Enterprise PC, Systems Slump 'Already Over'-Morgan Stanley

Wall Street's hopes for a technology recovery continued to build Tuesday, as analysts at Morgan Stanley (MS) urged investors to buy stocks in companies that sell computer systems and PC hardware.

Surveying well-known tech firms such as Apple Inc. (AAPL), International Business Machines (IBM) and Dell Inc. (DELL), Morgan Stanley analyst Kathryn Huberty upgraded her view of the sector to "attractive."

Meanwhile, Huberty also downgraded the firm's view of software makers on the expectation that their stocks' recent growth will slow in a recovery.

"We believe the contraction of enterprise hardware revenues is largely over," Huberty wrote, arguing that, contrary to those who see a slow, protracted recovery in tech spending, the real risk to her bullish view is to the upside.

More companies in the sector beat Wall Street estimates last quarter than undershot them, she noted. Many appear to be readying to rebuild their hardware inventories. And July's sales of servers and storage devices came in higher than expected.

Moreover, the average age of corporate PCs is set to top three years by the end of 2009, and more than half of chief information officers expect to spend more on servers, storage and computers by the second half of 2010, Huberty noted.

That view comes up against skepticism about the scale and timing of a return in corporate technology spending.

In late August, Dell said consumers and government began to buy again in the second quarter. But it also said that corporate demand - 80% of Dell's revenue - remained tepid at best.

IBM and virtualization software maker VMWare Inc. (VMW) are two other companies who've recently said that large businesses are still reluctant to make major technology purchases.

But other firms also raised their view of tech stocks Tuesday, saying they expect a near-term bottom or a recovery.

Roth Capital urged investors to buy Cavium Networks (CAVM) ahead of what it says is a second-quarter recovery for Cavium's enterprise revenues, upgrading its stock rating to buy.

Thomas Weisel Partners raised its rating on Amphenol Corp. (APH) to overweight, saying the fiber optic and electronic-connector maker's third-quarter sales are "tracking well."

Oppenheimer raised its estimates and price targets for Qualcomm Inc. (QCOM), RF Micro Devices (RFMD), Skyworks Solutions (SWKS) and Brightpoint (CELL) on expectations of better smart-phone sales.

While raising her sector view to "attractive," Huberty raised her rating of QLogic Corp. (QLGC) to overweight from underweight and LXK Lexmark International from underweight to equal weight.

She also cut IBM, Dell and Teradata Corp. (TDC) to equal weight from overweight in spite of the improved sector outlook, "to reflect relative upside to other stocks in our group."

-By Brendan Conway, Dow Jones Newswires; [phone]; [e-mail]

Jessica Hodgson contributed to this story.