Fitch cuts Arrow Electronics outlook to negative

The economic downturn and expected drop in tech spending could lead to weakened credit profiles across the industry, Fitch said.

"Fitch expects IT hardware, including semiconductors, to decline at a faster rate than overall IT demand," the agency said, with U.S. and Western European markets declining more than average, while emerging markets will continue to show relative strength.

Fitch believes distributors with a higher exposure to these markets "will experience a more pronounced business decline than the overall IT market. The agency expects sales declines to pressure profit and reduce financial flexibility.

Arrow's declining organic revenue growth rates, combined with lower profits since 2006, suggests weakening operations heading into the downturn, which could mean greater than anticipated pressure on profit margins in the future.

Fitch also noted that the Melville, N.Y., company has benefited from the strength of the euro in recent years, a trend that is now reversing.

While Fitch affirmed "BBB-" ratings on Arrow's issuer default rating, senior unsecured notes and senior unsecured bank credit facility, it said a downgrade "could occur if the economic decline is more significant and prolonged than currently anticipated leading to expectations for reduced profitability over an extended period."

Arrow could also face ratings actions if it pursues acquisitions or shareholder friendly actions financed by existing cash or new debt, Fitch said.

Arrow shares edged up 4 cents to $13.39 in morning trading.