Japan's top-rated technology analyst has said waning demand for computers will trigger a fresh slump in tech stocks next year.
The Nasdaq could be heading for another fall
Deutsche Securities' Fumiaki Sato told Reuters the downturn could force the Nasdaq index of technology shares more than 20% lower.
Japan's Nikkei index, heavily exposed to tech stocks, is also vulnerable.
Mr Sato said investors should consider selling computer, microchip, and liquid crystal display (LCD) shares.
His warning will come as blow to investors hoping that the tech sector was set to continue recovering from the slump that followed the late 1990s IT and telecoms bubble.
Technology shares rose to dizzying heights during the IT boom, pushing the Nasdaq to an all-time high of 5,132 in March 2000.
But the index fell steeply as the boom turned to bust, eventually bottoming out at 1,108 in October 2002.
It has since clawed part of the way back, closing at 1,984 on Thursday.
According to Mr Sato, the next downturn will begin in the second half of 2004 with a dip in demand for computers and mobile phones as the impact of last year's US tax cuts fades.
He predicts that the decline in demand will come just as a big increase in production of microchips and LCDs takes effect, causing a supply glut which will force average prices lower.
No more Moore
Mr Sato added that the microchip sector's prospects also looked shaky because the traditional rate of increase in the processing power of computer-grade chips was slowing.
A basic premise of the industry is that the processing power of microchips doubles every one to two years, a maxim known as 'Moore's Law' in honour of Gordon Moore, co-founder of industry leader Intel.
But according to Mr Sato, there is growing evidence that the true pace of growth in processing power is in fact much slower.
He warned that the demise of Moore's law would trigger a sharp fall in microchip stocks.
"Investors don't really believe it yet, but the evidence is starting to trickle out," he told Reuters.
Mr Sato, who is credited with forecasting the last major slump in microchip stocks, was rated Japan's leading corporate analyst by the Nikkei Financial Daily for four consecutive years.