High technology stocks on the US market took a nasty dive on Friday and early yesterday. The continued uncertainty surrounding the Presidential election was one reason. But the more important factor was signs of slowing growth in two big high-tech companies, Dell and Hewlett Packard. Business and the markets will be affected by whoever is in the White House, but no-one is in any doubt that international trends in the technology sector will be a much more fundamental influence on Wall Street.
For a couple of years now, investors have struggled to put values on the shares of technology companies. For a while it seemed that no value was too high, even for companies which had no prospect of making a profit in the foreseeable future. Now, however, the dot.com bubble has well and truly burst and retrenchment and cutbacks are the order of the day for Internet companies.
As this shake-out continues, investors are asking where it will all lead and whether the big leading technology companies are beginning to suffer from a slowdown in the dramatic growth of recent years. A related question is which of them will continue to prosper in a market where future trends remain uncertain. In such an environment, the recent news from Dell and Hewlett Packard was enough to send the markets into reverse, led by the US NASDAQ index where high-tech stocks predominate.
The NASDAQ index, having fallen by 5.4 per cent on Friday, fell roughly the same again early yesterday and, while it recovered strongly later, it remains around its lowest level since late last year. There was the predictable knock-on effect on other international markets yesterday, with the high-tech dominated Neuer Markt in Germany worst hit, slumping by 10 per cent. Irish technology shares, which are quoted on a number of different exchanges, did not escape the fall-out.
It would be no exaggeration to say that the markets are suffering something of a crisis of confidence about technology shares. But this should be kept in perspective. Hewlett Packard's figures yesterday showed strong growth; it was just that it was not as strong as the markets had expected. And few would argue that part of what is going on is a correction in prices from unsustainably high levels. From the Irish point of view, the health of the US high-tech sector is vital.
Hewlett Packard, for example, employs 1,500 people here and Dell has 4,500 employees in Limerick and Bray. Other US technology companies employ thousands of people in the Republic and the wealth they create supports many further jobs across the economy. Their presence has been central to our recent economic success.
Some slowdown in the sector might be no bad thing. After all, the economy here would benefit from a cooling from recent record growth rates. However, we must hope that the recent nerves in the market are not a harbinger of worse news to come. A gradual slowdown in the technology market - and in the US economy in general - would help the Irish economy towards a soft landing. But a sharper decline across the Atlantic would inevitably cause difficulties for the Irish economy.