Q2 Technology sector scorecard - PwC · PwC | Technology sector scorecard US Purchasing Manager’s...

Technology sector scorecard

Q2 2017

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PwC | Technology sector scorecard

Q2 2017 Executive summary

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Q2 2017 Executive summary

The technology sector, as measured by the group of companies in this study, posted solid year-over-year revenue growth of 10.7%, but growth slowed to 3.1% quarter-over-quarter. Year-over-year performance by subsector:

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Tech company revenue growth continued to rise in the second quarter driven in part by merger activity

Software Services 35.0%

Internet 25.1%

Software 10.7%

Systems & PC Hardware 9.7%

EMS 7.3%

Semiconductors 6.5%

Consumer Electronics 4.3%

Communications -5.5%


Q2 2017 Executive summary (continued)

• Global economic confidence dipped slightly in the second quarter. Confidence was higher in non-OECD economies than in OECD economies for only the second time since 2011. Although developed economies have continued to grow at a decent pace, emerging economies have reported much bigger improvements. The BRIC economies of Brazil, Russia, India and China are all now growing simultaneously for the first time in two and a half years. Western Europe fell back after having rebounded strongly in the first quarter of the year. Despite optimism toward economic reform after the recent election in France, low unemployment in Germany and an overall increase in government spending, sentiment in Europe about the future declined. This was due in part to economic confidence in the UK falling in the second quarter to its lowest level since the final quarter of 2011. 1

• Buoyed by strong consumer and business confidence, mergers and acquisitions in the second quarter across the media, information, software and tech‐enabled services sectors totaled more than 1,000 announced transactions and nearly US$100 billion in value. The pace of M&A in 2017 is on track to surpass 2014 and 2015 levels, but may not match last year, given the record first half of 2016. 2

• Though aggregate growth slowed quarter over quarter for the tech companies in our study, significant year-over-year gains were made in specific subsectors including software services which posted a 35% increase in annual revenue primarily due to the merger of CSC with the Enterprise Services business of Hewlett Packard Enterprise (HPE) to form DXC Technology. Rounding out the top three were Internet at 25.1% and software at 10.7%. Only one subsector, communications, experienced a year-over-year decline in revenue of -5.5%.

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1. http://www.accaglobal.com Q2 2017

2. JEGI.COM


US Purchasing Manager’s Index (PMI) trendsQ2 2008 –Q2 2017

While the Q2’17 PMI® declined to 55.8 from 57.2 in Q1’17, there was a positive trend in sequential monthly PMI® with June registering 57.8, an increase of 2.9 points from the May reading of 54.9. The comments from the panel generally reflected expanding business conditions; with new orders, production, employment, backlog and exports all growing in June compared to May and with supplier deliveries and inventories struggling to keep up with the production pace.3

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.2 57

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51.

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2Q

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3Q

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4Q

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1Q0

9

2Q

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4Q

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1Q10

2Q

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3Q

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1Q11

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3Q

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1Q12

2Q

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3Q

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1Q13

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1Q14

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1Q15

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1Q16

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3Q

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4Q

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1Q17

2Q

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Quarter

Recession Threshold (42.7)

3. Source: ISM


Software services

The software services sector, as measured by the companies in our study, witnessed the highest revenue growth across technology sectors posting a 35.0% year-over-year gain resulting in part by the merger of CSC with HPE’s Enterprise Services business to form DXC Technology. In addition, surging demand for as-a-service solutions drove overall growth in the global commercial sourcing market in the second quarter, with cloud-based platform services now accounting for more than 40% of global spending, and climbing. During the quarter, as-a-service (Infrastructure-as-a-Service and Software-as-a-Service) annual contract value (ACV) climbed 32%, to $3.8 billion, while traditional sourcing ACV declined 3%, to $5.5 billion.

