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Author : Globenews9 Last Updated, Jul 29, 2022, 2:29 AM Technology
Big Tech Is Proving Resilient as the Economy Cools
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No boom can last forever, even for the technology industry’s most affluent companies. Investors punished the biggest tech companies earlier this year, erasing $2 trillion in market value over fears the industry would falter in the face of rising inflation and a slowing economy.

But this week, as the United States reported that economic output fell for the second straight quarter, Microsoft, Alphabet, Amazon and Apple posted sales and profits that showed their businesses have the dominance and diversity to defy the economic woes hurting smaller companies.

Microsoft and Amazon proved that their lucrative cloud businesses were continuing to expand even as the economy cools. Alphabet’s subsidiary, Google, demonstrated that search advertisements remained in demand among travel companies and retailers. And Apple papered over a downturn in its device business by increasing its sales of apps and subscription services.

Collectively, it was a sign that tech may have already hit a bottom and is beginning to rebound, said Dave Harden, the chief investment officer at Summit Global, a firm near Salt Lake City with about $2 billion under investment that counts Apple among its holdings.

“These guys are still delivering,” Mr. Harden said. “They’re acting responsibly and navigating through a choppy period.”

The better-than-feared results lifted the companies’ share prices and provided a jolt to the stock market, even as Alphabet and Microsoft fell short of Wall Street’s expectations.

The results made clear that the companies are not immune to problems such as supply-chain disruptions, rising costs and shifts in customer spending. But their giant businesses are not as vulnerable to the various challenges sweeping across the economy as smaller companies like Twitter and Snap, the owner of Snapchat.

During calls with analysts, the companies’ chief executives cautioned investors about the months ahead, using words like “challenges” and “uncertainty.” Concerns about the economy are leading some of them, including Alphabet, to slow the pace of hiring and take other precautions, but none have said they plan to begin making layoffs.

Sundar Pichai, Alphabet’s chief executive, cast the slowing economy as an opportunity, saying the company would sharpen its focus and “be more disciplined as we go forward.” He added, “When you’re in growth mode, it’s tough to always take the time to do all the readjustments you need to do and moments like this give us a chance.”

In what many investors interpreted as a testament to the industry’s optimism, Microsoft said it expected double-digit revenue growth for the next year, and Amazon said it expected sales to increase at least 13 percent in the current quarter.

Satya Nadella, the chief executive officer at Microsoft, said the company would invest over the year to take share and build its businesses, while Brian Olsavsky, Amazon’s finance chief, said it would have more product in stock and speedier deliveries.

“That’s not a recession forecast,” said Sean Stannard-Stockton, president of Ensemble Capital, a San Francisco-based investment firm with $1.3 billion under management. “If we do avoid a severe recession, it’s clear that a lot of these businesses will see growth rate pick back up.”

Though Apple and Alphabet didn’t provide guidance, the companies bought back tens of billions of dollars in stock during the period. Apple’s purchase of $21.7 billion and Alphabet’s purchase of $15.2 billion testified to the companies’ belief that their businesses will continue to grow in the years ahead.

Meta, the company formerly known as Facebook, was an outlier among the biggest tech companies, reporting its first decline in quarterly revenue since going public a decade ago. Its woes were an outgrowth of rising competition from TikTok, which has sapped it of users and advertisers, and challenges from privacy changes on iPhones implemented by Apple.

The advertising market is forecast to grow 8.4 percent this year and 6.4 percent in 2023, according to GroupM, a market research firm. Facebook’s sales growth last year, when quarterly sales jumped 56 percent, made it “implausible to keep growing,” said Brian Wieser, president of business intelligence at GroupM.

Similar challenges have hit the e-commerce market. Convinced that a surge in online orders during the pandemic represented a fundamental change in the way people shopped, Amazon advanced an ambitious plan to open dozens of new warehouses. But as sales have cooled — with the number of items it sold up just 1 percent in the most recent quarter — it has reversed course and decided to close, delay or cancel at least 35 warehouse openings.

Amazon’s smaller e-commerce rival, Shopify, said it would cut about 10 percent of its staff. Harley Finkelstein, president of Shopify, said this year would be “a transition year in which e-commerce is largely reset” to the growth levels it recorded before Covid-19.

Apple’s biggest obstacle came from its dependency on China to manufacture most of its devices. In April, the company said it would lose about $4 billion in sales because of factory shutdowns in Shanghai, where it manufactures iPads and Macs. But it still managed to increase its sales of iPhones in the period by 3 percent and set a quarterly record for the number of people who traded Android smartphones for iPhones.

Tim Cook, the chief executive of Apple, said that Apple saw “a cocktail of headwinds,” including the supply constraints, the strengthening dollar that increased device prices overseas and the slowing global economy.

“When you think about the number of challenges in the quarter, we feel really good about the growth that we put up,” Mr. Cook said. He added that the company would invest through a downturn, but be “deliberate in doing so in recognition of the realities of the environment.”



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