The tech sector passed two poignant market anniversaries this week on its way to what investors and vendors hope will be a sustainable recovery from the recession and, in the best-case scenario, another boom cycle.
Wednesday was the 10-year anniversary of the Nasdaq's highest point and Tuesday marked one year after its lowest point since the dot-com bust.
On March 10, 2000, the Nasdaq -- darling of the "new economy" because of the myriad IT bellwether and dot-com companies listed on the exchange -- closed at 5048. The index then dropped until the middle of 2002, declining almost 4,000 points.
After its precipitous descent, the Nasdaq never fully recovered. The closest the Nasdaq came to 5000 in the past decade was on October 31, 2007, when it reached 2859. Sixteen months later, on March 9, 2009, recession-slammed tech companies led a broad market decline that saw indexes sinking to levels they had not reached in years. The Nasdaq fell to 1268, its lowest close since October 2002, near the bottom of the dot-com bust.
Examining the different scenarios behind those milestones, however, should offer hope to anyone whose fortunes are connected to the technology sector.
The Nasdaq high point came at the end of a boom cycle in the tech market, marked by the release of SAP's R3 ERP (enterprise resource planning) suite in 2002. The next eight years saw massive corporate take-up of technology including ERP systems, servers, and networking equipment like routers, notes Forrester analyst Andrew Bartels.
"Our analysis has shown that the tech market goes through eight-year cycles; eight years of boom followed by eight years of, not bust, but slower growth," Bartels said.
Amplifying the normal eight-year boom cycle at the end of the '90s was the massive outlay of capital on Y2K bug fixes in big corporations.
What then followed was a period of "digestion" during 2000 to 2008, according to Bartels, when businesses figured out how to leverage the technology implemented during the boom.
The Wall Street crash in 2008 and the recession interrupted what would have normally been the beginning of the next eight-year boom cycle, Bartels said.
During the new cycle, now that servers and routers are commodity items and databases and ERP systems are part of companies' core IT infrastructure, companies are looking to invest in technology such as unified communications, business intelligence, analytics, service-oriented platforms and small mobile devices, Bartels noted.
"But the financial crisis had a big impact on capital spending," Bartels said. More than the general economic recession, the collapse of credit markets forced buyers to hold off spending plans out of fear that, if they ended up needing capital, they would not be able to borrow.
Now that financial markets are stabilizing, companies will most likely feel confident enough to get back to spending on tech. This week, major financial institutions like AIG, Citigroup, Wells Fargo, Bank of America and JPMorgan Chase enjoyed upticks in shares as investors gain confidence that the worst of the recession is behind them, and those banks that got bailout money start to pay it back.
For tech, the good news is that every week brings at least one or two rosy market forecasts.