As-a-service now accounts for 41% of the global sourcing market. In the first half, global ITO spending reached $9.3 billion, up 7%, on 623 contract awards, a record for a half year. Business process outsourcing (BPO), meanwhile, slumped 27%, to $2.4 billion. On the as-a-service side, Infrastructure-as-a-Service (IaaS) ACV soared 62%, to $6.1 billion, while Software-as-a-Service (SaaS) slowed 9%, to $2.0 billion. 4

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4. www.ir.isg-one.com

http://www.ir.isg-one.com/


Q2 PerformanceSoftware services – 35.0% Rise in revenue year over year

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Company Q2’17

Revenue(US$ billions)

Gross margin (%)

Net income(US$ millions)

EPS (US$) Market cap (US$ billions)

Cognizant 3.7 38.4% 470 0.80 39.0

DXC technologies 5.9 19.0% 159 0.55 21.9

Infosys 2.7 36.2% 541 0.24 34.3

HCL 1.9 33.7% 337 0.23 18.8

TCS 4.6 41.6% 923 0.47 69.9

For additional financial information, please visit http://www.pwc.com/techscorecard and click on the “data explorer” box

Company Q2’16


Gross margin (%)



Cognizant 3.4 39.6% 252 0.41 34.7

DXC technologies 1.9 26.4% (21) (0.15) 6.9

Infosys 2.5 36.4% 511 0.22 40.8

HCL 1.7 34.4% 305 0.22 15.4

TCS 4.4 42.7% 940 0.48 75.0

http://www.pwc.com/techscorecard


Internet

Companies under study in the Internet subsector posted the second best year-over-year revenue growth behind software services at 25.1%. Sequentially revenue grew 6.9%. Annual revenue growth was led by Facebook which reported a 44.8% increase, followed by Netflix and LinkedIn with growth of 32.3% and 25.8% respectively. In contrast to revenue gains, all the companies except Yelp reported a drop in net income sequentially and year over year, leading to aggregate declines of -25.7% and -11.3% respectively. Yelp posted a significant gain in net income year over year.

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Q2 Performance Internet – 25.1% Rise in revenue year over year

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For additional financial information, please visit http://www.pwc.com/techscorecard and click on the “Data explorer” box.

Company Q2’17


Gross margin (%)



Amazon 38 38.2% 197 0.40 463.7

eBay 2.3 75.9% 27 0.02 37.6

Alphabet Inc. 26.0 60.1% 3,524 5.01 268.7

Salesforce.com Inc. 2.6 73.8% 18 0.02 64.7

Netflix 2.8 31.7% 66 0.15 64.4

Facebook 9.3 86.7% 3,894 1.32 429.5

Yelp .20 91.4% 8 0.09 2.5



Q2 Performance Internet Q2’16

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Company Q2’16


Gross margin (%)



Amazon 30.4 36.9% 857 1.78 339.2

eBay 2.2 77.9% 435 0.38 26.5

Alphabet Inc. 21.5 62.2% 4,877 7.00 483.2

Salesforce.com Inc. 2.0 74.2% 230 0.33 55.7

Netflix 2.1 30.0% 41 0.09 39.2

Facebook 6.4 85.8% 2,283 0.78 358.4

Yelp .17 91.3% 0 0.01 2.1



Software

The third strongest subsector for revenue growth in the second quarter was software. Companies in our study posted year-over-year revenue growth of 10.7%. Rapid growth in cloud adoption has driven increased interest in securing data, applications and workloads that now exist in a cloud computing environment. Software development for data loss protection of mobile devices, management as-a-service, and software-defined perimeter, along with broader as-a-service offerings continues to drive software revenue growth. 5

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5. Gartner.com, September 2017


Q2 Performance Software – 10.7% Rise in revenue year over year

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Company Q2’17


Gross margin (%)

Net Income/(Loss)(US$ millions)

EPS

(US$)

Market cap (US$ billions)

Adobe 1.8 86.5% 374 0.75 70.9

Intuit .8 78.6% 24 0.09 35.2

Microsoft 23.3 63.7% 6,513 0.83 531.3

Oracle 10.9 81.5% 3,231 0.76 187.9

SAP* 6.4 69.0% 732 0.62 120.6

Symantec 1.2 78.1% (133) (0.18) 17.3

VMware 1.9 85.8% 334 0.81 10.0

*Euro to USD exchange rate used for SAP is 1.09963 USD/Euro.



