The technology sector is seeing a massive wave of new innovation at the moment. Key trends to mention here as examples are tablets, cloud computing and social networking.

While tablets as a form factor have been introduced by Microsoft and others already a decade ago it was only the Ipad from Apple which made this category relevant for the industry in terms of revenues. For 2011, the first full year after the introduction of the product, around 50 mn tablets are estimated to be sold. This compares to a PC market which is estimated to reach between 350 and 400 mn units this year. Tablets are a perfect example for a new market created by innovation in the technology sector. They allow users to surf easier in the internet, watch and share content such as photos or video. We liken to call it a “couch PC” in a reference to the likely typical location where the tablet is used, in contrast to a laptop or a desktop. No wonder that the IPAD contributes already more than 20 % of company revenues for Apple less than 12 months after its launch. This trend to watch content such as video over the Internet instead over the TV has massive implications for the network operators and clearly very positive ones for the equipment companies in the optical space such as JDS Uniphase or Finisar since networks did to be built out to cope with the massive increase in data traffic.

Another major disruptive trend in the technology sector is cloud computing. Services which have been provided so far through packaged software can now be delivered via the Internet (“the cloud”) to end customers. This has two major advantages: software is available as a service to be paid on a monthly basis by the numbers of actual users instead of paying a huge upfront lump sum for the license to use the software sometime in the future. Very often, certain hardware can furthermore be made redundant by reducing the necessary ressources on the premises. In the final stage, this trend can lead to a situation where computer power and applications are delivered in a very similar way as electric power nowadays.

The most relevant companies to the cloud computing trend are Salesforce.com, a company selling software to manage customer relationships, Vmware, the leader in server virtualization software, and F5 networks, a provider of internet infrastructure software specifically for the datacenters necessary to support this way of computing. But also platform providers such as Amazon for this “software as a service” will profit from the trend. Currently, roughly only 10 % of software spend is made in this fashion. This trend did not go unnoticed on the stock market. Shares of F5 have appreciated over the last three years more than 450 % and Salesforce is up 168 % over that time period versus a traditional vendor such as SAP which saw its share rise only 31 %.

The last trend to mention is the new way users organize access to information in the internet. Instead of using bookmarks like in the early days, people increasingly share with friends information about interesting content. The company most relevant to this trend is clearly Facebook which is supposed to go public next year and fetches already a valuation above 50 bn $ in private market transactions. Already 500 mn users are enregistered on that webpage, and the company is said to be highly profitable. This is not only a phenomenon in the Western World but we see similar services arising in Asia within companies such as Sina, Dena or Tencent.

In summary, the innovative power of the technology sector is unbroken. Technological devices are taking a larger role in our daily lives with the younger generation even being more proclined to spent time with them. Hence,  the technology sector is supported by a huge demographic trend in its favor. This becomes also visible in the numbers since the technology share as % of GDP has doubled from 2 to 4 % over the last twenty years. At the same time, valuations have stayed very reasonable and balance sheets in the sector are on average very cash rich in stark contrast to basically all other sectors. This leaves the technology sector as a very interesting area to invest over many years to come.