With telecoms and technology back on the agenda, are we ready to move into that market once again?
Only three years ago, the asset allocation decisions that had formed the basis of global investing for decades were being consigned to the bin in favour of models that reflected the 'new economic paradigm'. Few investors were considering whether cash was a better option than equities ' the priority was to identify which precise niche in the equity markets yielded the most.
Since then investors have been forced to focus on the downside risks as well as the upside potential of markets, sectors and stocks. How much could be lost has become a more pressing question than what can be gained. But once again, investors are in danger of over-reacting, this time adopting an unnecessarily pessimistic view. If equities are still the out-performers long term, what offers the best value and growth prospects?
It is probably still heresy to suggest forgiveness for the technology and telecom sector, given how damaging the bursting of the dotcom bubble proved to be. But it is now widely acknowledged the sector was sinned against, through investor greed and lethargy. Vengeance has been ruthlessly and relentlessly exacted : perhaps it is time to move on.
For those prepared to think the unthinkable, telecoms and tech must be back on the agenda.
Consider Vodafone, the world's largest mobile phone group, which stunned the market with a 40% jump in first half pre-tax profits and a 10% leap in the interim dividend. There are still questions over the take-up of its next generation of phones, but the company deserves at least suspended disbelief.
In Europe, the telecoms sector is still soggy because while everything else is integrating, phone networks still cannot secure 'inter-operability.' In Japan, NTT DoCoMo has built on the successful introduction in 1999 of i-mode, but the same service is struggling in Europe. KPN Mobile tried in Germany and the Netherlands and take-up was only about 20% of the 500,000 projected.
Telecoms companies appear to be suffering because their products are ahead of the understanding of their customers. Demand for a hand-held gadget that is a phone, TV, game and music player and video camera seems to be limited to cash-rich but academically challenged teenagers. Even in Japan, the novelty value of such toys is flagging.
But it will not always be so. Companies like Orange are focused on the future of mobile data, and it won't be long before Mobistar, Nokia, Swisscom and TTP Communications rediscover their stride.
Technology companies too, are beginning to surprise with good results. Yahoo! revealed sales up 50% year on year, and Nokia, Microsoft and IBM all beat forecasts. Operating margins for the small business and personal finance software company have risen more than 50% in two years.
For both telecoms and tech stocks, the key to profitability and future recovery is not market growth but cost cutting and corporate reform.
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