Q2 Performance (continued)Software Q2’16

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Company Q2’16


Gross margin (%)

Net Income/(Loss)(US$ millions)

EPS

(US$)


Adobe 1.4 85.6% 244 0.48 49.2

Intuit 0.8 78.0% (40) (0.16) 28.4

Microsoft 20.6 61.3% 3,122 0.39 399.5

Oracle 10.6 81.7% 2,814 0.66 165.6

SAP* 5.8 70.4% 909 0.76 90.0

Symantec 0.9 83.1% 66 0.11 12.6

VMware 1.7 84.6% 265 0.62 7.0

*Euro to USD exchange rate used for SAP is 1.1136 USD/Euro.



Systems & PC hardware

Strong server growth in the second quarter nullified continued decline in PC demand and pushed year-over-year revenue growth for the companies under study to 10.7%. For PCs, the second quarter marked the 11th straight quarter of declining PC shipments, down 4.3% from Q2 2016. In contrast, worldwide server revenue increased 2.8% year over year, while shipments grew 2.4%. Two main factors drove server growth: Strong regional performance in Asia/Pacific because of data center infrastructure build-outs, mostly in China, and ongoing hyper-scale data center growth exhibited in the self-build/ODM (original design manufacturer) segment. While RISC/Itanium Unix and mainframe servers saw a double digit decline in revenue, x86 servers increased 2.5% in shipments and 6.9% in revenue.

HPE continued to lead the worldwide server market based on revenue, garnering US$3.2 billion for a total share of 23%. Dell EMC maintained the No. 2 position with 7% growth and 19.9% market share. Huawei experienced the highest growth in the quarter with 57.8%.6 HP Inc. reclaimed the top position from Lenovo in the worldwide PC market. 6

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6. Gartner.com; July 2017


Q2 Performance Systems and PC hardware – 10.7% Rise in revenue year over year

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Company Q2’17


Grossmargin (%)

Net income/(loss) (US$ millions)


Dell Technologies Inc. 19.3 24.9% (946) (1.97) 13.1

HP Inc. 13.1 18.6% 696 0.41 32.1

Hewlett Packard Enterprise Co

8.2 33.7% 165 0.10 28.4

IBM 19.3 45.6% 2,331 2.48 143.8

Lenovo 10.0 13.6% (72) (0.66) 7.0

Xerox 2.6 40.2% 166 0.63 7.3



Q2 Performance (continued)Systems and PC hardware Q2’16

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Company Q2’16


Grossmargin (%)

Net income/(loss) (US$ millions)


Dell Technologies Inc. 13.1 17.9% 573 (0.65) 11.2

HP Inc. 11.9 18.3% 783 0.49 24.0

Hewlett Packard Enterprise Co

8.0 29.3% 2,272 1.32 17.7

IBM 20.2 47.9% 2,504 2.61 145.1

Lenovo 10.1 15.3% 173 1.56 6.7

Xerox 2.8 31.2% 158 0.60 6.3



EMS

EMS sector revenue grew by 7.3% year over year and 0.6% sequentially for the companies in our study. This was led by 39.8% growth in revenue for Tech Data Corp as a result of the acquisition of Avnet’s Technology Solutions business, and 8.3% growth for Arrow Electronics. Flextronics had the sharpest growth in net income of 18% year on year and 43.6% sequentially. Overall the sector reported 32% growth in net income compared to last year, but sequentially net income dropped by 16.2% due to a 70% decline in profits at Avnet.

