7 Of The Most Important Enterprise Tech Trends Amid The Coronavirus Crisis That Could Make Or Break The Stocks Of Tech Giants
Wall Street analysts say the coronavirus crash has triggered 7 key trends that could impact big tech names led by Microsoft, Amazon, Google, Oracle, Dell, IBM and Intel.
On the other hand, businesses are expected to embrace cloud computing at an even faster rate due to the pandemic.
In an unexpected twist, the sudden rise of a remote workplace led to an uptick in demand for laptops and notebooks.
With big tech companies set to report first quarter earnings in a couple of weeks, Wall Street is bracing for financial statements battered by the coronavirus crisis, especially in the most lucrative and vulnerable segment of the tech industry: enterprise.
“Over the last few weeks we have seen an IT spending environment darken unlike anything we have seen transpire in 20 years of covering the tech sector,” Wedbush analyst Daniel Ives told clients in a note on Tuesday.
Instinet analyst Jeffrey Kvaal also told client Tuesday that a survey of chief information officers found that “nearly half of respondents expect the virus to drive an annual decline in IT spending.”
But the impact of the downturn has been uneven. While the pandemic has pummeled key tech markets, it also led to shifts in demand trajectories and caused technology trends to happen even faster, analysts say.
Here are the 7 key trends that analysts say could lift or hurt the biggest names of enterprise tech, including Microsoft, Amazon, Google, Oracle, Dell, IBM and Intel.
The race to the cloud is picking up steam
Cloud computing was already a hot trend in enterprise tech before the crisis hit. And it just got hotter.
The cloud lets businesses set networks on web-based platforms, making it possible to scale down or even abandon private data centers.
Clearly, with businesses forced to abandon physical work places and to embrace a remote workforce, running a network in the cloud, instead of an on-premise — or ‘on-prem’ — data center, has become even more attractive.
In fact, Instinet’s Kvaal said its CIO survey showed that many of them “expect to reduce their mix of on-prem workloads from 59% in 2019 to 35% in 2021,” meaning they’ll be shifting more data and applications to the cloud.
Tech companies focused on the cloud market “will emerge stronger from the crisis,” Kvaal told clients.
The trend will likely boost the three dominant players of the cloud, Microsoft, Amazon and Google. Ives of Wedbush also cited providers of cloud tools, such as Zoom, Citrix, Docusign and Slack.
The cloud momentum is also upbeat news for companies that make the microprocessors that power and provide the data storage needs of cloud platforms, including Intel, Nvidia, Micron and AMD.
In fact, another Wedbush analyst Brad Gastwrith wrote last week that Microsoft reported “a surge in usage” of its platform which has prompted the tech giant to add more capacity.
“This news is a clear indication that one large hyperscale customer is purchasing more memory, processors, etc. to support real demand,” he told clients.
Demand for private data center gear is collapsing
NetApp CEO George Kurian NetApp
While the crisis sparked even greater interest in the cloud, it has also underscored the huge disadvantage of businesses that still rely on private or on-premise data centers.
These companies aren’t going to be rushing to buy gear, like servers and storage systems, to set up or upgrade their in-house data centers anytime soon. In fact, COVID-19 may just push some of them to simply wave the white flag and join the migration to the cloud.
Morgan Stanley conducted a survey of CIOs on the impact of the crisis. Analyst Katy Huberty reported in a note to clients that hardware spending deteriorated in the first quarter and “will turn negative in 2020.”
That’s bad news for traditional tech vendors like Dell, Hewlett-Packard Enterprise and NetApp, whose business still depend on selling equipment used to run private data centers.
In fact, things were so bad that Dell and NetApp, the data storage company, have withdrawn their financial guidance for their current fiscal years. Both cited the heightened uncertainty because of the pandemic.
Tools that make it easier to collaborate and work remotely are hot
The rise of the homebound workforce underscored the demand for tools that made working from home easier and more seamless.
Giving employees remote access to a company’s networks and applications has become critical. That’s great news for tech companies that provide employees access to virtual PCs hosted from their network, such as Citrix, Raymond James analyst Michael Turits said in a note last week.
