handouts) are used to pay their gasoline bills. If my job is outsourced my income will probably not go up, if I can find another job. I want my dad's tax and mortgage rates.

at 9/17/2008 12:00:32 PM, Kamerschen PHD of BS said:
hey Doc
why are you wasting all those good braincells defending the same guys that pay you YOUR salary (microeconomics??) while the punk star football players at YOUR college are handed out luxury cars and escorts by the same greedy SOB's that you're trying to defend ???

at 9/17/2008 12:46:29 PM, PhD Kaerschen BS said:
If the real professor Kamerschen did in fact post that message, I'd drop his class.

at 9/17/2008 1:58:51 PM, welfare scapegoats said:
washerman
have you ever seen what the % of the US's gross domestic product goes to entitlement programs ??
last i saw it was about 1%
any neocon geniuses out there please give us the correct figure.. sincerely
YOUR tax dollars are going to bail out AIG.. going into the fuel tanks of military vehicles protecting KBR assets.. going to pay for the benefits to killed, maimed, and truamatized war veterans (oh wait.. sorry.. not that, that's where "spare no expense" ends all of a sudden in the current administration)
To support and subsidize the SAUDIs.. who in turn stab us in the back..
To pay for the tax cuts for the top 1% of the wealthiest in this country so that we can take out more debt in China and mortgage away the future of this country.
go ahead.. blame the poor.. they can't defend themselves. and soon you won't be able to either.

at 9/17/2008 2:23:37 PM, PHD said:
why is it that a PHD feels compelled to put.. "so and so PHD" after their post ??
Let the ideas speak to their own merit
Also, why the snobbery.. ?? " As even you should be able to fathom"
Got news for you doc.. the dropouts that founded YAHOO.com probably paid more tax in one year at their peak than you've earned your entire career.
OK.. so they were MIT dropouts i think ??

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