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Q2 Performance EMS/Distributors – 7.3% Rise in revenue year over year

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Company Q2’17


Gross margin (%) Net income/(loss)(US$ millions)


Arrow Electronics Inc. 6.5 12.7% 100 1.11 6.9

Avnet Inc. 4.6 13.7% 81 0.65 4.8

Flextronics International Ltd

6.0 6.8% 125 0.23 8.7

Tech Data Corporation 8.9 5.8% 47 1.24 3.9

Foxconn* 30.4 6.8% 880 1.02 67.0

*TWD to USD exchange rate used for Foxconn is 0.03301 USD/TWD.

Company Q2’16




Arrow Electronics Inc 6.0 13.4% 134 1.45 7.6

Avnet Inc 6.2 11.7% 97 0.75 5.2

Flextronics International Ltd

5.9 6.9% 106 0.19 6.4

Tech Data Corporation 6.4 5.0% 46 1.31 2.7

Foxconn* 28.1 6.0% 551 0.03 43.3

* TWD to USD exchange rate used for Foxconn is xxxx USD/TWD.



Semiconductors

Semiconductor companies in our study posted revenue growth of 6.5% year on year. The Semiconductor Industry Association reported worldwide sales of semiconductors reached US$97.9 billion during the second quarter, an increase of 5.8% over the previous quarter and 23.7% higher compared to last year. Global sales for the month of June 2017 reached US$32.6 billion, an uptick of 2.0% over last month’s total of US$32.0 billion, a surge of 23.7% compared to the June 2016 total of US$26.4 billion and the highest ever second quarter sales. Regionally, sales increased compared to June 2016 in the Americas (33.4%), China (25.5%), Asia Pacific/All Other (19.5%), Europe (18.3%), and Japan (18.0%).7

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7. www.SIA.org


Q2 PerformanceSemiconductors – 6.5% Rise in revenue year over year

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Company Q2’17


Gross margin (%)



Intel 14.8 61.6% 2,808 0.58 158.9

Applied Materials 3.7 45.4% 925 0.85 47.5

Texas Instruments 3.7 64.3% 1,056 1.03 76.5

TSMC 7.1 50.8% 2,188 0.42 181.3

Qualcomm Inc. 5.4 53.7% 866 0.58 83.6

Company Q2’16


Gross margin (%)



Intel 13.5 58.9% 1,330 0.27 154.6

Applied Materials 2.8 42.3% 505 0.46 28.7

Texas Instruments 3.3 61.2% 779 0.76 109.1

TSMC 6.8 51.5% 2,237 0.43 136.0

Qualcomm Inc. 6.0 58.1% 1,444 0.97 76.8



Consumer electronics

The Consumer electronics companies under study reported revenue growth of 4.3% year on year, but sequentially declined by 7.7%. The increase compared to last year was due to 7.2% and 12.0% increase in revenue by Apple Inc and Canon respectively. The sequential decline was due to a sharp drop of 22.6% by Philips and a 14% drop by Apple. Net income for the sector increased by 18.6% compared to the last quarter. This was led by a more than 250% increase in Sony Corps net income. Sequentially net income dropped by 13.6% led by a 21% decrease in Apple’s profits.

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Q2 Performance Consumer electronics – 4.3% Rise in revenue year over year

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Company Q2’17


Grossmargin (%)

Net income/(loss)(US$ millions)

EPS(US$)


Apple Inc 45.4 38.5% 8,717 1.67 768.5

Canon Inc 8.9 49.9% 619 0.57 37.1

Philips* 4.7 44.8% 318 0.30 31.5

Sony Corp** 16.6 40.0% 722 0.56 48.4

*EUR to USD exchange rate used for Philips is 1.09963 USD/EUR.

**JPY to USD exchange rate used for Sony is 0.008928571 USD/JPY.

Company Q2’16


Grossmargin (%)

Net income/(loss)(US$ millions)

EPS

(US$)


Apple Inc 42.4 38.0% 7,796 1.42 521.1

Canon Inc 7.9 50.3% 492 0.48 31.2

Philips* 6.5 43.3% 258 0.51 22.8

Sony Corp** 15.7 37.1% 205 0.16 37.0

*EUR to USD exchange rate used for Philips is 1.1136 USD/EUR.

