During the 4Q21 results earnings calls, technology companies said they expected supply chain constraints to decline in the next quarters. Although the downside risks remain significant, it is a clear change of tone compared with previous expectations. Other discussion topics included increased demand for analytics and automation to make companies more resilient and investments in new technologies to prepare for the arrival of the metaverse.
“We expect continued growth across the high-tech ecosystems given the overall decline in supply chain constraints. While not over, we see sequential improvements in key components and systems resulting from prior quarters’ operational decisions,” said Ken Englund, EY Americas Technology Sector Advisory Leader.
This report analyzes the issues addressed by leading global technology company leaders during their earnings calls for the fourth quarter of 2021. It provides a snapshot of the main themes representing the top-of-mind issues of technology leaders and investors.
1. Chip shortages
What we heard: Companies talked to analysts about how they expected current component shortages to improve over the next quarters.
As demand for end products normalizes and the chip sector is picking up steam, technology companies have been able to address the availability of components. Some have changed the design of their products and the chip content that goes in them. Others have partnered with chip vendors and changed their sourcing and inventory policies. This has given the sector the confidence to tell analysts that the current component shortages will be less of an issue in the future. Depending on the type of chips that are needed and the speed at which additional manufacturing capacity comes online, some companies predict next quarter to be better, while other companies predict a more gradual process starting in the second half of 2022.
“Semiconductor users are going to have to pay attention to their chip lifecycles in a new way and ensure that they’re not using older technologies with decreasing availability. This particularly applies to companies using custom chips – those designs are going to need to be updated, which takes time and comes at a cost,” said Dave Lubowe, EY Managing Director Consulting, Supply Chain & Operations.
2. Supply chain tools and automation
What we heard: Companies highlighted demand for supply chain tools and automation with the goal of creating solutions to mitigate resource constraints and talent shortages.
The digital transformation remains a firm revenue growth driver in the sector. Companies migrate their workloads to the cloud and add analytics and automation. In the current environment, data analytics tools are needed to build resilient supply chains, while robotics and process automation can help mitigate the negative effects of talent shortages. It is therefore not surprising that software companies reported an increase in demand for analytics and automation, which could replace collaboration tools as major growth driver at a time when companies are readying themselves for a post-pandemic society.
What we heard: Discussions with analysts about the metaverse focused around the development of new technologies and the need to create new ecosystems.
The metaverse is being touted as the next big thing. It will fundamentally change the way we interact online; the way enterprises do business. Analysts were keen to ask questions about the future role of companies in the metaverse. Tech companies talked about how they would enable gaming in the metaverse, about their role in creating better customer experiences and about future collaboration and enabling smart factories. They also stressed it is still very early days and there currently is a big need to invest in new technologies and to forge partnerships to create platforms for immersive computing. They especially expected an acceleration in investments in augmented reality, virtual reality and content development as enabler of the metaverse.