NEW YORK -(Dow Jones)- Oil's spike to $130 a barrel has yet to bother big technology stocks, and analysts say they will continue to absorb the shock better than most other sectors.
Sellers of software, computers, chips and smartphone-technology require minimal amounts of fuel to build and deliver their products, compared with other manufacturers and retailers. With overseas economies now accounting for the majority of their revenue, the likes of Intel Corp. (NASDAQ-NMS:INTC) (INTC) and Dell Inc. (NASDAQ-NMS:DELL) ( DELL (NASDAQ-NMS:DELL) ) are also benefiting from one of the alleged culprits for oil's spike - the weak dollar. What's more, spending by U.S. corporate customers outside of the financial-services area is easing the pain of cutbacks by individual consumers who are spending more on gasoline. Dell (NASDAQ-NMS:DELL) server business grew by 21% in the fiscal first quarter.
"It's not that tech is immune to oil, (but) its sensitivity is at a higher point," said Russ Koesterich, head of investment strategy at Barclay's Global Investors.
Overall, the Nasdaq Composite has risen 4.5% over the last month, while the Dow is down 1.3% and the broad Standard & Poor's 500 is up only 1.1%. As if to drive home the point on Thursday, the Nasdaq held its ground at 10:30 a.m. EST when inventory data briefly sent oil shooting above $133 a barrel and pushed both the Dow Jones Industrial Average and the broad Standard & Poor's 500 into the red.
The market is also optimistic on the outlook for tech stocks on a relative basis. There's less fear than normal priced into tech equity options relative to the broad market, according to data provided by Goldman Sachs. Technology options always reflect the greater propensity for volatility in those stocks, but that spread has narrowed recently. In early trade Friday, about 62,000 contracts giving the right to buy Dell (NASDAQ-NMS:DELL) shares in the coming months traded versus roughly 27,000 contracts giving the right to sell it even as shares rose 9% to $ 23.76.
Apart from the obvious fuel and consumer dependents who have sounded the alarm about oil's effects - including American Airlines (NYSE:AMR) parent AMR Corp. (NYSE:AMR) (AMR) and Ford Motor Co. (NYSE:F) (F) - a range of manufacturers and retailers have flagged cost and demand pressures lately.
In April, Caterpillar (CAT) said its costs of manufacturing rose in the first quarter and warned steel and commodity prices will be a key variable in its 2008 profit. Dow Chemical Co. (NYSE:DOW) (DOW) said it was forced to raise prices on its products by as much as 20% because of the spike in natural gas and oil. H.J. Heinz (HNZ) and Kellogg Co. (NYSE:K) (K) said they had to raise prices to offset the surging cost of ingredients - many of which have begun to track oil prices for fundamental or speculative reasons.
In contrast, Dell (NASDAQ-NMS:DELL) was able to cut costs and increase revenue in its business, so that its first-quarter net income climbed 4% to $784 million, topping the Wall Street benchmark. Similarly, chip maker Marvell Technology Group (NASDAQ-NMS:MRVL) (MRVL) swung to a fiscal first-quarter profit, helped by cost cutting. With Friday's gains, Dell (NASDAQ-NMS:DELL) has now risen 27% for the month of May and Marvell, 34%. Apple Inc. (NASDAQ-NMS:AAPL) (AAPL), Research In Motion (RIMM) and Oracle Corp. (NASDAQ-NMS:ORCL) (ORCL) have all advanced 9% or more, compared with a slight decline for Wal-Mart (NYSE:WMT) , a less than 1% gain for Caterpillar and a 0.4% gain for Kellogg.
That a new incarnation of the BlackBerry spurred RIM's rally highlights two other dynamics that are unlikely to be affected by oil: the evolution of technology, and the reluctance of corporations to cut down on IT budgets.
"Businesses constantly have to update to compete...it seems to be an area where people are willing to spend for quality," said
Blue-chip technology companies are increasingly a play on overseas growth: in 2007, Intel (NASDAQ-NMS:INTC) generated more than half of its $38.33 billion in revenue from the Asia-Pacific region, with only $6.02 billion coming from the U.S. Dell (NASDAQ-NMS:DELL) said quarterly revenue in emerging countries such as Brazil, Russia, India and China rose 47%, and that revenue from overseas markets exceeded that from the U.S. for the first time.
A weak greenback may drive up oil prices, but it helps selling overseas. If the corporations sell into these areas in dollars, it makes their goods become more affordable; if they collect revenue in local currency, that money becomes more valuable to the bottom line.
Bulls on heavy engineering stocks like General Electric Co. (NYSE:GE) (GE) and ABB Ltd. (NYSE:ABB) (ABB) sometimes forget that every bridge and pipeline now starts out with a digital design on a computer, said Quincy Krosby, chief investment strategist at the Hartford.
"Technology's role in all of this is also in telecommunications, in building up computer networks," Krosby said.
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(END) Dow Jones Newswires 05-30-08 1219 Copyright (c) 2008 Dow Jones & Company, Inc.