One word to describe the tech sector and related exchange traded funds (ETFs) is "fragmented". For much of 2007 the simple investments made into a broad-based technology ETF may have brought double-digit gains, however, nowadays, doubts are emerging in some tech sub-sectors.The Trade Radar Operator for Seeking Alpha pinpoints some of the hot and cold points within this unstable sector.

  • IT spending slowing World IT spending will grow at a slower pace in 2008, dependent upon the economic uncertainty and downside risk. Growth is projected at 5.5%-6.0%, down from 6.9% in 2007.
  • Telecom spending a bright spot Demand remains strong among telecom companies, as internet traffic has doubled. AT&T (T) is buying Cisco (CSCO) routers, which could just help the tech company.
  • Consumer electronics are hot Both Apple (AAPL) and Sony (SNE) are experiencing strong sales during this holiday season not to mention Apple has made gadgets sexy again.
  • Semiconductors Overcapacity has been slowing down certain types of chip makers, squeezing margins of makers. Until this overcapacity is absorbed it will continue to weaken demand and impact sales.

The strength in tech is not across the board. However, consumer electronics and telecom suppliers should continue to do well, while semiconductors may struggle. Just approach tech in 2008 with some knowledge.

  • Technology Select Sector SPDR (XLK) is up 15.8% year-to-date
  • iShares S&P GSTI Semiconductor (IGW) is down 0.5% year-to-date
  • Vanguard Telecom Services ETF (VOX) is up 5.2% year-to-date
  • PowerShares QQQ (QQQQ) is up 19.3% year-to-date

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.