The technology sector is in the midst of a "fundamental realignment" with the economic slowdown spreading to European and Asian markets, analysts with Merrion Stockbrokers warned yesterday.

Mr John Coolican said previous estimates for growth among technology firms were being "thrown out the window" and there were no "safe harbours" in the present economic climate.

He said valuations of technology firms had been boosted by an excess of capital in the markets provided by venture capitalists over the past year.

This had resulted in an oversupply of technology by companies.

Renewed spending on technology would probably not emerge until the first quarter next year, he added. "Many companies will either go bust or be acquired," he said. "This trend will accelerate over the next three to six months."

In an analysis of eight publicly-quoted Irish technology firms, Merrion highlighted Baltimore as a sell recommendation.

Mr Coolican said the company, which is due to announce the results of its business review next week, was suffering not just due to a slowdown in the IT industry but also because of its product and strategy.

Companies were finding that public key infrastructure technology was more expensive to implement and less secure than they had originally thought, he said.

The market would like to see some acknowledgement from Baltimore that it needed to reevaluate the type of products it was developing, he added. "We've got to see internal rationalisation and also a recognition that its strategy is no longer valid," he said.

On a more positive note, Merrion is bullish on the prospects for Irish software firm Iona Technologies. Iona's acquisition of Netfish had opened up a much wider target customer base and the firm was almost unique in meeting analysts' expectations, said Mr Coolican.