He also cited Microsoft and Atlassian getting a lift from the rise in demand for digital collaboration tools — Microsoft Teams and Atlassian’s Jira both allow distributed teams to work together on large projects.
Citrix CEO David Henshall said the company has seen a sharp increase in demand for their cloud services, which helps IT departments allow employees to access critical business apps and data remotely. Demand shot up “50% in the span of a week and 600% over a couple of months,” he said.
“All of our cloud services are really where we’re seeing the bulk of our growth,” he told Business Insider. “A lot of companies are realizing that this is not going to be just two weeks of staying at home. This is really going to foster a new way of working for a very protracted period of time.”
Work from home sparked an uptick in PC demand
PCs have not exactly been a growth market, but the crisis has led to an unexpected uptick in demand for laptops and notebooks.
That’s because with the sudden shift to a remote workforce, many companies scrambled to buy PCs for employees. Analyst Ray Wang of Constellation Research said the “weirdest thing” that happened to him as the crisis was escalating was business leaders asking him “Where can I get 400 laptops?”
“There were some companies that needed 200, other companies needed 500,” he said. “I swear to god, Dell is going to have a great quarter.”
The rush to buy laptops is also good news for Hewlett-Packard, Lenovo and Apple.
This has also been good news for semiconductor companies that make chips for laptops and notebooks, led by Intel and AMD.
The problem is it’s unclear how long the demand uptick will last, said Wedbush analyst Matt Bryson.
“How long a runway is there in terms of that demand?” he told Business Insider. “You don’t know how long that’s gonna last.”
Intel and AMD may shed some light on these questions when they report results in a few weeks. Chipmakers build products based ahead of any upswing in demand, so their outlooks would offer a hint on whether PC demand will remain strong.
Robust networks are even more important
The pivot to a remote workforce also forced businesses, including major corporations, to beef up their networks.
In this trend, networking companies Cisco and F5 Networks are “best positioned” given their huge customer bases, Morgan Stanley analyst Meta Marshall told analysts in a note.
Cisco, which is based in San Jose, is the leading provider of networking hardware and software, including security, used for private data centers and cloud platforms. Seattle-based F5 makes equipment and software used to monitor business networks, to make sure they are working properly and securely.
In fact, Marshall noted that, despite the market slump, companies in the financial services industry “have spared no expense on incremental purchases to get a workforce set up for remote working.”
Businesses are likely to shy away from pricey software licenses.
Businesses, including big corporations, used to spend a bundle on business software, installed in their private data centers.
The cloud changed that by giving them access to applications through the web, most often billed monthly or yearly based on the number of users, instead of signing more expensive and long-term deals covering a set amount of employees.
Cloud software, also known as software-as-a-service, was just emerging when the Great Recession hit a decade ago. But UBS analyst Jennifer Swanson Lowe said in a note two weeks ago that software vendors that offered subscription-based products had an easier time signing new customers who shied away from more expensive license-based applications.
Given that more software vendors now offer subscription-based products, it could become an even more pronounced trend in the COVID-19 downturn.
This would be great news for pioneers of software-as-a-service led by Salesforce, ServiceNow and Workday.
On the other hand, this trend could be bad news for software giants that still rely heavily on revenue from traditional license contracts. One of them, Oracle, has been pushing hard to expand its cloud presence.
But CFRA analyst Aaron Siegel in a note last month said that while Oracle’s cloud business is growing, the accelerated shift to the cloud could also speed up the erosion of its “shrinking license, maintenance, and hardware sales.”
Cloud shift and working from home make security even more critical
The faster shift to the cloud plus employees working from home has made cybersecurity an even more pressing concern.
Defending networks remains “a mission critical part of spending for organizations,” Macquarie analyst Sarah Hindlian told clients in a note in late March.
“Attackers likely do not let up,” she wrote. “Threat pressures will only intensify over the coming months as workers are more distributed and remote.”
In this arena, some smaller enterprise tech companies are expected to play a key role. Hindilian cited stocks that have performed well given the importance of security has become clearer as the crisis continues, including Zscaler and Crowstrike.
Wedbush analyst Daniel Ives also pointed to the two security software makers noting that “cloud shifts are exacerbating the need for cyber security outside the firewall.”
– Buisnes Insider