* Fund favors chipmakers as industrial demand, China rebound
* Relatively low valuations point to gains
* T. Rowe Price Global Technology Fund buys Apple, LinkedIn stock
* Fund's net assets $697 mln as of Dec. 31
By Sayantani Ghosh
Feb 14 Chipmakers with exposure to industrial demand and a rebounding Chinese economy, such as NXP Semiconductors NV, are the investment of choice for the manager of the T. Rowe Price Global Technology Fund.
Josh Spencer, who manages slightly over $1 billion, said his fund had been buying shares in companies like ON Semiconductor Corp, whose customers include big industrial names such as General Electric Co and Siemens AG.
Part of the attraction, he said, lay in the low valuations relative to chipmakers with the majority of their customers in the smartphone business.
"(They have) a lot of operating leverage and are starting to benefit as the global economy, and especially China, improve," Spencer, who has managed the fund for a year, told Reuters.
The T. Rowe Price Global Technology Fund, one of two dedicated T. Rowe Price tech funds, had $697 million in net assets as of Dec. 31 and has outperformed the benchmark MSCI All Country World Index Information Technology index since its 2009 launch.
The fund returned more than 19 percent over the last year, while the index returned nearly 16 percent.
Netherlands-based NXP, formerly a unit of Philips Electronics, makes chips used in car radios, vehicle systems, laptops and access points for computers with wireless cards.
Its shares have climbed 45 percent in the last year, but trade at about 12 times forward earnings -- a discount to the sector average of 18.50 times.
"They sell into a broad range of industrial products," said Spencer, citing safety features in cars such as airbags and side impact sensors.
"(These are) things that seem second nature to us now but they are now deepening and expanding through the auto industry."
Spencer said NXP had little exposure to personal computer sales, a market that customers are deserting for mobile devices.
With Chinese data pointing to a pick-up in the world's second-largest economy, chip suppliers to the smartphone market were also a good bet, he said.
Spencer has, for example, invested in Diodes Inc, a maker of chips used in smartphones, gaming consoles, climate control systems, LCD monitors and networking equipment. China was the largest contributor to Diodes' revenue in 2012.
APPLE STILL CORE
An avid user of Apple Inc products, Spencer said the iPhone maker - the top holding in the fund that he manages - was still a very attractive investment.
When Apple's shares dropped after a holiday quarter that lacked its usual pizzazz and highlighted strong competition from Samsung Electronics Co Ltd, Spencer increased his holdings.
"I love the dominance they have with the iOS ecosystem and the fact that their customers are locked in," he said.
Data from market research firm Gartner show smartphone sales worldwide jumped 38.3 percent to 207.7 million in the fourth quarter, even as overall sales of mobile phones fell last year for the first time since 2009.
The rapidly growing smartphone market left plenty of room for Apple to grow, said Spencer, who predicted the company would expand its smartphone line with new screen sizes for the iPhone and a lower cost model to penetrate new markets like China.
"There doesn't have to be only one winner," he said.
Spencer has also been stocking up on LinkedIn Corp, the social networking website for professionals, and ServiceNow Inc, a software company focused on IT infrastructure.
LinkedIn reported quarterly results on Feb. 8 that beat analysts' estimates for the seventh quarter in a row and guided bullishly for the new year.
The company's earnings quality score on Thomson Reuters StarMine is 93 out of 100 -- the highest among its peers -- and compares with the sector median of 65, indicating future earnings look sustainable based on past performance.
"LinkedIn had a hiccup last year that was not their own doing," Spencer said, referring to weak sector performance that followed Facebook Inc's initial public offering last May.
"That gave us a chance to add to LinkedIn and we added quite aggressively at that point."