Investor's Business Daily
Tech Still Rallying From Burst Bubble
Thursday January 19, 7:00 pm ET
Paul Katzeff
Key areas of tech are on track to continue a comeback, fund managers and analysts say.
But don't expect a return to the days of nosebleed growth rates in the late 1990s.
Instead, they foresee the sort of modest growth that is easier to sustain.
Growth will stem from steady increases in both consumer and corporate spending.
"Barring any significant outside event or shock to the system, consumers will probably hang in there," said Jim Gulbrandsen, who on Jan. 31 will become a manager of $100 million Wasatch Global Science & Technology Fund (Nasdaq:WAGTX - News). "Several segments of tech will continue to do well."
After a dismal 8.86% loss in the first quarter last year, tech sector funds improved average performance the next two quarters.
For 2005 overall, the typical fund advanced 5.11%. That topped 2004's performance average of 4.64%. And it was far better than the 8.81% average annual loss for the five years ended Dec. 31, 2005.
Bearish earnings reports on Wednesday by Internet portal Yahoo (NasdaqNM:YHOO - News) and chipmaker Intel (NasdaqNM:INTC - News) and a disappointing forecast by Apple Computer (NasdaqNM:AAPL - News) helped spark sell-offs in the Nasdaq and S&P 500.
Still, tech sector funds remain up 4.88% this year.
Strength has been coming from computer and software makers, fiber optics, Internet content and chip companies.
In IBD's industry group rankings, which are based on six-month price performance, four of the top 10 groups are tech oriented.
Computer makers were ranked No. 2, up from 110 six months ago. Computer software-desktop was No. 17, up from 139. Computer-data storage was up to 27 from 140.
Strong Segments
In consumer electronics, four segments should dominate in '06, says Steve Koenig, senior manager of industry analysis for the Consumer Electronics Association.
Wireless handsets are one. As telecom carriers roll out new services, consumers have more reasons to buy handheld devices.
For instance, Verizon's V Cast service will offer such content as short news and sports clips, games and downloadable music.
CEA projects wholesale handset shipments worth $16.1 billion this year, up from $13.5 billion last year.
MP3 players are another hot segment. Apple has its popular iPod. And rivals are unveiling competitive products.
Samsung, Pioneer (NYSE:PIO - News), SanDisk (NasdaqNM:SNDK - News) and EchoStar Communications (NasdaqNM:DISH - News) touted iPod challenges at the recent Consumer Electronics Show.
Navigation devices are a third promising segment.
"Raw shipment numbers are low vs. those other segments," Koenig said. "But the increase is sharp."
Mass merchandisers are helping the segment widen sales outlets, Koenig says.
"One thing driving consumer demand is the addition of new services," Koenig said. "High-end products can now integrate with traffic info services, for example."
Flat-panel TVs are the fourth segment driving the sector. Factory sales of plasma TVs are seen hitting $5.3 billion this year, up from $4 billion, says the CEA.
Unit sales of LCD models are seen almost doubling to 7.1 million, up from 4 million in 2005.
Overall, consumer spending on tech in 2006 is expected to rise faster than normal, but slower than last year, says the CEA.
Wholesale tech sales should climb about 8% this year. That would top the 6% long-term yearly average. But it would lag 2005's 11% growth.
Overall corporate tech spending will not grow as much as it did last year, forecasts research firm IDC.
Businesses account for roughly 80% of all tech purchases, notes Stephen Minton, analyst for research firm IDC.
The global tech market should grow about 5.5% this year, Minton says. Last year it was up 6%.
Outside hot segments, investors like certain individual names.
For instance, Submarino is the Amazon.com of Brazil, says Noor Kamruddin, another newly named manager of Wasatch Global Science & Tech.
"The market has a large number of people buying goods online," she said. "Submarino services them."
Distant Drive Makers
Kamruddin also likes Unisteel Technology and Magnecomp, Singapore-based computer disk drive makers.
"They're far more attractively valued than their U.S. counterparts," Kamruddin said.
Akamai Technologies (NasdaqNM:AKAM - News) is another favorite. "I call them the FedEx of the Internet," Kamruddin said. "They deliver online content to consumers."
The stock is up 78% over the past 52 weeks.
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