The software industry versus the hardware industry

Software are computer instructions that are stored electronically. The devices that store these instructions are called hardware. Software and hardware are integrally linked, which makes it confusing to distinguish one from the other. Also, rapid advancement in technologies is blurring the difference between software and hardware. The following chart shows the relationship between software and hardware and how they complement each other.

Why the software industry is separate from the hardware industry

Features distinguishing hardware from software

• Hardware refers to physical parts of the computer. Software refers to the instructions given to the computer.
• Hardware can be seen, touched, and felt—software can’t.
• Hardware is constructed using physical components. Software is constructed by writing instructions in programming language.
• On damage, hardware needs to be replaced. For software, the backup copy needs to be re-installed when there is damage.
• Viruses impact software, but not hardware.
• Software can be transferred electronically through a network, but hardware can’t.
• Hardware can’t be duplicated. However, many duplicate copies of software can be made.

Investing in software industry

There are various exchange-traded funds (or ETFs) that invest in software and technology stocks. Popular examples are the SPDR Technology Select Sector Fund (XLK), whose top holdings include Apple (AAPL), Microsoft (MSFT) and Verizon Communications (VZ). Another example is the Vanguard Information Technology Index Fund (VGT) which invests in Oracle (ORCL), Microsoft (MSFT), and IBM Corp. (IBM) as well as the iShares Dow Jones U.S. Technology Sector Index Fund (IYW), whose top holdings include Apple (AAPL), Microsoft (MSFT), and Oracle (ORCL).

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