The Nasdaq index, the high-tech barometer, has risen 40% since October, writes Jamie Smyth

A slew of corporate results issued by high-tech firms this week show that a recovery is coming but it will probably not be as fast as some optimists are predicting.

Cautious statements from technology bellwether stocks such as Microsoft and Intel underline the lack of clarity in the sector. And most analysts are struggling to determine if a pre-Christmas recovery in consumer spending will translate into stronger corporate spending on technology this year.

The Nasdaq exchange - the premier guide to the performance of the technology industry - has spiked almost 40 per cent since October and valuations of some high-tech firms look high.

Research issued by Davy Stockbrokers this week suggests that such valuations are dependent on a strong, sharp recovery in IT firms' earnings. But Davys has yet to be convinced.

"We believe that valuations are stretched at current levels and are cautious on the sector," the firm argues in its technology report to potential high-tech investors.

Recovery in the global technology industry is also crucially important for IDA Ireland to create new higher value jobs in the Republic, following a series of job cuts in the sector last year.

There have been few significant high-tech jobs announcements over the past 12 months, and several high-tech firms such as US multinational Teradyne have deferred major investments.

This week's bullish announcement from US software firm Oracle, that it expects to employ an extra 250 staff in Dublin, should be tempered by the fact that it failed to deliver on indications last year that it would double its Irish workforce.

One of the first indications of positive sentiment returning to the technology sector would be a firm decision by Intel to restart construction on its proposed new fabrication plant in Leixlip. This plant, which would employ an additional 1,000 staff, would manufacture computer processor chips much more efficiently than currently possible.

Intel's decision to cut its capital spending by 25 per cent this year to $5.5 billion (€6.22 billion), and cautious comments from the firm's executives this week suggest construction may be significantly delayed.

"Intel's fortunes and the processor market are linked strongly to PC sales," says Mr Andrew Norwood, senior analyst with Gartner Dataquest. "This year we are forecasting single-digit PC sales growth but in the longer term the situation looks better for 2003.

"PC sales during 1999 were strong as businesses purchased new equipment to overcome the millennium bug. There's generally a three or four-year PC product lifecycle so we think 2003 will be a good year," he says.

Intel will be looking to co-ordinate its building programme and construction of its new fabrication plants to meet this demand. With a lead construction time of about 18 months for the Leixlip facility, identifying the correct timing is extremely difficult given the uncertainty dogging the sector.

However, most analysts believe that increasing prices for memory chips and lower inventories reported by processor firms suggest the slowdown cannot get any worse even if there is not a dramatic near-term recovery. Most experts believe a rebound in corporate spending on technology will be the true test for recovery.

"We expect a recovery in IT spending by firms in the second half of 2002," says Mr John Coolican, technology analyst with Merrion Stockbrokers. "But we expect this recovery will be specific to certain sectors... Security technology firms will grow sales after September 11th."

OTHER areas tipped for recovery are the software sector, Ireland's single biggest export, and outsourcing, an increasingly popular way of reducing costs.

However, the short-term future of several of the Republic's best-known technology firms may depend on a speedy recovery in the high-tech sector. Baltimore Technologies, once a star performer on the FTSE 100, is running out of cash and could face insolvency unless it sells one of its divisions.

The prospect of recovery is just one of a number of factors that will determine whether Baltimore will survive, says Mr Coolican. "By the middle of this year Baltimore's cash pile will be very low if it doesn't sell its Content division and it will find it difficult to raise equity or borrow," he says.

Other factors critical to Baltimore's survival will be its ability to reduce its high cost base and its efforts to make it easier to implement its core security technologies, according to Mr Coolican.

But the Republic's public technology companies are not the only firms desperately seeking a sustained recovery by mid-2002. The private technology sector had a miserable 2001 when several Irish firms, including internet bank First-e and web development firm Oniva, simply ran out of cash and were forced to close down.

"There is almost a total correlation and match between the private and public markets," says Mr Liam Kiely, associate director of Goodbody corporate finance. "Investors need to see that they will be able to realise their investment through an initial public offering."

Figures released this week by Tornado Insider magazine show just €11.2 billion (£8.8 billion) was invested last year in Europe's private technology firms, a significant drop from €15 billion in 2000. The IPO market for private technology firms virtually disappeared last year and two Irish candidates Norkom Technologies and Fineos pulled out of planned flotations. In addition, hundreds of technology firms were delisted from the Nasdaq exchange when their stock price fell below $1.

But there have been recent signs of recovery with several Irish firms closing significant funding deals, and at least one firm which had slipped into examinership, Cardbase Technologies, managing to raise funds to implement a restructuring plan.

"The Nasdaq is up 30 per cent since October and there is greater confidence with funding deals being done in an Irish context," Mr Kiely said. "Eontec, Fineos and Openet Telecom have closed large funding deals since the market has come back and there is a big queue of investors for these firms."

Goodbody Stockbrokers is predicting at least two Irish technology IPOs towards the end of the year with likely candidates such as Eontec and Fineos. But this will depend on Nasdaq's progress throughout the year, which in turn will rely on an increase in technology spending by corporates. This week's statements by the big IT firms will not lead to any significant boost in confidence.