Technology Profits Expected To Surge This Year

So where will many of those snazzy handheld devices and new Internet commerce platforms seen at International CES last week end up this year? One answer: padding the income statements of tech companies.

On the eve of earnings-reporting season, when public companies will release full-year 2013 results and share their initial forecasts for this year, the outlook for the tech industry is a rosy one.

In 2014, technology companies in the S&P 500 index are expected to earn net income that's 9.3 percent higher than last year, according to FactSet, which compiles Wall Street earnings estimates.

While that's slightly lower than the 10.5 percent rise expected for the index as a whole, it's much better than the tech industry's profit growth last year, which is expected to have been 1.9 percent after all reports are in.

And it's not just higher sales of smartphones, TVs, storage gear, software and other tech products that are adding to corporate coffers.

Net income is seen rising even faster than revenue, which is expected to climb 5.5 percent, as tech companies squeeze ever more profit out of each dollar of sales.

That mirrors a broader U.S. trend, as corporate operating profit margins are expected to reach an all-time high this year of 10 percent of revenue.

The average margin for the tech sector, which on an annual basis is consistently among the most profitable U.S. industries, is expected to come in between 15 percent and 16 percent in 2014.

Optimism for 2014 tech profit growth helps explain why the Nasdaq Composite index surged an eye-popping 38 percent last year, even better than the S&P 500's 30 percent annual gain.

Yet many on Wall Street believe tech shares still have more room to run in 2014, as the expected profit growth will keep average price-to-earnings ratios roughly in-line with historical averages.

Tech stocks had a...

Comments are closed.