Beware the US fiscal cliff, tech firms are told

US tax hike and expenditure cut will hurt Singapore tech firms.

According to OCBC Investment,  Singapore-listed tech companies reported lacklustre results in general during the recently concluded 2QCY12 reporting season. Within their sector coverage, only Micro-Mechanics (MMH) exceeded our forecast; while Venture Corporation (VMS), ECS Holdings (ECS), Valuetronics Holdings (VHL) and Karin Technology (reports semi-annually) all disappointed with their lower-than-expected earnings.

Out of the latter four companies, all with the exception of ECS reported revenue which matched their expectations, which highlights the margin pressures faced by tech companies.

Moving forward, OCBC sees US fiscal cliff as a major stall to tech firms' revenues.

Here's from OCBC:

The US fiscal cliff describes the scenario whereby US tax increases and a cut in government spending would take effect from 1 Jan 2013.

Should this materialise, we believe that it would further stymie the economic recovery, which is already in an anaemic state. This, together with possible contagion risks from the eurozone debt crisis, resulted in ratings agency Standard & Poor’s recent decision to raise its probability forecast of the US economy falling into a recession from 20% to 25% in 20131.

While the fiscal cliff has not yet come into effect, concerns over its impact would likely take a hit on business sentiment, in our view. Hence this could delay the IT refresh cycle as corporations tighten their budgets and cut back on spending. Moreover, the upcoming US election has added another element of uncertainty over the near-term outlook of the US economy.

As prospects within the tech sector are intertwined strongly with the macro economy, the ongoing uncertainties and sluggish economic recovery have undoubtedly adversely impacted the earnings visibility of tech companies in general.