Technology investors seeking refuge after Brexit are picking companies delivering instant access to services for Web and mobile customers or firms mainly doing business globally which can benefit from the pound's fall.
They are shying away from hardware makers or e-commerce suppliers with sizeable UK sales, which count for less after currency swings driven by Britain's vote to leave the EU.
Shareholders are also wary of software and services firms getting caught short by budget freezes by customers scrambling to reassess their businesses and resulting slowing economic growth.
Second-quarter results begin this week and run into August. The STOXX European technology index fell 10 percent after the June 23 vote, but has since regained 6.6 percent. It is down 10.5 percent so far this year, weighed by slowing global smartphone growth and concerns about the world economy.
Brexit is playing into a deeper trend where established tech firms supplying traditional hardware, software or services are losing ground to cloud-based businesses, as corporate spending and consumer appetites shift to the web and mobile phones.
"There will be a lot of companies that are poorly positioned for the cloud that are going to call out Brexit as a timely excuse for their own problems," said Ben Rogoff, a fund manager with Polar Capital in London.
"Let's be clear here: This uncertainty is taking place against a backdrop of growth that has been disappointing anyway. These firms will blame Brexit for their own misexecution".
A survey of chief information officers in the United States and Europe by Morgan Stanley in June - before the Brexit vote - showed buyers already paring back 2016 spending plans for hardware and technical services. Cloud, big data and security software remain top spending priorities, it found.
After the vote, global market research firm Gartner slashed its tech spending outlook for Britain by 3 percent this year and by 5 percent in 2017.
SAFE HAVENS
Two UK-based safe havens are ARM Holdings, which licenses chip technology used in most smartphones worldwide, and Sophos, driven by demand for its computer security software and services, most financial analysts say.
U.S. names like Salesforce.com and Red Hat, with long-term subscriptions for Internet-delivered software and little direct exposure to Britain, are safe bets, said Silicon Valley-based analyst Trip Chowdhry. Amazon.com and Apple, while active in Britain, enjoy strong brands and have sticky subscription business models likely to insulate them from any UK slowdown, he said.
Globally focussed ASML of the Netherlands benefits from spending on its advanced chip-making tools by Intel and Taiwan's TSMC, together with the positive effects of selling products in dollars, but booking them in euros, Morgan Stanley says.
Similarly, Europe's biggest software maker, SAP, remains insulated by long sales cycles and an entrenched, multinational customer base, with little direct exposure to Britain, although the Brexit shock in the final week of June could prove to have delayed some new software licensing deals.
Baader analyst Knut Woller expects SAP later this month to reaffirm its full-year 2016 financial targets: "If SAP can meet the consensus for flat licence growth in the second quarter, that would be seen as a relief" and send the stock higher, he said.
LEFT VULNERABLE
But UK online advertising and ecommerce sales by other big U.S. Internet names are set to take an eventual hit from slowing economic growth and translating pounds into U.S. dollars for reporting purposes, Deutsche Bank analyst Ross Sandler said.
These include eBay, with 16 percent of revenue from Britain; travel site Priceline with an estimated 15 percent; Google with 9.5 percent and Facebook with an estimated 7 to 10 percent tied to Britain, Sandler said.
Eastern European software services firms EPAM and Luxoft, which count heavily on contracts from financial service and media clients in Britain and Western Europe, are some of the tech shares hardest hit in the region by worries about how Brexit may undermine economic growth. Both stocks are down 15-20 percent in the past month.
Financial software providers Temenos of Switzerland and UK-based Fidessa may struggle to close contracts in the second half of 2016 as banks reconsider their UK positions, UBS said.
"While we do not think the UK's 'leave' vote is analogous to the Lehman collapse, we do think it is likely to impede decision-making in Europe as banks consider the possible implications," UBS software analyst Michael Briest said.
Dutch car navigation supplier TomTom's stock has plunged 20 percent in the past month: British consumers account for 13 percent of sales, with three-quarters of overall revenue coming from Europe, Barclays said.
"We foresee challenging times ahead for TomTom based on its exposure to the UK consumer market and the negative impact foreign exchange should have on TomTom’s gross margins," said Barclays analyst Andrew Gardiner.
TomTom faces a double hit because most of what it sells is priced in dollars, making purchases more costly in Britain.
By: Eric Auchard (Reuters, Frankfurt).
Editing: Ruth Pitchford.
Photo: Fortune.
Review: Emerging Market Formulations &
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