Home » A Brutal Week For Tech: Why NASDAQ Pain May Linger

A Brutal Week For Tech: Why NASDAQ Pain May Linger

by Chris Poindexter

For a brief time the NASDAQ was outperforming both the S&P 500 and Dow on a yearly basis. That was before the big bummer where the tech-heavy NASDAQ got hammered, trimming all but a meager 0.18% YTD gain. Wednesday’s closing numbers tell the story better than words can express it:

Dow Jones Industrials 16,437.18 +181.04 1.11%
S&P 500 1,872.18 +20.22 1.09%
NASDAQ Composite 4,183.90 0.00 0.00%

The story these numbers don’t tell is that the NASDAQ had to fight uphill all day to make it back to zero. Technology is a big field and the NASDAQ is a broad index, encompassing 3,200 companies in widely disparate businesses. It would be a mistake to paint such a broad swath of our economy with the same brush, yet there are good reasons to be cautious about the technology field right now.

PC Field in Transition

The world is currently experiencing an explosion in computer technology, yet the brand name suppliers of the technology revolution are struggling. While we’re seeing a wider array of devices connected to the Internet, for the most part they are smaller, less expensive devices, and appliances with embedded connection sub-systems.

The days of a desktop PC under every desk are drawing to a close, leaving the world of technology in a state of transition. The challenge for hardware manufacturers is surviving in a hardware world where devices are less expensive and margins are thin.

When Apple Sneezes…

Depending on how you calculate it, Apple makes up anywhere from 12%-16% of the NASDAQ composite. Since the death of founder Steve Jobs in 2011, Apple has struggled to regain its confidence. The days of rabid fanboys taking to Internet forums to zealously defend the company from the slightest criticism are over; now bloggers post articles about the struggles of the Apple faithful to migrate to PCs. Apple stiffed both their pro software and desktop hardware customers, while their powerful iTunes store stuck with a download model far too long after the rest of the world had migrated to streaming.

Microsoft: Yesterday’s Technology Next Week

Both Microsoft and Apple are feeling the heat from NASDAQ darling Google, but Microsoft is clearly getting the worst of it. Cratering PC sales have slowed recently only because companies are scrambling to replace Windows XP machines now that Microsoft has officially ended support for the operating system which is now a teenager.

Microsoft has thus far been able to increase revenues by squeezing enterprise customers, but the decline in PC operating system sales also hurts sales of their flagship desktop productivity software. The company’s dismal entry to the mobile OS market is such an orphan that MSFT has to literally pay developers to write applications for Windows Mobile.

Microsoft is a huge company with an ocean of cash they can shift around for years to mask declining sales but, sooner or later, that tab will come due. If they don’t have an avenue for growth, their revenues will crash.

Facebook

It’s estimated that Facebook CEO Mark Zuckerberg lost $3.1 billion during the NASDAQ meltdown last week. While it’s likely Zuck will scrimp by, Facebook points up that fashion has an influence in the technology sector and, for some young people, Facebook has all the sex appeal of white belts for men.

To be clear, Facebook has posted some eye-popping numbers in advertising revenue increases — but there’s a limit to that growth before users will start pushing back. It’s also good to remember that for all its size and complexity, Facebook is just a website, and it’s relatively cheap to stand up competition. The challenge for Facebook going forward will be finding new sources of revenue beyond advertising.

The NASDAQ today is demonstrating that change is always painful, and that many of the “old” tech companies are having trouble turning fast enough to keep pace with a nimble market. Until the market sorts itself out and the path of technology growth has a clearer path, it may be a good idea to stay on the sidelines — and wait for the next revolution.

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