Technology companies have complained of a lack of visibility of sales and profits growth for over a ...
Technology companies have complained of a lack of visibility of sales and profits growth for over a year. It is still difficult to force a way through the near-term fallout from the bursting of the technology bubble and to look into the future. The problem is exacerbated by the tragic events at the World Trade Center and the Pentagon. However, these events have shed new light on the application and potential of technology.
There will be a heightened awareness of safety and the need for security in the US. This can be observed from the huge leap in mobile phone sales since 11 September.
The US market has the lowest penetration rate of any developed world market for mobiles. The success of the cellphone in enabling people to communicate in the aftermath of the attacks was a major driver in awakening interest.
Companies are also likely to increase their IT security. Although this was already one of the faster-growing areas in the technology arena, it looks likely to accelerate. The potential loss of data from such a disaster will force corporations to consider whether they should be in the IT industry.
The growth in the Internet and e-commerce slowed as the dot.com boom fell apart but the commercial argument for adopting the web as a means of commerce remains intact. It will be of some comfort that the web did not collapse following recent events, but then ARPAnet, on which it is based, was designed by the military to survive even a nuclear holocaust.
The robust nature of the web will encourage more use of intranets, extranets and other nets as part of large organisations' communications networks.
The growth in internet usage and data transmission has not abated but capacity in the telephone network expanded too rapidly. Increased use of the web, remote systems and storage will put pressure on the telecommunications network, which will start to eat into the enabled network capacity faster than expected.
However, sometime within the next twelve months network capacity will get tighter. Higher prices for data transmission are already occurring. The return of spending on communications equipment may be closer than expected but not yet. This is still a developing theme.
Many commentators are worried about technology spending and share valuations. The decline in inventory levels and the increase in inventory being written off has increased the visibility of the future of many technology sectors. This comes at a time when the future of many other sectors is unclear. The near term will not see a major pick-up in growth rates but we are close to a turning point.
In the long run, technology will still be a major growth driver of the economy. The sector is sensitive to the ups and downs of the economy and like many cyclical shares will look expensive on trough earnings. Some of the mega-stocks, such as Cisco and Intel, will struggle to reach previous profits growth rates. Valuation levels will not rise for these companies in the coming cycle. On the other hand, companies involved in themes are likely to see accelerating growth and be rated more highly by the market.
Bear market largely behind tech sector.
Terrorist attacks have accelerated recovery.
Tech is the solution not the problem.
Despite improved risk appetite
FOS award limit increase
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