Big Tech is getting really hard on Wall Street. It’s a good time for them.
Tim Cook, Apple’s CEO, has a long-standing philosophy that Apple should continue to invest for the future in the midst of a downturn. It more than doubled its employees during the great recession and almost tripled its sales. Lately, it has increased the bonuses of some hardware engineers by as much as $ 200,000, according to Bloomberg.
John Chambers, who led Cisco Systems through several downturns as its former CEO, said the companies’ strong operations and deep pockets could give them the opportunity to take risks that would be impractical for smaller competitors. During the downturn in 2008, he said that Cisco allowed distressed automakers to pay for technology services with credit at a time when competitors were demanding cash. The company risked having to write down $ 1[ads1] billion in inventory, but emerged from the recession as the dominant supplier to a healthy automotive industry, he said.
“Businesses break out during recessions,” Mr. Chambers said.
To excel will require ignoring the gloom of the wider market, said David Yoffie, a professor at Harvard Business School. He said that previous downturns had shown that even the strongest companies were susceptible to profit pressure and inclined to retire. “Businesses are becoming pessimistic like everyone else,” he said.
The first test for the largest companies in technology will be infection from peers. Amazon’s shares in electric car maker Rivian Automotive have plunged more than 65 percent, a paper loss of $ 7.6 billion. Apple’s service sales are likely to be reduced by a decline in advertising from app developers, who rely on venture capital funding to fund marketing, analysts say. And start-ups are scrutinizing their cloud service spending, which is likely to slow growth for Microsoft Azure and Google Cloud, said analysts and cloud leaders.
“People are trying to figure out how to use smart,” said Sam Ramji, head of strategy at DataStax, a data management company.
Regulatory challenges on the horizon can also darken the prospects of the major technology companies. Europe’s Digital Markets Act, which is expected to be enacted soon, is designed to increase the transparency of technological platforms. Among other things, it could reduce the estimated $ 19 billion that Apple raises from Alphabet to make Google the default search engine on the iPhone, a change that Bernstein estimates could erase as much as 3 percent of Apple’s pre-tax profits.
But companies are expected to challenge the law in court, and potentially tie up the legislation for years. The likelihood of it getting stuck makes analysts stick to consensus: “Big Tech is going to get stronger. And what is being done about it? Nothing, said Kramer from Arete Research.
Jason Karaian contributed with reporting.
