Tech Stocks, Some Channel Companies, Take A Hit

Tech stocks, including several channel companies, were also hit as the financial services shakeup continues with the news that Citigroup is buying Wachovia.

The IT industry, which has already seen several companies state they expect lower revenue and earnings, could see even further pain because of the financial industry's mess, said Brian Alexander, managing director of equity research, technology hardware/distribution/EMS, for Raymond James and Associates.

"Demand has softened over the last two months in North America. It's continuing to deteriorate," Alexander said. "My sense is in North America, there is little to no growth. The only market to grow is Asia, and that has slowed considerably."

The financial sector is perhaps the biggest vertical customer base for the IT industry, so as more organizations fail or consolidate, it will lead to further expenditures on IT, Alexander said.

"There's going to be less overall spending, particularly initially as they look to integrate the businesses," he said. "It will accelerate a lot of the infrastructure consolidation efforts of these guys."

Earlier today, Raymond James issued a note on Insight Enterprises, the Tempe, Ariz.-based solution provider, which confirmed that demand remains sluggish.

"Results have been particularly soft in hardware [for Insight], while networking and software sales have been relatively more resilient," Alexander wrote in the note about Insight. "Note that both of these categories have been strengthened through key acquisitions (Calence and Software Spectrum) over the past few years, and in the absence of those deals, results would likely be far worse. Daily sales trends have also become more volatile, making it more difficult to forecast future results."

Raymond James expects to issue a more detailed third-quarter report on Wednesday, Alexander said.

Among the hardest-hit stocks Monday morning include Arrow Electronics (down 7.5 percent), Google (down 5.6 percent), Agilysys (down 4.9 percent) and Cisco Systems (down 4.6 percent).