Technology Part II

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Tech in my view is and will remain to be the hottest sector for 2009. Over the past few months, many events have transpired when M&A has been insanely active. John Chambers, CEO of Cisco, has made 3 purchases in the past 90 days. Sun Microsystems has been purchased by Oracle and Broadcom is trying to go hostile for Emulex. I believe the M&A in technology will continue to happen throughout 2009 and I also believe that many fund managers will buy tech because of the “hot” factor behind it and it’s lack of performance since the tech bubble.

As for business services, many firms will invest in key technology trends going forward, over the next few years. The main trends seem to be virtualization and storage network convergence.

Above is a "map out" of the major technology vendors in the business. Alot of these tech firms has tons of cash on the books and make to invest agressively, so in my view, I would use this as a way to view potential acquistion candidates. For example, what I do is study up on the firm's business segments and identify the gaps. From there, I try to determine if they want to be in a particular segment and if so, who would they buy, in order to become a new entrant. A little easier layout of this is to look at the partners that serve these firms. It is a good chance that the bigger vendor will buy the partners to reduce costs and earn more money. We see this with the Broadcom bid for Emulex. Lastly, another way to approach this is to find "piggyback" plays. For example let's say IBM is smoking hot and is guiding higher their revenue estimates. The next step is to find what revenue streams are going to be hot, then link these back to the "partners".

With that being said, here are some sector plays that will benefit from upcoming trends in technology spending/growth:

Internet: GOOG and AMZN. Google really seems to be a monopoly is my view and as business/web services continue to grow, these two firm will benefit the most in my view. Amazon is releasing a bigger Kindle, costing about $500, and is aimed providing a way for textbooks.

Hardware: IBM, DELL, and HPQ.

IT Services: ACN

Semiconductors: BRCM and INTC will benefit for a larger standpoint. I like FCS, RFMD, and ATHR for speculative, more niche plays. TSM is another great semiconductor firm, based in Taiwan and their orders are increasing dramatically from previous quarters.

Software: ORCL and VMW are the best direct software plays that benefit from the growth in virtualization. As for software in general, SAP is another firm I like; however, their last quarter wasn't too great due to weaker than expected business spending.

Communication Technology: JNPR has been my personal favorite but CSCO is good as well. I also really like BRCD for a cheaper, speculative play.