Smart idea to take a punt on the tech sector

Kathleen Brooks
Jaws dropped on Wall Street late Thursday after Intel, the computer chip maker, reported an 875 per cent increase in profits between October and December last year. Profits were $2.3bn, up from $234m in the same quarter in 2008, smashing analyst expectations.

But while a nine-fold increase in profits is unlikely to be replicated this quarter, there could still be some upside for other tech firms. This is a good opportunity for spread betters who might want to cash in on positive surprises in technology companies’ earnings over the coming weeks.

Intel is seen as a bellwether for the tech sector. Its profits in the fourth quarter were largely generated by consumers’ thirst for new technology, in particular mobile internet devices like smartphones, laptops and netbooks, which all use Intel chips. “This is the future of technology,” says Richard Holway, Chairman of Tech Market View, a technology research firm. “Consumers will continue to demand these products for the next few years.” Good news for the likes of Intel.

What is interesting about Intel’s results is that while revenues in Europe and the US were uninspiring, demand for its chips grew strongly in countries like China and India. As Christian Tegllund Blaabjerg, chief equity strategist for Saxo Bank, says, even if consumption slows in the west, larger companies like Intel with exposure to emerging markets should continue to do well.

Internet service companies will also benefit from this surge in demand for wireless technology. As more people use smartphones, the increase in pressure on bandwidth capacity will start to hurt performance. Expanding it is a long-term project, but this paves the way for companies such as French telecoms company Alcatel-Lucent and wireless technology expert Harris Corporation, which both provide patches to improve capacity in the short-term.

There is little competition in this sector and demand for their services are set to increase both this year and next, which should be reflected in the share price.

Spread betters need to be careful about which stocks to pick. As Charles Stanley’s Tom Gidley-Kitchin says, not all technology stocks are equal, and thorough research pays off:

He warns: “This isn’t a sector where you buy a stock because it’s cheap and wait for it to revert to the mean. In this sector if a company falls behind the competition and loses market share they will continue to do that.”

Companies that provide smartphones and laptops should do well. This is good news for Apple and Google, who report their results in the coming weeks. Their performance should tell us whether Intel’s results were a freak event, or a sign of things to come.

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