Energy Costs Pose Significant Threat to Technology Sector

Technology companies such as Microsoft, Google, and Yahoo! are facing mounting pressure from soaring energy costs, which are reducing consumers' disposable income and affecting the tech industry's sales. This trend is evident in the "Energy Squeeze Report" by CNBC, which highlights the struggles of the technology sector due to higher utility bills. David Garrity, director of research at Dinosaur Securities, explains that energy costs represent a tax on the economy, resulting in reduced discretionary spending on technology products.

Key Takeaways:

• Higher energy costs pose a significant threat to the technology sector, as they reduce consumers' disposable income and affect sales.
• Companies producing larger ticket items, such as product-oriented technology companies, are being hit hardest by energy costs.
• Service-oriented technology companies, like Google and eBay, are seen as more resilient in this environment.
• Microsoft is expected to face downside risk due to its flat earnings, while Google is projected to show growth.
• Energy costs factor into operating the infrastructure necessary to support technology products and services.

Statistics:

• Utility bills are rising, affecting the technology sector.
• Revenues for Google are up 72% year over year, with earnings up 98%.
• Microsoft's earnings are down 4%, primarily due to its stock buyback program.
• Energy costs represent a tax on the economy.

Sources:

• CNBC/DOW JONES BUSINESS VIDEO ANALYST INTERVIEW MARIA BARTIROMO, CNBC ANCHOR
• David Garrity, Director of Research, Dinosaur Securities
• CNBC/Dow Jones Business Video transcription, 2006
• Voxant, Inc. transcription, 2006