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From songs, movies and even mobile data plans, the average technology, media, and telecommunication (TMT) consumer today has the world at their fingertips. And with the privilege of an endless stream of content comes a staggering reality: every action a consumer takes within a platform or app creates new data for TMT companies to produce additional intuitive offerings.
Consumer data often reveals purchasing patterns that are highly personal and drive responses that are ultra-timely, allowing tech companies to reinvent their customer experience to include more services, products, and personalized offerings to fit these demands.
However, several macroeconomic factors and unpredictable consumer behavior are challenging the ability of TMT sectors to predict what these demands might be in the coming fiscal quarters. Inflation, rising interest rates, record-high credit card debt, record-low savings, and wishy-washy consumer sentiment index have adulterated consumer data to be an unreliable source of intel. Without a lineup of deliverables guaranteed to drive engagement and profits, the industry as a whole is questioning: how are TMT leaders forecasting demand for 2023?
In the AlphaSense platform, we collected insights from the four perspectives (company, analyst, journalist, and expert) to give you a well-rounded outlook on how the TMT industry is recalibrating its selling approach in a time when consumer data can often feel unreliable.
Related Reading: How Tech Leaders Are Using Market Intelligence to Weather a Downturn
The State of Consumer Demand in Tech
The TMT mid-market has performed strongly over the last few quarters, with M&A deals and private equity activity seemingly unaffected by ongoing macroeconomic uncertainties. But as interest rates continue to hike up, inflation increases and supply chains face continued disruptions due to the Russia-Ukraine war; experts believe these factors will eventually take a toll on industry performance.
Market recalibrations and resets are not new to TMT, but the magnitude of volatility displayed throughout the first few quarters of the 2022 fiscal year has raised cause for concern when it comes to consumer spending and demand.
While supply chain mishaps and labor shortages are often cited as the major reasoning behind inflation within the United States, consumer demand is largely responsible (60%) for driving up prices for all types of products in the last two years.
Over the past few months, an increasing amount of Americans have changed their spending and shopping, becoming more conscious of how they can stretch their dollar and are more likely to delay major purchases to offset their losses in the oncoming recession. In accordance, TMT companies have and continue to drop product prices to encourage spending.
Interest rates, Credit Card Debt, and Record-Low Savings
For Americans today, the cost of carrying a balance on your credit card is the highest it’s been in nearly 30 years. This news comes as no surprise after the Federal Reserve raised interest rates to combat inflation, a return that Americans have not seen in decades.
In an attempt to slow economic volatility and lessen pricing pressure, major banks are making it more expensive to borrow capital and ensuring their most creditworthy customers pay the price. When the federal fund rate increases, so do prime rates–which are currently at 7%.
Consumer Sentiment Index
According to Michigan State’s US Index of Consumer Sentiment, future consumer spending projections are at a current level of 54.70, down from 59.90 last month and from 67.40 one year ago. Illustrating an 8.68% drop from last month and an 18.84% decrease from one year ago, the Index’s score relays how anxious Americans are over the cost of living and the economy’s direction.
Forecast Consumer Demand Across TMT Subverticals
In the wake of uncertainty around macroeconomic events, the state of the economy and consumer confidence within it, TMT leaders recognize that consumer data no longer simply translates to consumer demand. A sudden shift in these areas can drastically change how, where, when, and what consumers spend.
To get a firmer grasp on predicting what demand will look like in the coming fiscal quarters, companies across sectors have adopted a variety of methods to get the answers they need. We leveraged the four perspectives and collected insights from across the industry to give you an idea of what they entail:
Across the technology industry, most companies reported slowed consumer purchasing activity due to inflation, with most product transactions serving to replace older, outdated tech. However, as some companies explore how they can weave new forms of technology into their product rollouts, others are prioritizing customer relationships and instilling prudent spending reforms to combat the oncoming recession.
