Q&A: Tech Spending
With the economy looking better and growth stocks setting the pace, the Forecasts thought now was a good time to answer questions about the tech sector. Specifically, we looked at spending trends.
Q Businesses are cautious with their money. Will they invest in technology products?
A Fueled by strong demand from developing markets, the outlook for business spending on technology looks promising. According to research firm Gartner ($33; IT), global tech spending for 2011 should reach roughly $2.5 trillion, up 3.1% and above the 2.4% increase estimated for 2010. Researcher IDC is even more bullish, projecting 4% to 5% growth in tech spending in 2011, with emerging markets accounting for more than half of all expenditures.
Q Will all parts of the world share in that tech-spending growth?
A In the U.S., a weak replacement cycle has weighed on business-related personal-computer sales. But an ongoing economic recovery has fueled spending on system and network upgrades. The best growth story is overseas, particularly in the Asia/Pacific region, where pent-up demand and new infrastructure initiatives have stoked business spending. In China, subsidies and incentives have fueled massive investments in equipment used to manufacture components for consumer electronics, particularly televisions.
Q Do you have a favorite industry group in the sector?
A We don't recommend buying or selling any industry group en masse, preferring to focus on individual stocks. However, in recent months we have unearthed a number of attractive semiconductor stocks. For 2010, Gartner expects worldwide semiconductor revenue to surge roughly 31% to $300 billion.
Such rapid growth is unsustainable, as manufacturing utilization rates have peaked and selling prices have softened. Still, semiconductor revenue for 2011 is expected to reach $314 billion, up nearly 5%, partly reflecting strong demand for memory used in tablet computers. Gartner estimates that semiconductor revenue from tablets will increase more than sixfold by 2014.
Q What are your favorite tech stocks?
A Our Focus List features four technology stocks. Semiconductor makers Altera ($36; ALTR) and Texas Instruments ($32; TXN) should be able to ride their operating momentum to better-than-expected results in 2011. Given Apple's ($325; AAPL) amazing success with the iPod, iPhone, and now the iPad tablet computer, it's tempting to speculate which new market the company will enter next. IBM ($146; IBM) pioneered the one-stop-shop model for products and services, a strategy many rivals have since emulated.