Although the earnings period is not over, we have already obtained more than enough reports from major Internet, hardware, software and chip companies to make some high -level conclusions about the appearance of tech. demand in major end-markets.
Here are the tech business trends that have particularly stood out to me as I went through the earnings reports and calls over the past few weeks.
1. High-End Consumer Hardware is Better Than Low-End Consumer Hardware
Although research firm IDC estimates that smartphone shipments fell 3.2% annually in the fourth quarter due to component shortfalls, Apple’s revenue (AAPL) on the iPhone rose 9%, despite adverse effects from iPhone launch timings in 2020/2021. And Qualcomm’s (QCOM) mobile processor/modem sales rose 42%, with the company attributing most of the growth to demand and share of gains within the high-end Android phone market.
Also, even as Chromebook and low-end Windows notebook sales fell in Q4, Advanced Micro Devices (AMD) reported a double-digit annual increase in PC CPU sales, thanks to the same gains and the fact that its PC CPU sales mix has shifted towards the middle. -range and high-end components (for comparison, Intel (INTC) PC CPU sales dropped 5%, with lower volume than offsetting the higher average selling price). AMD also reported once again-amid a widespread shortage of mid-range and high-end GPUs-that its GPU sales have more than doubled.
The result: Consumer spending on high-end tech products remains relatively stable, although sales of various products are weaker due to declining demand and/or chip shortages.
2. Online Ad Sales Looks Healthy Outside of Meta
Meta Platforms (FB) missed sales estimates in Q4 and provided light guidance in Q1, while blaming the impact of changes on iOS user tracking policy, macro pressures associated with supply issues -chain and inflation, and competition (TikTok). But the other major online ad players typically share decent numbers.
Alphabet (GOOGL) comfortably beat Q4 estimates on the back of better -than -expected search ad growth (YouTube ad sales somewhat missed, but still up 25%). Amazon.com (AMZN) ad sales (broken completely for the first time) rose better than expected 32%, Snap (SNAP) and Pinterest (PINS) both lost top -line estimates , and Microsoft (MSFT) reported 30%-plus growth for both LinkedIn revenue and search/news ad revenue.
IOS changes and supply chain/inflation headwinds are weighing on many online ad sellers. But for many of them, it’s being paid for by healthy consumer and business spending, along with an ongoing secular shift from offline to online ad spending. Also, inflation is something with a double -edged sword: It hurts ad revenue to the extent that higher prices lower demand, but it helps until companies become willing to pay a higher price. an ad to market their products/services.
3. Normalizing Pandemic Trends Continually Weighing in E-Commerce, Gaming at Social Media Activity
While PayPal’s (PYPL) disappointing results/guidelines are partly due to competitive pressures, it’s also clear that the cooling of e-commerce growth is a headwind. And while Amazon’s results/guidelines were better than feared, its sales outlook in Q1 is still less than consensus.
Meanwhile, Electronic Arts (EA) and Take-Two Interactive (TTWO) both slightly missed their estimates on bookings in the December-quarter and issued under-consensus guidance on bookings in the March-quarter. And both Meta and Pinterest missed their active user estimates in Q4, while noting that the normalization of demand increases caused by the pandemic is one of the headwinds they’re seeing (although admittedly, it’s not the only one ).
Since Omicron cases have dropped sharply and consumer spending on things like travel, dining, and live events is still comfortably below the trend lines before Covid, there’s a good chance that the Normalization of consumer habits will continue to weigh heavily on many former pandemic winners over the next few months. That being said, a lot of bad news has already been priced in parts of some of these companies.
4. The Up-Cycle of the Chip Industry Looks Likely to End Before the End of 2022 (At the Earliest)
Many well -known chip manufacturers, including Taiwan Semiconductor (TSM), NXP Semiconductor (NXPI) and Microchip Technology (MCHP), have indicated that they generally expect supply to exceed chip demand by the end of the year, where many of them noticed large orders/ Prepayments were made by customers to secure the supply of the chip in the last half of the year.
Also, major fabless chip developers like AMD and Qualcomm are still reporting being constrained in supply, because the wafer capacity they get from foundry partners is not enough to meet demand from cloud-like ones. giants, graphics card maker and smartphone OEM.
Like all up-cycles before it, this half cycle will end. But between the shortages that remain for many chips and the strength of demand that remains in many large end-markets-not to mention how the production of the manufacturing equipment needed to address chip shortages is ironic. hampered by chip shortages – the end of the cycle seems unlikely before late 2022 or early 2023, at least in a big macro shock. And as a result, some of the investors who have been selling chip stocks in recent weeks are likely to call the end of the cycle too quickly.
5. Software Spending Seems Particularly Strong in SMBs Today
Atlassian (TEAM) and Bill.com (BILL), which both get a large portion of their sales from small and medium sized businesses (SMBs), have delivered blowout results/guidance in recent weeks . Atlassian’s revenue growth accelerated to 37% in the December quarter from 34% in the September quarter, while Bill.com reported 85% organic revenue growth and 188% growth for Divvy spend -its management software unit (acquired last year).
In comparison, Microsoft and ServiceNow (NOW), which both rely heavily on large businesses for selling software, posted nice — but not-amazing — numbers for their business-app franchises. Microsoft’s Office Commercial and Dynamics revenue growth rates hit 14% and 29% – nothing to complain about, but dropped slightly from 18% and 31% of the September quarter.
One reason why SMB software spending may be better today: SMBs are more aggressive than businesses in reducing their IT spending during a pandemic. As a result, they may be more aggressive in increasing IT spending, as they become more confident that the worst of the pandemic is behind them.
In addition, a smaller percentage of SMB software sales involve direct selling efforts – more than this is done by channel partners or customers who buy on their own through a website (Bill.com is mentioned in its call that accounting firms have become a major customer -channel procurement). At a time when there is a shortage of experienced software salespeople and a large portion of the sales work is still done remotely, the ability to close many deals by means other than direct sales can be a comparative advantage.
6. Cloud Infrastructure Adoption Is Growing Faster Than Top-Line Numbers Suggest
Although Microsoft’s “Azure and other cloud services” revenue growth slowed to 46% in the December quarter from 50% in the September quarter, its overall commercial booking growth reached 32% in dollars and 37% in ongoing currency – among the highest growth rates recorded in the past few years. The company partially attributed this growth to Azure’s large, long -term, contract signing increase, while the addition of these deals will help Azure’s continued currency growth accelerate again in the March quarter.
For its part, Amazon reported that the long-term AWS contract backlog rose 61% annually in Q4 to $ 80.4 billion. That growth rate is superior to AWS’s Q4 revenue growth rate of 40% and it’s great for the public cloud giant’s ability to continue to break the law in large numbers in the coming years.
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