**JPY to USD exchange rate used for Sony is 0.0098 USD/JPY.



Communications

The Communications subsector, as measured by the companies under study, reported a decline of 5.5% in revenue year over year, but experienced 5.5% sequential growth. The decline was due to lower year-over-year revenue from LM Ericsson. In contrast, net income grew 23% year over year due to a turnaround at Nokia and a sharp decrease in losses at LM Ericsson.

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Q2 Performance Communications – (5.5%) Decrease in revenue year over year

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Company Q2’17




Cisco Systems Inc 12.1 62.2% 2,424 0.48 157.4

LM Ericsson* 5.7 27.9% (113) (0.03) 23.5

Motorola Solutions Inc 1.5 46.1% 131 0.78 14.1

Nokia Corp** 6.2 39.8% 481 (0.08) 34.8

* SEK to USD exchange rate used for Ericsson is 0.113531 USD/SEK.

**EUR to USD exchange rate used for Nokia is 1.09963 USD/EUR.

Company Q2’16




Cisco Systems Inc 12.6 63.1% 2,813 0.56 153.6

LM Ericsson* 6.6 32.3% 193 0.06 23.0

Motorola Solutions Inc 1.4 47.3% 107 0.61 11.0

Nokia Corp** 6.3 37.4% (741) (0.13) 32.8

* SEK to USD exchange rate used for Ericsson is 0.121658 USD/SEK.

**EUR to USD exchange rate used for Nokia is 1.12921 USD/EUR.



Methodology

We analyzed a selection of the largest technology companies included in the S&P 500 index as well as a selection of large international technology companies that regularly report financial results.

In order to present the information by calendar year or calendar quarter, the financial information for companies with non-calendar years or quarters was included in the nearest calendar year or quarter.

We analyzed technology companies that operate predominantly within the following sectors:

• Communications

• Consumer Electronics

• EMS/Distributors

• Internet

• Semiconductors

• Software

• Software Services

• Systems and PC Hardware

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Technology industry leaders

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Raman Chitkara

Global Technology Leader

Phone: +1 408 817 3746

Email: [email protected]

Rod Dring – Australia Werner Ballhaus – Germany Yury Pukha – Russia

Phone: +61 2 8266 7865


Phone: +49 211 981 5848


Phone: +7 495 223 5177


Estela Vieira – PwC Brazil Sandeep Ladda – India Mark Jansen – Singapore

Phone: +55 1 3674 3802


Phone: 91 22 6689 1444


Phone: +65 6236 7388


Christopher Dulny– PwC Canada Masahiro Ozaki– Japan Jass Sarai – UK

Phone: +416 869 2355


Phone: +81 3 5326 9090


Phone: +44 0 1895 52 2206


Jianbin Gao – PwC China & Hong Kong Steven Kang – Korea Mark McCaffrey – US

Phone: +86 21 2323 3362


Phone: +82 2 709 0201


Phone: +1 408 817 4199


Pierre Marty – PwC France Ilja Linnemeijer – The Netherlands

Phone: +33 1 5657 5815


Phone: +31 88 792 4956


pwc.com/techscorecard

We exercised reasonable professional care and diligence in the collection, processing and

reporting of this information. However, the data used is from third-party sources and

PricewaterhouseCoopers has not independently verified, validated or audited the data.

PricewaterhouseCoopers makes no representations or warranties with respect to the accuracy

of the information, nor whether it is suitable for the purposes to which it is put by users.

PricewaterhouseCoopers shall not be liable to any user of this report or to any other person or

entity for any inaccuracy of this information or any errors or omissions in its content, regardless

of the cause of such inaccuracy, error or omission.

Furthermore, in no event shall PricewaterhouseCoopers be liable for consequential, incidental

or punitive damages to any person or entity for any matter relating to this information.

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