This year has proved to be an up-and-down year - literally - for technology stocks, with technology weighted indices such as the Nasdaq and Neuer Markt initially soaring in the first quarter of the year only to come down to earth in the second half.

Several factors combined to provide the right conditions for the surge in stock prices at the beginning of the year. Among these was the elimination of the Y2K overhang, which had worried the market throughout 1999, with predictions from several quarters of severe disruption due to the inability of systems to account for the date change. Some of these ranged from the sublime to the ridiculous, but the changeover happened without a hitch and was duly forgotten, despite the billions spent on rectifying the problem.

Another factor was a favourable interest rate environment for equities, with more traditional savings options being less attractive. However, the main catalyst for upward re-valuation of technology stocks was the corporate rush to develop a Web presence as the commercialisation of the "Net" took centre stage.

This meant a re-direction of corporate IT spending, post Y2K, towards application development, in particular web-based applications.

The result was a buoyant market for everyone, from integrators to data-storage vendors to infrastructure companies that provided the necessary platforms to enable enterprises to stake their claim to a piece of virtual real estate on the Internet.

Such an environment also provided an ideal breeding ground for the emerging dot.com phenomena, built on the belief that you could sell anything across the Web, including time. The insatiable demand for technology investments resulted in hundreds of initial public offerings to swell the ranks of the Nasdaq and Europe's emerging technology bourses, and the unveiling of new technology funds by fund managers eager to catch the wave of investor interest.

Unfortunately, in the rush to establish a presence, many dot.com companies forgot basic business practicalities such as the customer and quickly learned that, to survive beyond a virtual year, they would have to address the issue of customer retention. The dawning among the investment community that many of these "emperors lacked clothes" meant that the flow of capital, which was the life-blood of these companies, was abruptly turned off.

This was the death knell for many dot.coms, a contagion that rippled out to Web integrators, many of whom derived considerable revenue from the dot.com spring.

Compounding the issue was a rising interest rate environment, concerns over oil prices and a weak euro setting the stage for a mid-year market reversal.

The current concern of the market is over corporate earnings - not so much over those that have yet to earn any, but those that were viewed as the bellwethers or safe-havens for technology investors. Fourth-quarter profit warnings from behemoths such as Intel, Motorola, Dell, Gateway and Microsoft, all of whom have seen their share price fall by more than 50 per cent since the beginning of the year, reflect changes within the sector rather than a fundamental long-term slowdown.

In a sector, where growth is a given in order to justify market valuation, any sign of weakness (slowdown in growth) is severely punished (rapid share price decline). The result is constant pressure on companies to maintain growth and meet market expectations to justify valuations.

Failure to do so in the face of maturing markets for example, as is the case with the PC manufacturers (Dell and Gateway), meets with swift retribution. The net effect is volatility for investors as the market herds move to higher-yielding pastures.

Such an environment is fraught with risk but also holds tremendous opportunities, a situation that increasingly lures both retail and institutional investors as they seek out superior returns. While the short-term outlook in the wake of recent high-profile profit warnings looks uncertain, the longer-term prognosis looks more upbeat, with the potential for an easing of interest rates as the central bankers shift from worrying about inflation to worrying about possible recessions. Companies with solid business models, strong technical platforms and growth trends in their favour will ride out the storms and emerge largely intact.

What is certain is that technology is here to stay, as evidenced by its pervasive use across all industrial sectors. The sector stands out for the speed at which change evolves and the intangible nature of much of its products, making it all the more difficult but critical in selecting the "winners" from the "losers".

As such, Irish companies have, in the main, fared well. This is due to their technical strength and because they are mainly providing core technology that enables further development, rather than a service or consumer-oriented approach.

Companies such as Iona, SmartForce, Baltimore and Parthus are providing a framework for a burgeoning indigenous technology sector in Ireland.

Expect further growth stories with long-term viability to emerge from our indigenous technology stable over the coming year.

Gerry Hennigan is technology analyst at Goodbody Stockbrokers