Tech slowdown in last Half -2011

Global High-Tech Spending Likely To Slow In The Second Half Of 2011

Standard & Poor's Ratings Services expects that the current positive rating change bias in the global high-tech sector will continue to moderate, reflecting an anticipated slowdown in IT spending in the second half of the year, a weakening global economy, and ongoing M&A activity. However, given solid first-half results, our expectation for full-year global 2011 IT spending is still for moderate revenue growth across most high-tech subsectors. Semiconductor firms are likely to record the weakest full-year revenue performance, at flat to low-single-digit growth.

Economic Outlook

Standard & Poor's has revised its base-case 2011 and 2012 outlook for the U.S. high-technology sector to neutral to slightly negative, from slightly positive, based on the following fundamentals:

• Our current baseline forecast of 1.6% GDP growth this year in the U.S. is a downward revision from 2.6% and is just over half of last year's 3%, while prospects for the next two years are not much better than for 2011;
• Subdued consumer spending and constrained government budgets; and
• Global economic conditions that include moderating growth in the Asian economies and the growing risk of a slowdown in the U.S. and Europe.

Our industry outlook reflects an anticipated slowdown in IT spending in the second half of this year due to weakening global economic conditions. This follows a return to normalized growth earlier this year, after the sharp cyclical drop during 2009 and recovery in 2010.

Despite rapid expansion of certain end markets and solid operating results across the industry, there are numerous global economic headwinds, in our view, that could absorb some of the capacity established during the past seven quarters: still-high unemployment, U.S. automotive production that remains well below pre-2008 levels, tepid consumer spending, the European debt crisis, and pressure on government spending. Because many rated issuers have a cushion at current ratings, negative near-term rating actions are more likely to be the result of escalated M&A activity or leveraged recapitalizations rather than unfavorable operating trends. Nonetheless, ratings on speculative-grade tech credits may begin to be pressured if the U.S. economy deteriorates beyond the baseline forecast.