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Big Tech’s test after powering past the pandemic

Big tech update

After witnessing the defensive qualities that made technology a good bet during a pandemic, many investors have sought this year for the perfect “open” trade, the sector that would most benefit from the gradual deregulation. I did. In the end, it turned out that they didn’t have to look far.

This week’s earnings report from the largest tech company in the United States Expenditure surge New gadgets and digital services were more than just a blockade. With executives lined up, the tech mood is almost victorious. declare That it represents a permanent change.

But after the blockbuster earnings of the first half of this year, growth is at a loss. The booming digital economy may have been one of the consequences of a pandemic, but the impact is not uniform. There are post-pandemic adjustments for navigating.

In the first place, it’s unlikely that the near-perfect background that brought big tech soaring profits in the first half of this year will follow in the second half.Apple expect The chip shortage is affecting manufacturers around the world to hit iPhone production this quarter.Meanwhile, Facebook faces serious challenges Apple’s privacy crackdown It blocks the flow of personal data from the iPhone that serves Facebook ads and begins to take effect.

Even without these issues, comparisons are even more difficult.

Apple’s iPhone business is moving in a big cycle. In 2019 and 2020, that revenue increased by just 3% in total, but analysts predict 2021 revenue will increase by $ 80 billion, or 29%. In contrast, next year the growth rate is expected to drop to 4% again. Selling music and TV to gadget owners may have provided a more consistent source of revenue, but this would eliminate significant hardware fluctuations and allow investors to move on to the next iPhone cycle. You can’t prevent yourself from worrying about meeting your expectations.

Digital advertising is also on the roller coaster. According to Magna, IPG’s media research arm, global advertising could recover 14% this year after a 2.5% decline last year. Almost all of that growth is flowing digitally, with Wall Street expecting Google and Facebook to grow 30% and 35%, respectively, and the giant gaining a disproportionate share. The boom will ease later this year as the pandemic rebound recedes.

Against this background, there are two broader uncertainties as life finds post-covid normality. One is how powerful the digital habits many consumers have learned during the blockade.

While it is correct for technology boosters to claim that there has been a permanent change, at least some of the behaviors forced on consumers and workers last year could change. Streaming TV and video conferencing are two of the most obvious services set up for pullback. NS autumn At Netflix viewers in the US and Canada, and at Zoom races Diversify Entering new markets like call centers are two signs.

However, the pandemic was a gift to the tech sector. Forced adoption in the blockade was invaluable, as persuading consumers to change their habits is often the most difficult part of building a market for new technology services. Where digital services offer speed, convenience, and more choices, new habits are likely to continue.

Another big question is whether part of the enterprise technology spending boom represents a recession in IT demand from future periods. If customers adopt new technology a year or two earlier than planned, does that mean they will spend less for some time now? One Silicon Valley investor points out that this can disrupt the financial model that venture capitalists use to evaluate start-ups.

However, despite these uncertainties, the underlying background of the technology to get out of the pandemic remains strong.

Microsoft CEO Satya Nadella This Week’s Forecast Growth in consumer demand for technology will normalize after a temporary rise. However, he also argued that the massive turmoil from the pandemic recognized that all companies needed to overhaul their businesses in the future to be more resilient. If that’s right, the tech boom needs to do much more.

richard.waters@ft.com

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