This article originally appeared on April 29, 2013 on

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Sometimes it pays to break a sector into pieces.

Take the technology sector right now. It trades at just 13 times projected earnings, according to data from Bloomberg. That's the lowest valuation since Bloomberg began tracking the sector in 2006.

Bulls say that low valuation makes the sector a buy. Bears say that the low valuation is appropriate and tech stocks are headed even lower.

And this is the point where you need to break the sector into two separate parts.

If you look at technology companies that sell to the U.S. government, you're looking at lower revenue as the budget cuts from the sequester continue to phase in. If you're looking at technology companies that sell primarily to businesses -- what's called the "enterprise" market -- then you're looking at lower revenue until the third or fourth quarter of 2013 as corporate purchasing managers put off buying decisions until they have a better sense of U.S. and global economic growth sometime after the summer quarter.

But if you're looking at technology companies that sell to consumers, the story in the sector looks much like business as usual. Companies with hot products will see revenue jump. Companies that offer savings -- like free shipping or lower prices -- or that offer convenience will see earnings grow.

In other words the correct answer to the debate between technology bulls and bears is "It depends."

Unfortunately, for technology investors in general -- and for the U.S. stock market in general, which frequently depends on the technology sector for leadership in rallies -- the list of technology companies looking at a few tough quarters, at least, is relatively long.

That's already apparent from earnings reports this quarter.


(IBM) - Get Report



(ORCL) - Get Report

, for example, which have substantial exposure to the government market, both disappointed Wall Street by falling short of projections in their most recent quarters. And the year doesn't look like it gets easier from here with the Obama administration's proposed budget showing a $2.5 billion decline in spending on information technology by fiscal 2015.

Other technology companies that look like they'll see softer than expected sales because of government spending cuts and delays in spending decisions from corporate purchasing officers include




Juniper Networks

(JNPR) - Get Report


Cisco Systems

(CSCO) - Get Report


F5 Networks

(FFIV) - Get Report

and pretty much any company in the PC sector. The government and businesses, by and large, buy from


(DELL) - Get Report



(HPQ) - Get Report



(MSFT) - Get Report

-- not from


(AAPL) - Get Report


The list of companies in the other part of the technology sector is shorter -- there are relatively fewer technology companies that focus on the consumer than on enterprise and government sales -- and here the risk is a slowdown in the general economy that would inhibit consumer spending and -- as Apple shares have demonstrated so aptly recently -- that a company won't get a hot product to market on the schedule that Wall Street expects or the product won't be as hot as analyst projections assume.

Companies I'd put in this list include Apple,

(AMZN) - Get Report



(GOOG) - Get Report



(FB) - Get Report



(EBAY) - Get Report


I wouldn't rush out and buy any members of this group, though. I think we're looking at a modest slowdown in second quarter U.S. GDP growth that is likely to throw a scare into analysts and bring about another round of cuts to earnings projections and target prices across the technology sector. The time to buy will be sometime in July (maybe) or August (more likely) when these cuts have reset the earnings bar really, really low for these companies in the last two quarters of the year.

That sounds like the usual recipe for a third and fourth quarter technology rally, but this year I think the leaders in that rally -- and maybe the only technology companies to really get much of a boost from the usual end of the year sales increase in the sector -- are likely to companies in that part of the technology sector with more consumer and less government/enterprise exposure.