View from the top: 3Q 2012
The top 100 global technology companies continued to meet significant challenges in the third quarter, as the push for “smart mobility” took center stage among five disruptive megatrends that continue to drive the need for continuous change and innovation at leading firms.
"The impact of the five megatrends, particularly smart mobility, is accelerating the technology industry’s cycles of continuous innovation. It is rapidly leading technology companies to adapt to the reality of instantaneous, mobile access to virtually all information – or fall behind the curve."Pat Hyek,
Global Technology Industry Leader,
Ernst & Young
The outlook remains murky. There are a myriad of reasons why the performance of the top 100 global technology companies likely will diminish in the next several quarters. And yet, there are many reasons why it may grow.
In Q3, dozens of the top 100 reported lower profits YOY, reduced forecasts or both when they reported third-quarter earnings. Europe reenters recession; emerging market growth slows and the US faces a “fiscal cliff” in January 2013, when a combination of expiring tax cuts and across-the-board government spending cuts become effective, unless a congressional resolution is reached. Together, these issues could initiate a downward spiral.
And yet, a November 2012 estimate of US consumer confidence rose to its highest level since 2008, just before the global downturn. New data also points to some “upstream” strength in the 3Q12 technology industry key performance indicators (KPIs) and technology companies continue to take the necessary steps toward self-renewal, which could drive a strong finish to the year.
Given all these factors, we remain hopeful that the slow or zero aggregate growth we predicted in our 2Q12 report will continue through the calendar year end.
- Aggregate third-quarter operating income for the top 100 global technology companies increases 3% year-over-year (YOY) to $72 billion compared with 1% YOY growth in 2Q12.
- At $652 billion, aggregate sales grow 2% YOY for the second consecutive quarter.
- For the trailing 12 months, sales grow 3% YOY to $2.6 trillion, down from 7% in 1Q12 and 4% in 2Q12.
- Companies reporting operating income increases or declines improve for the second consecutive quarter, to a 57-43 split from 50-50 in 2Q12.
- Companies continue to adjust to a new reality resulting from five transformative technology megatrends (social media, smart mobility, cloud computing, big data analytics and blur) combined with ongoing macroeconomic uncertainty.
- $10.1 billion in 3Q12 disclosed-value M&A transactions help companies accelerate adaptation to the megatrends.
3Q12 data suggests that an improvement from “upstream” computers, peripherals and electronics (CPE) companies, driven by the smart mobility megatrend, made a positive difference to aggregate results of the top 100 companies.
The megatrends affect each sector differently, though they generally tend to drive differentiation between haves and have nots within each sector. That is, companies that have led innovation in one or more of these megatrends are typically among those posting the largest growth, while those that have lagged are posting the largest declines.
In the communications equipment (CE) sector, for example, two companies leading the smart mobility megatrend were the only sector companies to post double-digit YOY growth in sales and operating income in 3Q12.
In the internet sector, the rapid growth of mobile advertising, disruption from social networking and investments related to cloud computing data centers all influenced the performance of sector companies in 3Q12.
In the semiconductor sector, the decline in PC sales appeared to be the key factor behind a third consecutive quarter of YOY declines in sales and operating income, which fell 1% and 10%, respectively.