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No longer immune: Tech giants face the reality of economic dips

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With the fears of a global economic recession very much in play interspersed with supply chain issues and rising costs, any sense of immunity there may have been within the tech community would have quicky evaporated. The latest quarterly numbers don’t make for pleasant reading for any of the tech giants, though it may still not be time to hit the panic button. A gentle course correction may be the need of the hour, something Apple’s chief executive officer Tim Cook and Google CEO Sundar Pichai have hinted separately.

This week has given us a better sense of why the way they do business needs to change. The need to be “deliberate” with spendings, something Cook alluded to while speaking with Bloomberg after the earnings call, will dictate Apple’s investments and expenses over the next few quarters, at least. “We believe in investing through downturns – we’ve always done that. We’ve always found out that it made us stronger on the other side. Obviously we’re being deliberate in our decisions of where to invest,” he said.

The quarterly numbers were a mixed bag for Apple. Overall sales and revenue are up (with caveats), yet operating expenses have increased. Analyze closely, and while overall product sales have a slight upward curve, that’s because of an incremental increase in iPhone sales and services (these include Apple Music, iCloud, Apple TV+ and App Store). Yet, expenses have gone up — $12.8 billion for the quarter compared with $11.1 billion in the same period last year.

Some markets have helped more than the others to absorb the complicated economic situation and consumption trends. “June quarter revenue records in developed and emerging markets with double digit growth in Brazil, Indonesia and Vietnam, and a near doubling of revenue in India,” Cook said.

At the same time, Mac sales are down significantly, and so are iPad sales (2% lesser than in 2021). Wearables, Home, and Accessories (this category is down 8%), the category that includes Apple Watch, HomePod, and Apple TV, also clocked lesser sales in this quarter compared with the same period last year. The fact that Apple still managed a June quarter revenue record of $83 billion proves that the company’s long-term strategy of investing in the services was well thought-out.

Also Read:Amazon, Apple beat expectations in gloomy earnings season

It was in June that Apple ushered in the return of the upgraded MacBook Pro 13, alongside the Mac Studio desktop and the Studio Display. Clearly, these didn’t do enough to even keep Mac sales at par with last year’s numbers. It may have been too late in the day for the latest generation MacBook Air, released earlier this month, to have a decisive impact on the quarterly numbers. The iPad line-up too added the M1 chip powered iPad Air, in June, after the annual Worldwide Developers Conference (WWDC).

China’s draconian Zero Covid policy has resulted in tech manufacturing hubs working in a stop-start manner, including restrictions on factory floor access, which has hurt global production.

Google has also reported its slowest quarter in two years, with the biggest hit coming from the advertising revenues. The global economic uncertainties and the supply chain slowdown which has thrown product launch cycles off track, have forced potential advertisers to hold on to the cash. YouTube’s the worst hit since it relies heavily on ads (premium subscriptions are a drop in the ocean). This is the second quarter in a row when Google has reported lower profits – $16 billion profits compared with $18.5 billion in the same period in 2021, even though revenue’s higher at $69.7 billion compared with $61.9 billion.

Even before these quarterly numbers were published, Sundar Pichai had spoken about the uncertain economic outlook, in an internal memo. Internal consolidation is the need of the hour. “In some cases, that means consolidating where investments overlap and streamlining processes. In other cases, that means pausing development and re-deploying resources to higher priority areas,” Pichai wrote.

Microsoft has had to face the triple whammy of a semiconductor shortage which has been a source of concern the global PC market continuously (slow sales impact its Windows and subscription businesses), the shortage of Xbox gaming consoles (which also means lesser new additions to the Xbox Game Pass subscription revenue stream) and sluggishness in the Surface computing device business. The latter has also not seen any significant launches over the last few months, except an incremental one for the Surface Laptop Go.

Research firm Gartner has said that PC shipments in Q2 2022 declined by 12.6% compared with the same period in 2021, the sharpest drop in nice years. This sentiment is echoed by research firm IDC as well, which estimates the shipment reduction at around 15.3% for the quarter ending June. This will be a sharp reversal of fortunes, after two strong years for PC sales, pushed by the pandemic and the remote working culture.

Microsoft has the $68.7 billion purchase of gaming company Activision Blizzard to look forward to. This is awaiting approval from regulators in the US and UK and should provide a boost to Xbox Game Pass subscriptions, with more gaming titles adding value for subscribers.

Yet, there will be an added complication of Intel planning a price increase for its CPUs and graphics chips, which could further drive-up prices of PCs at a time when potential buyers are holding back, adopting a wait and watch strategy. The CPU and GPU price increase is expected to be activated later this year, potentially ahead of the crucial festive and year-end sales. There’s an expectation that certain chip prices could increase by as much as 20%, even if PC sales are to rebound in the quarter ending September, the gains may be short-lived.

Gartner has indicated HP, Lenovo and Acer Group are the worst hit with the reduced shipments for PCs. The US market (17.5% lesser), EMEA (18% lesser) and APAC excluding Japan (5.2% lower) all record lower shipments. Google’s Chromebooks have been hit hard – HP saw a significant reduction in demand, which inflated its share of 27.5 lesser shipments, while the US and European markets logged 50% lesser Chromebook shipments.



  • ABOUT THE AUTHOR
    vishal mathur

    Vishal Mathur is Technology Editor for Hindustan Times. When not making sense of technology, he often searches for an elusive analog space in a digital world.
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