With many analyst gearing up for a tech turnaround in 2007, it leads us to wonder whether such optimism has any basis. The tech industry, largely driven by new innovative products, has reason to be excited about the new products that came out towards the end of 2006 could result in increased sales that will propel revenue for FY07.
Google leads the charge to the promised land of web-centric applications, acquiring web-application companies to package together a web-based Office/business-tools product, capable of challenging Microsoft Office. As mentioned in an earlier post, Microsoft has its new line of OS and Office products that could allow all PC-related stocks to ride on its coattails.
To fuel this hype, industry consensus is that the tech sector is expected to grow more than 19% this year, from just 9.3% in 2006. Valueline has rated tech stocks #1 in performance for 2007 based on its earnings growth projetions of 16.5% for the sector as a whole.
However, projections no matter how thorough the models are, are merely extrapolations based on historical trends and the number of shares these analysts hold for the company that they are hyping about. In reality, projections are almost as accurate as predicting the total rainfall for next year today. As always, lets take a look at past year returns.
The 2 bolded lines in hot pink and navy blue are the software and hardware sectors resp. Hardware bigwigs include Cisco, IBM, Intel, HP etc, and Software giants include Microsoft, Oracle, SAP etc.
Lets not consider the 5 year returns for tech (hardware + software) just to remove the grinding recovery of the 2001-2002 tech depression from the equation. Even then, its still characterized by growth not much faster than an old man in a Caddy down Florida's turnpike.
Looking into the individual charts
