View from the top: Q4 2012

Tech trends and performance analysis of fourth quarter 2012 earnings season

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In 4Q12 growth slowed, but innovation broadened while “smart mobility” evolved into a key accelerant for the rapid growth and cross-industry adaptation to transformational technology megatrends for the top 100 global technology companies.

“As smart mobility empowers faster cycles of technology innovation, that innovation might well become the catalyst to help global economies return to long-term growth.”

- Pat Hyek, Global Technology Industry Leader, EY

The smart-mobility megatrend that dominated growth among the top 100 global technology companies for the last two years ebbed a bit in 4Q12, as sales growth slowed to just 1% YOY. But smart mobility has evolved into a key accelerant for the rapid growth of cloud computing, big data analytics, social networking and the adaptation to these transformational technology megatrends by many different industries.

Buffeted by macroeconomic headwinds and disruptions in every sector, the top 100 still managed to increase 4Q12 aggregate operating income by 10% YOY. For full-year 2012, the 100 companies increased aggregate sales 2%, though both years round to $2.6 trillion.

Full-year 2012 aggregate operating income rose 6% to $304 billion. But excluding results from the two smart mobility leaders, full-year aggregate sales and operating income would have declined, by 1% and 4%, respectively. However, as the smart mobility market becomes more competitive, the impact of the two leaders is diminishing.

Meanwhile, fast-growth companies, including IPOs and VC investments during 4Q12, suggest that new cycles of technology innovation are emerging that make advantageous use of the widespread deployment of smart mobile devices.

The global economic outlook remains uncertain. But the smart mobility megatrend spreading throughout the global economy appears poised to trigger new cycles of technology innovation with great potential to drive future economic growth.

For example: the continued growth of smart mobile devices, empowered by big data analytics and other sophisticated applications delivered from data centers in the cloud, is likely to unleash technology innovation.

While this is a long-term trend, we anticipate that its beginning in 2013 will help the top 100 global technology companies return to higher levels of top and bottom line growth later in the year.

Quarterly highlights

  • Aggregate operating income for the top 100 global technology companies in the fourth quarter increases 10% year-over-year (YOY) to $88 billion.
  • At $698 billion in aggregate sales, YOY growth slows to 1% in 4Q12.
  • For the year, sales grow 2% to $2.6 trillion; operating income grows 6% to $304 billion.
  • Smart mobility evolves into an accelerant for rapid growth of other transformative megatrends, such as cloud computing, big data analytics, social networking and accelerated adaptation to technology innovation by other industries.
  • Aggregate cash and investments continue to grow, beyond $1 trillion.
  • Global technology M&A buying falls to its lowest level of the year: $7.2 billion, or 25% of all 4Q12 disclosed-value transactions.

Sector view

Smart mobility’s impact on communications equipment sector performance was marked but mixed in 4Q12. Smartphone growth slowed, but mobile network operators increased demands on their equipment suppliers to enable faster rollout of smart mobile services.

The computers, peripherals and electronics sector was impacted by two “once in a lifetime” natural disasters, which disrupted global supply chains and contributed to YOY sales and operating income declines.

Internet companies continued to post the highest sales growth rates compared with any other sector in 4Q12. But the “price” of the sector’s constant transformation, paid in
the form of increasing investment in self-renewal, has become evident in eroding operating margins.

The IT services sector posted a slight YOY sales increase in 4Q12, squeezed by macroeconomic pressure that held back customer demand and pricing pressure from the growth of cloud services.

Software sales bounced back in 4Q12 after a very difficult 3Q12, boosted by cloud computing/SaaS and big data analytics megatrends.

The semiconductor sector posted mix results but also showed signs of recovery.

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