Technology Stocks Are Turning The Corner

Though their performance could only be described as mediocre (at best) since the market’s recovery in March, consumer and corporate spending on technology may finally be strong enough to spur tech stocks higher again.

Not As Bad As Thought: Not entirely surprisingly, revenues and earnings were down last quarter compared to the same quarter a year earlier for many technology stocks, such as Dell (DELL) and Texas Instruments (TXN). The struggling economy was the culprit of course. Yet, the tech group as a whole still topped their expected earnings figures. In other words, the market underestimated the group.

Tech Stocks Are Perking Up: Moreover, if the recently-renewed performance from these stocks is any clue, those overly-pessimistic assumptions are also quickly becoming a potential opportunity. The sector is only one of two that’s profitable for the week so far, which may point to the beginning of a bigger, longer-lasting trend.

And make no mistake – there’s no accounting trickery or mere slashed expenses that’s allowed tech stocks to shrink their way to success.

Technology Spending Really is Improving: Shipments of Dell Notebooks to consumers are up 30 percent year over year. Business shipments are down this year compared to this point in time last year, though business shipments have been improving quarter by quarter this year. Apple’s (AAPL) revenue and earnings last quarter were not only better than the prior quarter’s results, but also better than results from the same calendar quarter a year ago. Intel recently upped their revenue forecast for the third quarter of 2009 as well.

Acquisitions Suggest Insider Optimism: The ultimate hint of the tech sector’s fiscal health, however, isn’t stronger results stemming from a gradual economic recovery. It’s a willingness to invest big bucks in new business ventures, in anticipation of further recovery.

Dell’s recent acquisition of Perot Systems (PER) is an example of that positive outlook. Dell paid more than 60% above and beyond Perot’s share price at the time the deal was announced, yet Dell still clearly feels it was a worthy investment at that price. Palm Inc. (PALM) is widely expected to be the next acquisition target. That, and a flurry of several rumored smaller-scale deals, all bode well for the technology sector’s foreseeable future.