Market confidence in IT continues to build

Market confidence in the technology sector appears to be gaining momentum as IT investors brace for a wave of financial reports next week from bellwether vendors.

After closing the first quarter below its opening mark at the start of the year, the tech-heavy Nasdaq index has moved into positive territory during the first full week of trading in the new quarter despite macroeconomic concerns that the U.S. Federal Reserve, worried about inflation, may yet raise interest rates.

One measure of confidence is tech-sector wages because companies hire when they see a need to put people in place for increasing demand, according to Jim Lanzalotto, vice president of Yoh Services in Philadelphia, a personnel and outsourcing firm, in a recent interview. This week Yoh released a report saying that first-quarter tech wages were the highest it has recorded since tracking salaries for its wage index in 2001. Yoh attributed the wage rise to a solid general economy as well as to demand for new technologies, including Web 2.0, SaaS (software as a service), and social networking services.

Meanwhile, chip companies have helped boost the overall tech sector so far this quarter. AMD Monday warned that it expects to report next week revenue of $1.2 billion for the quarter ending March 31, down from its earlier forecast of $1.6 billion to $1.7 billion. The company cited pricing pressure from Intel. However, company observers looked on the bright side, applauding a plan to cut capital spending by $500 million as a sign that AMD will change its strategy to gain market share at the expense of profit. AMD shares climbed to over $13 on the news and stayed at that level most of the week. Intel also rose, climbing $0.52 to $20.10 Monday and staying above $20 most of the week.

Meanwhile, chip-equipment maker Applied Material gained $0.76 to close at $19.41 Tuesday — staying at that level for a few days — after Banc of America upped its rating to “buy” from “neutral,” citing the company’s timely move into solar-power equipment.

There are some dark clouds on the horizon, though. While BlackBerry maker Research In Motion Wednesday reported quarterly profit of $187.9 million, in line with its earlier forecasts and well over $18.4 million one year earlier, analysts voiced concerns about an inventory buildup ahead of its next product cycle. RIM shares plunged Thursday, dropping by $13.85 to $150.61 in late afternoon trading.

SaaS stalwart Salesforce.com dropped Wednesday as brokerage Cowen & Co. downgraded its rating on the company, to “neutral” from “outperform.” Cowen did not see a “catalyst” in the near term that would fuel revenue, and also cited increasing competition in the hosted market from Oracleand Microsoft.

Another note of caution came from Seagate Technology, whose share prices dropped $1.46 Tuesday to close at $22 after it reduced its third-quarter revenue forecast to $2.8 billion from its prior guidance of $2.9 billion to $3 billion. Though the share price rebounded later in the week, its mention of weak demand for some 3.5-inch disc drives spooked some investors.

Whether or not confidence in technology stays high will depend in large part on earnings reports due next week. Intel, Google, Yahoo, IBM, and AMD are all due to report. Along with quarterly earnings figures, IT investors will be carefully examining forecasts for the rest of the year.