Despite the 14 per cent record rebound on the Nasdaq index on Wednesday, confidence in the global technology sector remains at a low ebb.

Investors are nursing heavy losses on public markets and many companies face an escalating cash crisis that threatens them with extinction.

The Nasdaq index has lost about 35 per cent of its value since this time last year, down almost 50 per cent from its high in early March. The stream of technology companies raising money through Initial Public Offerings has slowed to trickle.

In today's hostile financial environment entrepreneurs are more likely to be negotiating rescue packages and cost cutting plans than embarking on ambitious expansion.

In the US economy, where technology has become all pervasive, many new economy millionaires will have seen their paper fortunes disappear in just a few short months.

Meanwhile, analysts expect the US unemployment rate to climb to four-month highs propelled, in part, by lay-offs in the tech sector. Media reports in the US have focused on former skilled technology workers waiting on tables.

So why has the steep decline not yet had a significant impact on Ireland's burgeoning indigenous technology sector?

According to Mr Shay Garvey, a partner in the venture capital firm Delta Partners, it is a smaller technology market, investments are more varied and it will take a while to reach Ireland.

"There will be an inevitable lag effect and we will be helped by the fact that Irish companies typically aren't as aggressive as US companies in their expansion plans," he says. "But the rate of failures will increase big time in 2001.

"There are about 150 venture capital backed companies in the Republic and on average venture capitalists expect about a quarter of these investments to go bad."

There have been few high profile indigenous technology closures in Ireland this year, but with confidence draining from technology investors funding will come into focus.

Online jeweller Adornis.com remains offline despite assurances from its founder Galway-based entrepreneur Mr Declan Ganley that the e-tailer is not out of business.

Even previously cash rich firms are moving to reduce spending. Cost cutting plans have been announced at the Dublin-based Internet bank First-e and the Belfast-based video e-tailer Blackstar.

But there has been little of the corporate blood-letting that has characterised the slump in the US or elsewhere in Europe.

"We have benefited from not having as many pure play dot.com companies as the UK, Europe and the US," Mr Liam Kiely, corporate financier with Goodbody Stockbrokers, says.

"Last year Ireland was being criticised in some quarters for not producing enough home grown dot.com companies but this has worked in our favour."

The collapse of Letsbuyit.com stock this week has further highlighted the extent of the dot.bomb phenomenon. But there is still an appetite for innovative Irish companies in hot sectors within the technology infrastructure sectors, Mr Kiely says.

Companies such as Massana, which puts Intellectual property on silicon chips, or Buytel, which is developing voice verification technology, remain in demand, he says.

Another factor that has helped deflect the slump is availability of large amounts of private capital.

Goodbody invested £200 million (€254 million) of private capital in tech companies last year and expects this figure to increase this year. Within the next few weeks Delta Capital will unveil a $65 million (€68.8 million) technology fund.

This has been supplemented by a growing international interest in the Republic's tech sector. Global giants such as Motorola have invested in young Irish firms and Intel Capital recently chose the Republic as one its technological "hotspots".

A conference on technology investing - SummIT 2001 - will draw more international investors to Dublin in February.

Despite the large amount of private capital in circulation volatility on the public markets will continue to undermine company valuations. It also removes the possibility of private investors exiting firms early through IPOs.

"The IPO window is definitely a lot more closed than it has been," says Mr John Flynn, a director at ACT Venture Capital. "This will temper valuations and cause venture capitalists to be more sector specific in the investments."

There were 41 high technology IPOs in the final quarter last year while 67 companies pulled proposed flotations, according to the online publication Redherring.com.

Dublin-based software company, Norkom, is understood to have delayed its plans to list on the Nasdaq late last year because of unfavourable market sentiment. Several other Irish firms considering raising money on the public markets may have to re-evaluate their funding strategies.

The change in the public markets has forced venture capitalists to focus on more concrete characteristics such as revenue, third party partnerships and profitability, says Mr Flynn.

Limerick-based e-learning firm, Primelearning.com, hired the Dublin consultancy Ion Equity to help it re-evaluate its business model before embarking on a fresh $8 million fund raising road-show last month.

"The climate is difficult at the moment, people are looking at the path to profitability and it is no longer possible to factor in huge marketing campaigns," says Mr Terry O'Brien, chief executive of Primelearning.com.

"We have raised about half the money so far," he says. "We will source some of this in Dublin but most will come from the UK, Europe and the US."

The Dublin-based auction site eBid.ie was not so fortunate and was forced to scale back its fund raising by more than £1 million late last year. The company will face a difficult year ahead as sentiment remains poor for business-to-consumer Internet firms.

There are increasing fears that even the growing crop of Irish-based Internet infrastructure firms will face a difficult trading environment this year.

The big concern is that a slowdown in the US economy will hurt technology sales, according to Ms Jemma Houlihan, technology analyst with ABN Amro.

"Cut-backs in technology spending by large corporates may mean that companies won't implement new technology as quickly," she says.

Some sheltered sectors such as data storage and Internet security, which produce "mission critical" technology, will not be hit as hard, says Ms Houlihan.

Merrill Lynch expects growth in capital spending on technology to slow to 21 per cent in 2001, down from a record 28 per cent in 2000. They also expect profit growth in the sector to slip to 21 per cent from the mid-30 per cent range.

Whatever happens to the volatile Nasdaq index in next few weeks, all the indications are that this year will be a challenging one for Ireland's tech sector.