Is it time for Technology to shine again?

It’s been seven full years since the huge Y2K push by the world’s corporations and governments to modernize their technology platforms. You will recall that the impetus came from the nearly universal use of a date space-saving technique which used only two digits to store the year rather than four. It was feared that when the world’s computer clocks arrived at 01/01/2000 mass chaos could follow. How would computers distinguish between 1900 and 2000 when all they saw was 00? Suffice it to say that virtually everyone who used computers in their business felt compelled to upgrade both computers and software creating a huge boost for everybody in technology.

Since Y2K, there has been little to urge tech buyers to upgrade. While the number of transistors on a microchip continues to double every eighteen months or so (according to Moore’s Law), users find that microprocessors are already powerful enough to do what they need to do. Indeed, computers are so well engineered for longevity and offer such tremendous future capacity, that replacement cycle to boost productivity has slowed. But will that remain the case?

Microsoft is in the midst of releasing its first major new operating system in five years.Vista, a significant upgrade to XP, will be installed on new computers this month and is available to those with existing computers. It offers a host of new features from better user tools to improved data and hardware integrity and security. The enterprise version offers substantial benefits to corporate users as well.

Microsoft has also begun offering its new Office 2007 program. It is said to have 176 new features with most geared toward business. According to Bill Gates the improvements are concentrated in workflow capabilities, rights management, advanced scheduling, document sharing and business intelligence.

According to stock analysts polled by Thomson Financial, technology companies will generate almost 18% profit growth in 2007 (Bloomberg gets 22%), compared to 9% for the Standard & Poor’s 500 Index as a whole. Tech will have the highest growth among the 10 industries in the S&P index.

In trading so far this year, tech has jumped to an early lead, a fact that may be significant. According to Bloomberg, the Nasdaq has jumped 2.9%, so far, while the Dow average and S&P 500 are up only 0.4%. According to the Stock Traders Almanac, the market’s full-year performance mirrors that of a full January 75% of the time.

As we’ve mentioned in previous Briefs, we believe that technology is poised to outperform other sectors for a variety of reasons with valuation as the primary one. Tech stocks are cheap by historical and relative measures. With so much liquidity in the world markets today, they may not remain cheap indefinitely. Their large bankrolls of cash and low or no debt also make them attractive takeover targets to private equity funds. Industrials, energy, real estate, commodities, and financials have had their runs. They are in various stages of topping out or retreating. Is it technology’s turn? Time, as they say, will tell.