“Global economic uncertainties and broad-based customer inventory corrections worsened in the latter stages of the September quarter, and these dynamics are reflected in both near-term industry demand and Seagate’s financial performance. We have taken quick and decisive actions to respond to current market conditions and enhance long-term profitability, including adjusting our production output and annual capital expenditure plans, and announcing a restructuring plan that will deliver meaningful cost savings while maintaining investments in the mass capacity solutions driving our future growth”
— Dave Mosley, CEO at Seagate | Press Release
Based on broker research sourced within AlphaSense, PC, smartphone, and consumer demand continue to wane under continued inflationary pressure, US/China trade restrictions, and other macro headwinds, which we see continuing through end of year.
While analysts believe demand in Auto, Industrial, and Datacenter continue to be more resilient, several companies have reported small pockets of weakness within Industrial demand this earnings season. Investor concerns about the sustainability of strong pricing tactics are understandable and will likely persist.
Analysts plan to continue to monitor these trends, along with broad-based cyclical concerns, as continued weakness in consumer electronics, client PCs and some portions of commercial PC, and low-to-mid-tier smartphones are bleeding into the premium tier.
“The investment firm said that an analysis of ‘the distortive impact’ of the pandemic on demand for iPads showed that of a total of 154 million devices sold between 2020 and H1 2022, about 41.8 million were “excess,” in part resulting from new demand and customers replacing their iPads quicker to support study and remote work.”
“In our view, a quarter of the incremental sales are linked to quicker replacements, which we expect to result in [year-over-year] declines in iPad units shipped in  and ,” the firm said, adding that it anticipates a rebound in shipments to above pre-COVID levels of mid-40 million in 2024 as some of the new customers start replacing iPads bought during the early phase of the pandemic.”
– Apple’s iPad Sales Growth May Face Headwinds in 2022, 2023 Amid Declining COVID-Related Consumer Demand, BofA Says | MT Newswire Live Brief
“The entire app ecosystem is something that we needed to understand, and for that, we had to understand what is the consumer demand across the segment, etc. Now we can integrate other devices like, for example, wearables so that it is very well integrated. We were just beginning to understand the use cases of how it can be integrated into health, for example, fitness, health, all of that.”
– “Former Manager Thinks Outsourcing to India Will Rise” | Expert Call
To combat inflation and supply chain issues, subsectors of the media industry have taken to raising prices to preserve revenue. Moreso, an emphasis on strategic spending, or being conservative with budgets, was relayed by C-Suite executives or leadership. Escalating consumer costs and tactics to retrieve consumer data has become an issue that has led to federal intervention.
“Many of our advertisers are navigating a challenging environment with higher inflation and weakening consumer demand, which creates a volatile demand environment. Our priorities will be around product and engineering. We’re not going to spend like crazy there; we’re going to be measured and have a great product roadmap as well that we’re really confident in. But just overall, what we will say is that we’re going to be measured around our cost next year.”
– Viant Technology Inc. | Q3 2022 Earnings Call
“Supply chain issues and the impact of inflation on consumer demand persist across many of our product categories. For revenue, we are raising the lower end of our range by $10 million for an updated range of $930 million to $960 million. We are increasing annual non-GAAP operating expenses by approximately $15 million at the midpoint to a range of $510 million to $530 million and are lowering the top end of our operating cash guidance by $10 million to a range of $210 million to $230 million, due primarily to the impact of rapidly increasing interest rates on our variable rate debt.”
– Xperi Holding Corporation | Q2 Earnings Call
According to broker research, Netflix had a significant advantage in comparison to its streaming platform peers at the onset of the pandemic. The easing of pandemic restrictions, which gave households more options for recreational activities—most apparent in travel—resulted in increased churn, which researchers suggest has normalized based on the company’s Q3 2022 results.
Moreover, Netflix’s strong 3Q, despite the significant content competition, shows the pandemic unwind is slowing, and the platform is still a core streaming service for consumers. Broker analysis looks at engagement trends in multiple ways, which analysts think supports a pandemic unwind and that streaming services are growing in popularity again.
“Skyrocketing inflation has been pinned on supply chain bottlenecks, worker pay increases and surging consumer demand – all symptoms of an economy still emerging from the pandemic-induced downturn. But left-leaning think tanks and lawmakers are increasingly pointing to what they say is an even bigger culprit: corporate greed.
