Q&A: Tech Spending

1/3/2011


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.

13 A-RATED TECHNOLOGY LEADERS
—— Current Year ——
—— Quadrix Overall Scores ——
Sector-Specific
——— Scores ———
Company (Price; Ticker)
Fiscal
Year End
Market
Cap.
($Bil.)
Est.
EPS
($)
%
Chg.
Est.
P/E
Stock
Industry
Average
Rank (No.
of Cos.)
12-
Factor
Sector
Reranked
Overall
Industry
Altera
($36; ALTR)
Dec-10
11.4
2.48
195
15
99
67
6
(91)
98
98
Semiconductors
Apple
($325; AAPL)
Sep-11
302.3
19.19
27
17
97
53
1
(11)
94
92
Hardware
Applied Materials
($14; AMAT)
Oct-11
18.9
1.22
18
12
97
74
15
(46)
96
88
Semicond. Equip.
BMC Software
($47; BMC)
Mar-11
8.6
2.98
12
16
90
52
3
(34)
45
78
Systems Software
EMC ($23; EMC)
Dec-10
49.4
1.25
39
18
76
50
14
(40)
63
60
Storage & Periphs.
Google
($599; GOOG)
Dec-10
193.1
28.83
24
21
91
46
6
(96)
32
70
Internet Software
Hewlett-Packard
($42; HPQ)
Oct-11
97.0
5.23
14
8
94
53
2
(11)
72
51
Hardware
IBM ($146; IBM)
Dec-10
185.5
11.44
14
13
86
52
6
(41)
42
61
Tech. Consulting
Intel ($21; INTC)
Dec-10
118.9
1.99
158
10
98
67
8
(91)
68
89
Semiconductors
Microsoft
($28; MSFT)
Jun-11
243.5
2.45
17
11
96
52
1
(34)
89
92
Systems Software
Oracle
($32; ORCL)
May-11
161.5
2.08
25
15
96
52
2
(34)
83
90
Systems Software
Research In Motion
($58; RIMM)
Feb-11
30.4
6.31
44
9
100
55
2
(94)
100
93
Telecom Equip.
Texas Instruments
($32; TXN)
Dec-10
38.6
2.50
117
13
99
67
5
(91)
87
95
Semiconductors
Note: Stocks on our buy lists in bold. Quadrix scores are percentile ranks, with 100 the best. The 12-Factor Sector and Reranked Overall scores are sector-specific, ranking stocks relative to other technology companies.

 


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