Tech Sector Liquidity Remains Strong Despite Credit Crisis

In the midst of the credit crisis plaguing many U.S. industries, cash balances in the technology sector remain at record levels and continue to provide ample liquidity for the sector, said Fitch Ratings in a special report this week.

While Fitch expects profitability levels within sectors such as electronic manufacturing services and IT distributors will continue being adversely affected by an economic downturn, these historically have been offset by meaningful cash generation from working capital.

Fitch said cash balances in tech have remained at a record $250 billion through June 30 but warned that $100 billion of that is cash held overseas. The ratings agency said it would continue to closely monitor the situation.

Even if liquidity issues should arise, Fitch said robust internal funding should provide a cushion to companies in the technology sector, and Fitch does not, at this point, foresee a substantial rise in debt defaults.

Some companies and segments are better positioned to weather an economic downturn, Fitch said, including larger and higher-rated debt issuers, such as International Business Corporation (IBM), Hewlett-Packard Company (HPQ), Oracle Corporation (ORCL) and Dell, Inc. (DELL).

While there are longer-term concerns for companies with significant amounts of debt, and those who are experiencing operating challenges, Fitch does not expect a significant increase in the number of defaults over the near term

For details, see “Liquidity Focus: U.S. Technology.”