Companies, they say, are jacking up prices by more than is required to offset their rising wholesale costs, padding their profits while using supply snags as cover. There is no federal law barring a company from charging consumers whatever it likes as long as it doesn’t collude with its competitors to boost prices by an agreed-upon amount. Thirty-eight states do prohibit raising prices excessively during disasters or emergencies.”
“People sign up for things and click the boxes for the terms of service without reading them. They’re giving up a tremendous amount. Consumers are giving away their data with no idea how it’s being used or who is using it, or anything else. It’s [worse] on the TV side/ digital side; at least you go to a new site, and they say, “Hey, we put cookies on, and we track it and do you want to do this?” A lot of that came out of the European privacy laws and the one in California, neither of which has impacted TV yet, but at some point, it will. This will be a critical question around consumer data and consumer privacy of data. Right now, it’s the Wild West with TV manufacturers, satellite, and cable companies.”
– “Former VP Thinks That None of the TV Ad Measurement Platforms Do Everything Well” | Expert Call
For a number of global telecom companies, the increasing demand for 5G has been a major driver for establishing annual budgets and product rollouts. Mobile providers are racing to be the first to install 5G and fiber network towers in various countries and establish themselves at the forefront of this industry-wide trend to cash in on consumer demand.
“Looking to another trend, as the world struggles to navigate the ongoing global supply chain crisis, the capacity of logistics and robotics has been turbocharged through the effective application of AI. Global supply chains are complex and interdependent, meaning any disruption can have a domino effect on the system. Automation can ease major bottlenecks, including containership buildup, labor shortages, warehouse efficiency and rising consumer demand.
“We see that there is a significant opportunity in the logistics automation market. Warehouse automation, for example, has only penetrated 2% of the global market. Sure enough, we see AI-driven robotics and automation gradually stepping in to solve supply chain crises around the world, and there’s plenty of market opportunity for growth.”
– Softbank Group Corp. | Q2 2023 Earnings Call
Broker research suggests that the upcoming earnings season for telecoms comes after a significant derating of Telco and market multiples, raising the question of whether this creates an attractive entry opportunity for companies. AT&T and Verizon both yield c. 7% but will be under scrutiny this week after both companies cut elements of guidance last quarter with cost pressures building. Researchers do expect another robust quarter as consumer demand remains solid, with over 2m postpaid ads for the industry.
“Multi-terabit capacity will support evolution to 5G mobile, growing consumer demand for online video and internet usage while enabling the increasing deployment of cloud applications through the most robust and modern network in the market and allowing the connection of customers at speeds up to 400Gbit/s.”
“Our success hinges on our ability to make sharing the benefits of fibre broadband as widely as possible and by keeping up with rapidly evolving consumer demand. We are confident that, with our proposed investment, the value of fibre access services will continue to grow. Importantly, our proposal achieves these objectives while decreasing investment (as we complete major network build programmes) and improving cost per connection (as we grow connection numbers and control recurring costs).”
“[In terms of the difference that we’re seeing in terms of business versus consumer demand for telecommunications services and what enterprise or business demand looks like telecommunications services] most common people are poor enough not to afford expensive things. They basically need food and then low investment cost products such as credit airtime, internet data, and low-cost food. They’re the main thing that I see demand going up, service demand, demand for service and for food and for low-cost investment products, agricultural products, services.”
– Former Analyst Sees Durable and Long-Term Growth Potential in Congolese Telecoms | Expert Call
Takeaways for Tech Leaders
While there’s no guaranteed way to decipher how consumer demand will change in this volatile market, there are ample methods tech leaders are relying on to get the answers they need to thrive financially in the coming fiscal quarters. And if you’re looking to remain at the forefront with your competition in these unpredictable times, you need a market intelligence tool that will help you leverage landscape and competitive insights to take the lead.
AlphaSense aggregates content from over 10,000 sources of information and utilizes an AI search engine to act quickly on industry-impacting data. Start your free trial today.
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