TECHNOLOGY SECTOR Business offices are hanging on to computers longer

Lack of software innovation and tighter budgets are the reasons.
NEW YORK (AP) -- Jeffrey Saut doesn't need a minutely detailed analysis to get a read on the technology sector -- the chief investment strategist at Raymond James Financial Services can get an idea from just looking around his office.
"We have 5,400 retail brokers and I forget how many on the capital market side, and a lot of them are using older computers," Saut said from his Tampa, Fla., office. "The accounting life of this equipment may be over, the useful life definitely isn't."
Raymond James isn't buying new technology, and neither are thousands of other companies -- because there's nothing that they're really motivated to buy. While computer hardware has certainly improved, the software that led to great leaps in business productivity is sorely lacking. And until new innovations attract corporate interest again, technology companies' profits -- and their share prices -- are unlikely to grow substantially.
Selective buying
Technology innovation and the resulting billions spent by businesses on those improvements fueled much of the stock boom of the 1990s. Now, however, not only are businesses curbing capital spending due to slow economic growth and a fear of falling profits, ever since the Y2K bug prompted a wave of buying, corporate purchasing programs have become much smaller and far more selective.
"There's nothing that's so urgent and compelling right now that companies feel they have to spend money on it," said Rick Sherlund, technology analyst with Goldman Sachs. "Plus, most companies' IT (information technology) spending is constrained anyway, so it'll be a struggle."
For tech stocks, that has meant more than three years of mediocre stock prices and disappointing returns that are likely to continue. Microsoft Corp. has traded from $21 to $34 per share since January 2002, and currently is in the $28 range. Intel Corp. has been far more volatile, and while it enjoyed a strong runup in prices in 2003, topping out at $34.12 on Nov. 6, it currently trades at around $21.
Correlation
In the past, there was a strong correlation between technological innovation and broad-based stock rallies, especially when those innovations were readily useable by corporate America. From the introduction of the IBM personal computer in late 1981 to the rise of the Internet and server-client corporate networks in the early to mid-1990s, the need to keep up with the times kept companies spending -- and kept technology firms coffers overflowing.
But now, there's no overriding reason to spend big on technologies because the innovation of the 21st century has been incremental, rather than revolutionary.
Without must-have software, which means mediocre returns on software stocks, hardware makers can only watch their inventory of faster, more powerful computers sit on shelves as business make do with older computers running older software. That was painfully evident Sept. 2, when Intel Corp. reduced its third-quarter outlook due to slow demand for its microprocessors, the brains running the majority of the world's personal computers.