Computer orders up on low interest rates

SAN FRANCISCO: Demand for computers and electronic products rose two per cent

in November over the previous month as companies seized on low interest rates to

place orders, giving the battered technology sector a shot in the arm,

economists said on Friday.

The tech sector has been bloodied by recession and a brutal downturn this

year, and a number of large tech companies have warned of a drawn-out capital

spending crunch next year. Amid those concerns, the tech sector received a boost

from the November durable goods report on Friday, economists said.

Overall orders for expensive manufactured goods fell 4.8 per cent to $175.5

billion in November from October. By contrast, new orders for computers and

electronic products rose two per cent to $35.56 billion for the same period, the

Commerce Department said.

November's rise in new orders for computers and electronic products followed

an 8.9 per cent gain in October from September and an 8.5 per cent drop in

September from August.

Two straight months of rising orders show businesses are locking in low

interest rates to buy technology, providing a glimmer of hope that capital

spending will rebound and buoy tech companies, said economist Victor Canto of La

Jolla Economics in San Diego, California.

"Technology is cheap," Canto said. "When you think rates have

bottomed or will climb you buy."

The Federal Reserve has cut interest rates 11 times in 2001, slashing its key

federal funds rate to a 40-year low of 1-3/4 per cent from 6.5 per cent at the

start of the year. Analysts believe the cuts, paired with an inventory drawdown,

have set the stage for an economic rebound in 2002.

"People are doing a little bit of ordering through some refinancing

because of bargain-basement interest rates," said Donald Straszheim,

president of Straszheim Global Advisors.

Two of three components within the Commerce Department's computers and

electronic products category posted rising new orders in November from October.

Orders for computers and related products rose 2.7 per cent and semiconductor

orders increased 2.4 per cent. By contrast, orders for communications equipment

slipped 0.3 per cent.

Straszheim said November's gains suggest corporations are positioned to

continue to place new technology orders. But he said they would do so

cautiously.

"November's report was clearly better from the tech perspective, but it

is going to be a long time before this sector is healthy again," Straszheim

said. "There will be an awful lot of bad earnings news in coming months,

which will make business people making these orders more conservative."

© Reuters Limited.