| NEW YORK
NEW YORK Microsoft Corp's (MSFT.O) unexpected move to buy online phone service Skype for $8.5 billion this week is a stark illustration of the forces reshaping the technology industry.
Stalwarts such as Microsoft and Hewlett-Packard (HPQ.N), vanguards of tech a few decades ago, are now supplanted by a generation of hot start-ups.
"There is a new lifecycle of companies taking over. Oracle ORCL.O, Facebook, Google (GOOG.O) are taking over from Hewlett-Packard (HPQ.N) and Microsoft," said Michael Yoshikami, CEO at money manager YCMNET Advisors.
"The older generation is trying to figure out how to keep up with these new teenagers, and it's proving difficult."
As online access gets easier and portable devices gain popularity -- led by smartphones and Apple Inc's (AAPL.O) iPad -- desk-bound computing is on the wane.
A new order of mobile-savvy tech stars is dominating attention, and investors and established players are trying to work out where the long-term value is.
"We're clearly in a tech bubble on private valuations and for start-ups," said Sid Parakh, an analyst at fund manager McAdams Wright Ragen. "The price that Microsoft paid for Skype reflects some of that."
Figuring out where this change will lead, and how investors should assess the opportunities will top the agenda at Reuters Global Technology Summit in New York and Paris next week, attended by more than 30 high-level speakers from leading tech companies across the globe.
THE NEXT BUBBLE
Despite some old-tech laggards like Microsoft, Intel Corp (INTC.O) and Cisco Systems Inc (CSCO.O), tech stocks have played a leading role in the recent U.S. stock rally, pushing the Nasdaq up 17 percent over the past 12 months, slightly ahead of the Standard & Poor's 500.
Investors put $2.4 billion into U.S. tech-focused mutual funds over the 12 months to the end of March, according to fund research firm Lipper, attracted by runaway growth from Apple, Google and others.
That was down from a peak of $4.4 billion in the 12 months before that, but is a vote of continued confidence in a sector that unnerved many by its violent implosion in 2000.
Recent valuations of Facebook at $70 billion, and similar euphoria gathering around newer start-ups, have alarmed some that the tech bubble is back.
"A lot of crazy numbers are being thrown around for something that just doesn't make sense," Parakh said.
"There have been some pretty cool innovations -- think about Twitter, Facebook, Groupon, even social gaming like Zynga," he added. "All these are fairly unique concepts and I think they are realistic long-term businesses. The problem is what you pay for them. The numbers need to add up eventually."
Wilting enthusiasm for Chinese Internet companies suggests reality is setting in earlier this time around.
Shares of social networking site Renren Inc (RENN.N), dubbed China's Facebook, reversed all the gains made on their market debut this week and are now trading below their offer price of $14.
Professional networking site LinkedIn will test investors' hunger for more exposure to new tech next week with its own initial public offering.
"In some places it has forced us into crazy territory," said Bruce Ventimiglia, CEO at Saratoga Capital Management, talking about pre-IPO valuations of companies like Facebook.
"We'd need to see a little more from them before we'd be interested in investing."
"In certain stocks there's froth," said Ventimiglia, pointing to some tech issues trading at a price of more than 20 times earnings. But it bears no comparison to 2000, he added.
"Not only did we have P/Es up at 40 and 50 times earnings, but we had many stocks in the tech sector with no E attached to the P. I think it's a little healthier to pay for tech than it was back then."
Indeed, science and technology sector funds notched a total annual return of 8.7 percent over the past three years, placing it fourth among 20 sectors followed by Lipper.
Acquiring companies also see value. With Microsoft's Skype deal, tech mergers and acquisitions have topped $85 billion already this year, the biggest start to a year for more than a decade.
"It's simply about mobile data and mobile Internet," said Parakh, explaining the M&A rush.
Apple's hugely successful iPad has shown many people are happy to sacrifice computing power for portable connectivity.
Google is pushing its "Internet-only" Chrome operating system as a serious alternative to Microsoft's Windows.
Companies are jumping on the "cloud", where data and applications are stored remotely and accessed from anywhere online.
"Businesses are digitizing everything," said Ventimiglia. "The amount of data they have to store and protect and archive is absolutely exploding."
For this reason, most expect tech spending -- especially from companies -- to keep growing this year, in the face of an uncertain recovery.
"Tech spending over the next year is going to increase nicely worldwide, " said Ventimiglia, expecting a 5.5 percent increase. "We think there's a bright future for tech."