The U.S. economy currently faces a stiff challenge, with a number of business sectors experiencing a slowdown in growth. The economy has found it difficult to make a recovery from the financial crisis of 2008, and the consumer confidence has never really picked up at a sustainable scale since then.
In this grim economic scenario, the technology sector has been one of the best business sectors, i.e., it has continued to perform reasonably well. The balance sheets of most of the tech companies are fairly robust even in this down economy. In fact, the free cash flow margins of tech companies today stand at nearly 20 percent compared to about 5 percent 10 years ago. Warren Buffet’s recent investment of $10.7 billion in IBM stock reveals the tilt of shrewd market investors towards the technology sector and with the IPO of Facebook being highly anticipated and which is supposed to occur in the spring of 2012, the tech sector is the one grabbing the headlines.
Product and service innovations in this sector have continued to propel global growth for the U.S. technology companies. There is a large global demand for hi-tech and swanky tech products from countries such as China, India, and the Middle East. The burgeoning middle class of consumers in these large markets has an insatiable appetite for the latest laptops, smartphones, and tablets.
A recent survey of American millionaires by PNC Wealth Management has revealed that only 10 percent of them are optimistic about how the economy will perform in the near future. More than half of the millionaires believe that America is experiencing a longer-term economic decline. However, even in this bleak scenario, a majority of wealthy Americans have high hopes from the performance of the technology sector, and are betting big on it.
Fifty four percent of American millionaires are of the opinion that in 2012 the technology sector will witness the greatest growth. Even at present the tech sector has beaten the expectations of all other sectors. The other key areas of growth are expected to be the energy and health care sectors (but Obamacare is already slowing down health care companies and this sector may be stagnant for a while). The expectations about the tech sector’s performance are based on its current rates of growth. The sector has been able to weather the economic downturn rather well. Apple Inc., for instance, has more cash on hand than the U.S. Treasury Department. This is because they are better managed.
Official U.S. economic data reveals that the current economic weaknesses of the economy are not likely to have much adverse impact on the growth of the technology sector until 2012. In 2011, despite tremendous downward economic pressure and low GDP growth in the first two quarters, the tech market growth continued to be robust in these two quarters.
While the analysts agree that the general risk of a renewed recession has gone up, but the outlook is still more towards a positive economic growth. In this scenario, most of the U.S. tech market forecasts predict a successful run for this sector, and do not reveal any significant impact of the general economic downturn. Companies such as Apple, Amazon, and Oracle currently lead in terms of market confidence in the tech sector amid the general economic turmoil.