Tech emerges as safe haven

Technology stocks have emerged as a safe haven for investors as shares of mortgage lenders, investment banks, home builders and luxury retailers fall amid turmoil in credit and mortgage markets.

Dell Inc, Seagate Technology and Cisco Systems Inc are among companies that expect robust technology spending in the second half, even as some customers reduce spending because of concern that credit losses, falling home prices and rising foreclosures may trigger a recession, according to company executives and analysts.

Brian Halla, chief executive of chipmaker National Semiconductor Corp, pointed to steady demand from wireless phone companies for his company's processors.

People who can't pay their mortgages are still buying handsets, he told analysts on a conference call.

The Standard & Poor's Information Technology index is up more than 12 percent this year, making it the S&P 500's second-best-performing sector after energy. An S&P index of financial-services stocks is down nearly 10 percent, and consumer discretionary shares are down 4.5 percent as a group. The S&P 500 as a whole is up 3.8 percent this year.

Romeo Dator, portfolio manager at U.S. Global Investors, said technology isn't too related to credit market troubles.

It looks like we are getting a good pickup in spending from businesses, which is very good for technology, he said.

Other tech executives say they are encouraged by several trends. Companies are expected to pick up the pace of replacing aging equipment, while consumers buy new computers, especially laptops, that take advantage of Microsoft Corp's Windows Vista operating system, available since January.

The recent credit-market dysfunction has hurt mortgage lenders, hedge funds and some investment banks and megabanks that may have lent leveraged-buyout firms too much money at too attractive a price, Citigroup analysts Richard Gardner and colleagues wrote in a research report before this week's technology investment conference in New York.

However, the tech sector may have become a surprising safe haven in the current equity market squall, the report said.

MUTED EXPECTATIONS?

Still, Goldman Sachs analysts questioned in a report last month whether technology executives' public confidence over spending may give way to more muted expectations as mortgage and credit problems spread to the broader economy.

A Goldman U.S. information-technology spending survey in June showed year-over-year declines in technology-spending expectations and investments in new technology equipment and software, despite upbeat forecasts from bellwether companies such as International Business Machines Corp.

We wonder to what extent recent dislocation in the credit markets could ultimately affect spending decisions, perhaps impacting the slower September quarter and, more importantly, 2008 budget planning, said the study by analyst Laura Conigliaro and colleagues.

Cisco CEO John Chambers is among the most optimistic about technology spending.

This is the most excited I've been in this market in a decade, Chambers told an analysts' meeting on Wednesday, referring to prospects for his company's business of providing data network equipment for Internet connectivity. The second phase of the Internet is really about to take off.

Stocks of computer hardware companies are among the most attractive in technology, largely because their stock prices are inexpensive relative to expected earnings, Citigroup said.

We are seeing the strongest global economy we have seen in my lifetime, Chambers said. We are seeing that within this marketplace, (with) the majority of our customers, it feels like we're coming in for a soft landing.

Dell founder and CEO Michael Dell said the company expected demand for its computers to remain strong despite broader market woes.

It wouldn't surprise me if there's some effect in some parts, whether mortgages or financial services, but broadly it looks pretty good, Dell said at a Citigroup conference this week, referring to expected demand for Dell computers.

Dell expects an order backlog for notebooks -- a source of complaints from consumers facing delays for their computers -- to clear in coming weeks as factories receive more components.

As much as this is a challenge in the near term in terms of disappointing customers with long lead-times or missing expected delivery dates, it's generally a better problem to have than having too much supply and not enough demand, he said.

Seagate, the world's largest computer disk-drive maker, last month significantly raised earnings and revenue forecasts for the current quarter, citing stronger-than-expected demand, higher product prices and a better product mix.

Seagate CEO Bill Watkins told Reuters in a recent interview that demand for backing up movies, video, photos and music was fueling demand for data storage, boosting Seagate's prospects.