The stock market is up today on news that the Federal Reserve will lower interest rates to spur lending and, hopefully, economic growth. The Dow is up 78 points and the Nasdaq is up 24 points in mid-morning trading.
Analysts say that the Federal Reserve will lower the key U.S. official interest rate, known as the fed funds target rate, by a half-point, lowering the rate to 0.5%.
Lower interest rate effectively cheapen the cost of buying goods and services, so tech companies are all in favor of them. Companies might loosen their purse strings to a buy a loading dock’s worth of computers or laptops if they can borrow money to do it at a lower cost. One problem: ever since the Fed has begun lowering rates, a lot of banks have failed to follow suit, choosing instead to horde cash reserves and keep lending tight. But the U.S. Treasury, as part of its TARP bailout program, is getting more aggressive about hitting banks over the head with the “stick” part of the carrot and stick strategy.
If banks decide to loan money at lower rates, that’s good news for the big computer companies.
One retailer with tight ties to the tech sector is Best Buy, and right now it could use a lifeline of its own. The company announced yesterday that its third-quarter profit sank and says it will offer buyout packages to nearly all its corporate employees in an effort to cut costs.
Best Buy, the biggest “big box” consumer electronics chain in the U.S., also says it will cut capital spending by a whopping 50% in 2009. Overall, the company’s profit fell 77% to $52 million, or 13 cents per share, in the three months ended Nov. 29. That's down from $228 million, or 53 cents per share, a year ago.
With Circuit City already in bankruptcy, and Best Buy teetering on the brink, tech companies that sell products to the big box retailers are getting nervous. Nobody wants a supply chain problem in the middle of a recession, but if Best Buy and Circuit City go under, or even cut back, tech companies might have to find another way to get their products in front of consumers. Don’t get me wrong – online is a good option – but even technology companies don’t want it to be the only way people can shop for their products.
One other note, and again, not a positive one. The Wall Street Journal has a great article today on how even Apple Computer is beginning to feel the strains of an economic slowdown. Says The Journal, “Apple Inc. is beginning to suffer in this year's dismal holiday season, and worries are mounting the recession will weigh on its business next year.”
“Apple, which has outpaced the overall personal computer market this year despite its strategy of eschewing discounts, showed its first signs of weakness in November. Sales of Macs in U.S. stores last month declined 1% from a year ago, while industry-wide PC sales rose 2%, according to research firm NPD Group Inc., which tracks retail sales.
NPD analyst Steve Baker blamed a 35% drop in sales of desktop Macs, noting growth in Apple's laptops still outpaced rivals.”
For Apple-corists out there, it’s a great read on where the company thinks it’s going. And for Apple-haters, it’s a good exercise in schadenfreude.