3 minute read 27 May 2019
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What tech leaders are talking about: Technology quarterly 4Q18

By

Ken Englund

Ernst & Young LLP US North America Technology Sector Advisory Services Principal

Focused on helping technology, consumer electronics, internet, social commerce and software companies solve critical business issues.

3 minute read 27 May 2019
Related topics TMT Tech sector

Confronted with macroeconomic uncertainty, technology companies are talking about recurring revenues, restructurings and innovation.

We have analyzed the most important issues addressed by 26 leading global technology companies during their earnings calls for the most recent calendar quarter. These insights provide a snapshot of four of the main themes representing the top-of-mind issues for technology leaders and investors.

  • This analysis reviews the top initiatives and issues of leading global technology companies during the 4Q18 financial reporting season. The number of companies analyzed in this report may vary depending on the timing and availability of scheduled earnings calls and published transcripts. The analysis was limited to the review and examination of summaries and transcripts of the latest earnings conference calls that were available to us at the time this report was created. This review does not take into consideration information from other sources, such as news reports, annual reports and company press releases.

1.    Increasing “as-a-service” subscription revenue

Analysis: To facilitate “as-a-service” business models and capture cross-selling opportunities, technology companies need to change their business models including different sales incentives, new (cloud) service delivery models, better customer insights and improved customer experience.

EY insights: As more companies shift to subscription-based business models, sales plans, compensation, delivery channels and customer experience are now top-of-mind issues among leading technology companies.

2.    Macro uncertainties around China are impacting hardware and component vendors

Analysis: Companies are assessing the impact of macro and regulatory developments on their businesses and supply chains. Reacting to these changes and mitigating the potential impact require real-time insights into the supply chain.

EY insights: The likelihood of geopolitical events, such as trade disputes, regulatory changes and nationalization, seriously disrupting the supply chain is increasing. This is putting enterprise risk management and sourcing options on the top of the business agenda.

3.    Cost-reduction efforts intensified

Analysis: In uncertain economic times, operational excellence is the main driver to cut cost and improve profit margins. Digital technologies, cloud, automation and other new innovations are providing new opportunities to achieve operational excellence.

EY insights: Intelligent automation will provide substantial upside to back-office functions. Robotic process automation, machine learning and predictive analytics are having an impact today. Leading technology companies have already insourced their formerly outsourced activities with the help of automation.

4.    Investments in 5G are ramping up

Analysis: The rollout of 5G will boost investment in the second half of 2019. Semiconductor companies, component suppliers, equipment vendors and service providers will benefit. 5G will boost new Internet of Things (IoT)-related opportunities in vertical industries, for which technology companies need to prepare.

EY insights: New 5G technologies will provide a wealth of opportunities. Service providers across verticals are scrambling to build economically viable business cases, but may experience delays in getting new solutions to market.

Additional findings from the report include rankings of the top macro influences, business issues and technology themes identified by leading technology companies in 4Q18.

    • The most talked about economic topic is the trade dispute and how it has caused a slowdown in demand in China. 
    • Declining smartphone demand has caused a wave of revenue misses in the sector during the quarter.
    Rank Influence
    1 Trade dispute
    2 Slowdown in China's growth
    3 Declining smartphone demand
    4 Tax reforms
    5 Brexit
    6 Accounting changes
    7 (Hyper-) inflation
    • Companies keep expanding their portfolio of digital solutions to increase revenues and be able to offer end-to-end solutions.
    • As the uncertainties in the market increase, companies have started to talk more about cost reductions and cash flow management to remain competitive.
    Rank Issue
    1 Product portfolio expansion
    2 Cost reductions
    3 Cash flow management
    4 Talent management
    5 Joint ventures and partnerships
    6 Acquisitions
    7 Divestments
    • Technology companies continue to focus on enabling technologies, such as cloud computing, artificial intelligence (AI), security solutions and social platforms.
    • Increasingly, investments in 5G are talked about as growth drivers, with expected rollouts starting to impact component and equipment companies in the second half of the year.
    Rank Theme
    1 Cloud computing
    2 AI and cognitive computing
    3 5G and connectivity
    4 Social platforms
    5 IoT
    6 Security solutions
    7 Data analytics

Summary

Increasing focus on new business models, innovation and efficiencies as growing macroeconomic uncertainties create potential challenges for many leading technology companies. For more detail on the conversation topics during last quarter’s earnings calls, download the pdf

About this article

By

Ken Englund

Ernst & Young LLP US North America Technology Sector Advisory Services Principal

Focused on helping technology, consumer electronics, internet, social commerce and software companies solve critical business issues.

Related topics TMT Tech sector