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Tech firms are enjoying their economic stimulus

Increased spending on computers and gadgets by consumers and businesses is giving the sector a big boost.

October 14, 2009|Alana Semuels

The nation's bellwether technology sector is kicking into gear as businesses and consumers boost their spending on computers and electronics.

Shipments of semiconductors are on the rise. Some companies are hiring. Tech stocks outperformed the market all summer. And U.S. exports to China, including technology products, have climbed 33% since January.

That's good news for California, home to hundreds of companies that make the software, chips and switches that power many of today's bestselling computer and electronics devices.

On Tuesday, Santa Clara-based chip maker Intel reported better-than-expected sales and profit for the third quarter, a sign that demand for its products is picking up. Its stock jumped as much as 5% in after-hours trading. And San Jose networking giant Cisco Systems Inc. said Tuesday that it would pay $2.9 billion for a Massachusetts firm that makes equipment for the wireless industry. That's Cisco's second multibillion-dollar acquisition in recent weeks.

Though a full-blown rebound may be months away, things are looking up for tech companies throughout the state and nation. The tech-heavy Nasdaq index is up 35.7% so far this year.

"We're digging ourselves out of the hole and seeing the beginning of a recovery," said Tim Curran, chief executive of the Global Technology Distribution Council, a trade association that represents tech distributors.

China, which is recovering faster than the U.S. in part because of a massive government stimulus package, is a big part of the turnaround. U.S. exports to China in August were 21% higher than they were in the same month during the boom year of 2006, helped in large part by China's voracious appetite for technology.

With an estimated 680 million cellphone users, China is already the world's largest mobile market. It has more Internet users -- 380 million -- than the U.S. has people.

"Businesses and telecom companies in China are trying to build up their infrastructure to keep up with the growing demand for their services," said Stephen Minton, an analyst with IDC.

Apple Inc. is one of a slew of companies looking to hit it big in the Middle Kingdom; it's rolling out the iPhone there this month.

Still, the firm's products have continued to do well with U.S. consumers despite the deep recession. For the three months ended July 31, Cupertino-based Apple posted a $1.23-billion profit, marking its best-ever non-holiday quarter. Apple stock reached a 52-week high of $191.51 on Monday before closing at $190.02 on Tuesday.

Public relations consultant Erik Reynolds bought an iPhone in September even though he's unemployed.

"It was about having technology to give myself something nice to inspire me, reaffirm my confidence," said Reynolds, a 33-year-old resident of Washington, D.C.

Companies are banking on pent-up demand by U.S. consumers to help lift the industry. New products are fueling excitement. Analysts expect a bump in domestic computer sales when Microsoft releases its new operating system, Windows 7, on Oct. 22.

Companies such as Irvine's Broadcom Corp., which provides chips for PCs, have already seen a boost in orders for those computers, said Ruben Roy, an analyst with Pacific Crest Securities.

Tech companies "have really outperformed since the summer," he said.

IT purchases by U.S. businesses plummeted during the recession. But signs that the economy is recovering, as well as the release of Windows 7, should help motivate companies to spend on new computers and operating systems, Roy said.

"There's been a massive underspend in PCs, so corporations should play catch-up in 2010 as budgets open up a bit," he said.

Crystal Kendrick's Cincinnati marketing company, the Voice of Your Consumer, spent close to $10,000 in July to buy two desktop computers, three laptops, an iPhone and some other tech odds and ends. Although her firm's sales are down from last year, Kendrick sees better times ahead and wants to be ready.

That kind of spending is helping companies such as Fulcrum Microsystems in Calabasas. The semiconductor maker hired six temporary employees and a few full-time workers after business started picking up in July. Revenue in the most recent quarter was up 30% from the previous quarter, CEO Bob Nunn said.

For the most part, though, tech hiring has not yet resumed. California has shed more than 26,000 computer and electronics jobs over the last year alone. Just under 278,000 people are employed in the sector in California. That is down 36% from the peak of the tech bubble in December 2000.

During the late 1990s, the state routinely exported more than $6 billion in computer parts and accessories annually. Last year that figure was $2.8 billion.

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