Changes In Consumer Spending Boost Appeal in Technology

Despite an uptick in personal savings rates and lackluster results on overall consumer spending, electronics are causing consumers to reopen their wallets, further boosting the appeal of the technology sector.

According to a report released by the Commerce Department, outlays of televisions, computers, video and telephone equipment grew by 1.8% in the first six months of 2010, compared to the first half of pre-recession 2007.  In comparison, during the same time periods, sales of appliances decreased by 3.6% and that of furniture declined by a whopping 11%, indicating that consumer trends are shifting.  The report also indicated that overall consumer spending remained flat in June from the previous month and U.S. personal savings as a percentage of disposable income rose 6.4% from a month earlier. 

This data indicates that consumers are unsure of the overall health of the economy and are stashing away extra cash for a rainy day, but are still willing to splurge on a new iPhone, Blu-ray video player, computer or flat screen television.  Additionally, it illustrates changes in consumer trends: people are staying home more often and bringing entertainment in-house and, regardless of economic health, consumers want the newest and best gadgets on the market. 

These changes in consumer trends can further be illustrated in the most recent quarterly earnings reports of Apple (AAPL), Corning Inc (GLW) and Samsung.

Apple reported stellar quarterly earnings and healthy revenues numbers backed by exceptional sales and demand for its iPhone 4, iPad and Mac computer line.  In fact, the iPhone 4 is a hit with consumers all around the world as it continues draw attention and has been deemed the most successful launch of a new product in company history.  Additionally, the Cupertino, California-based technology giant sold 3.27 million iPads worldwide and 3.47 million Mac computers in the quarter. 

Corning reaped the benefits of the insatiable demand for computers and smartphones illustrated by its second quarter revenue jump of 23% and profit increase of 49%.  The New York based company manufactures specialty glass which is used in computers and smartphones and indirectly benefits from increased demand in electronics. 

Samsung, the world’s largest maker of computer memory chips, flat screen TV’s and liquid crystal display boasted second quarter profits which were 83% higher than a year ago on revenues which were higher by 17%.  A major driver behind the increase in revenues was rising demand for flat screen televisions, illustrated by an increase in shipments. 

In addition to changes in US consumer trends, as incomes rise in developing nations, consumer demand in these parts of the world for technology is expected to follow. In addition to changes in US consumer trends, as incomes rise in developing nations, consumer demand in these parts of the world for technology is expected to follow.  Some ways to gain diversified exposure to the aforementioned companies as well other major technology players like Microsoft (MSFT), Intel (INC) and Cisco (CSCO) include:

  • iShares S&P Global Technology (IXN), which allows to gain exposure to Apple, Corning and Samsung.
  • iShares Dow Jones US Technology (IYW), which allocates 12.2% of its assets to Apple and 1.4% to Corning.
  • Technology Select Sector SPDR (XLK), which allocates nearly 10.7% of its assets to Apple and 1.4% to Corning.

Although an opportunity seems to exist in the sector, it is good to keep an eye on technical indicators and have an exit plan in the event that downward price pressures are imminent.  Such a strategy can be found at www.SmartStops.net.

Disclosure: Long IYW

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About SmartStops

We are a new service launched to the market in July of 2008. Our mission - to help ensure stock and etf investors stay protected in their positions at all times. see www.smartstops.net

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