After a rollercoaster ride on the stock market, tech companies are ending the year just about where they started, despite strong and in some cases record sales and profits for IT firms.
The trading year ended Friday with a whimper. The Dow Jones Industrial Average closed down by 69.48 points at 12,217.56, though it was up 5.53 percent for the year; the Nasdaq closed down by 8.59 at 2605.15, down 1.8 percent for the year; and the S&P 500 closed down by 5.42 at 1257.60 down by 0.04 percent for the year.
The Nasdaq Computer Index last Friday was down by 2.51 to 1378.72. That's down slightly from the Nasdaq Computer Index's open for year, at 1389.98. The financial sector was the big loser on the markets this year, however. Financial stocks declined 18 percent on the New York Stock Exchange. Banks declined about 12 percent and other financial institutions dropped almost 16 percent on the Nasdaq. The biggest gains were made by utilities, which rose about 16 percent on the Dow for the year.
U.S. corporations had a good year in terms of sales and profits. Tech companies were among the most profitable of U.S. corporations. On the back of record sales, Apple became for a time the most valued company in the world, edging out Exxon Mobil in terms of market capitalization. But most IT companies did not see big increases in share prices despite strong quarterly reports for the sector, especially for companies involved in enterprise software.
Despite the generally upbeat earnings reports, investors were concerned that a possible "double-dip" recession and weak spending caused by anxiety over the uncertain economy would affect sales. The August announcement that credit rating agency Standard & Poor's had downgraded its rating on U.S. debt, citing political paralysis over how to reduce the country's deficit, was one of many signs pointing to lack of confidence in the economy.
The European sovereign debt crisis, which has threatened to spread from Greece to other countries such as Italy, has also weighed on forecasts. A default by any country in the euro area would have a huge impact on the economy, since banks around the world are exposed to European sovereign debt.
"With continuing concern over the future of the eurozone affecting the global economy, the high degree of uncertainty impacting spending by both consumers and enterprises looks set to continue," said Bryan Lewis, research vice president at Gartner, in a December report on the semiconductor industry.
Gartner is now forecasting global semiconductor revenue to reach $309 billion in 2012, a 2.2 percent increase from 2011, cutting its prior projection by more than a half.
Other sectors of IT will fare better, but concerns about the economy are not likely to fade away.
"The US tech market posted weaker growth in 2011 than we expected; the outlook for 2012 is for more of the same, with business and government purchases of IT goods and services growing by 6.8% to 6.6% each year," said Forrester analyst Andrew Bartels in a US tech market outlook for 2012.
"That is almost twice as fast as the 4% growth we expect for US nominal GDP, but macroeconomic weakness is still taking a toll on the US IT market."
While individual vendors may post strong sales next year, worries about the economic outlook fare likely to dampen spending and therefore tech company share prices for some time to come.