Economische studies
ICT

ICT

ICT
Latin America
Northern America
Central & Eastern Europe
Western Europe
Asia
Mid-East & Turkey
Change sector

Strengths

  • Globalisation of internet access and market penetration opportunities, notably in developing economies
  • Strong innovation, with AI having a growing impact on all sectors and upcoming 5G technology
  • Exponential growth of connected goods

Weaknesses

  • Saturation of some hardware markets (tablets, smartphones, PCs) in advanced economies
  • Long-term challenges in relation to rare mineral reserves
  • Tougher regulatory environment ahead for ICT giants, notably in terms of taxes and data protection issues, particularly in the EU

Risk assessment

Highlights
MARKET CAPITALIZATION OF GLOBAL  TOP 5 LEADING IT COMPANIES  (DECEMBER 2018)

MARKET CAPITALIZATION OF GLOBAL
TOP 5 LEADING IT COMPANIES
(DECEMBER 2018)

Coface’s sector assessment methodology for the ICT sector incorporates several segments: telecommunication goods and services, electronics, white goods and a final segment comprising computers, software, and IT equipment. Empirically, the boundaries are increasingly blurred between the product and service ranges offered by ICT companies and the firms’ traditional business activities.

ICT is a concentrated sector featuring fierce competition, particularly between the giant US and Chinese firms that dominate the market, including America’s FAANG (Facebook, Amazon, Apple, Netflix and Google – specifically Alphabet, its holding company) plus Microsoft, and China’s BATX (Baidu, Alibaba, Tencent and Xiaomi). Market capitalization for these companies, notably the US ones (see chart), are among the highest in the world. The global trade war is exacerbating the already highly competitive environment. Many governments in advanced economies, and particularly the United States, are worried about the “Made in China 2025 Strategy”, which China is planning to use to become the global leader in ten critical economic sectors that include ICT products, such as robotics and semiconductor production. These new technologies, and notably the swift development of artificial intelligence (AI), are likely to bring significant changes to means of production.

Looking forward, one of the key challenges, particularly for FAANG, will be the tougher regulatory environment ahead for data protection.

ICT sector prospects will remain contrasted across regions in 2019, while overall business performances will depend on economic conditions. Coface expects global economic growth to slow somewhat to 3% in 2019 from 3.2% in 2018. This is expected to result in a contraction in demand for ICT goods and services overall.

Moreover, internet access continues to grow around the world. Cisco, a leading IT and network company, expects the volume of data exchanged to triple by 2020, when one person in every two worldwide will be an internet user.

Demand

Global demand for ICT products and services is likely to be impacted by the downturn in world economic growth prospects. In Europe, we expect the economy to cool, notably in the eurozone, where we expect GDP growth of 1.6% in 2019, compared with 1.9% in 2018. This will compound the fact that the Western Europe market is reaching maturity in selected ICT products. However, according to the International Data Corporation (IDC), despite the growing importance of innovative technologies, global sales of mobile phones and cloud computing continue to be the mainstays of ICT demand. In 2019 and further out, connected products – such as watches, and wristbands – could stimulate consumer interest, and according to IDC, the rise of smart wearables will not just be in mature markets, but also in emerging markets.

A key risk for FAANG lies in reputational issues, notably related to the protection of consumers’ private data, following a string of scandals. One such case involved Facebook and the Cambridge Analytica scandal, when the company was accused of sharing the personal data of more than 71 million people. This data was then used to manipulate public opinion, notably during the 2016 US presidential campaign. These scandals raised awareness among users of the risks associated with the potential misuse of their personal data. The scandals also occurred at a time when time when governments, companies, and the public are growing more and more concerned about cybersecurity issues. Additionally, in some countries, the tech giants are increasingly viewed as channels through which governments can spy on people.

Moreover, in the EU, the major US ICT firms are widely perceived as not fulfilling their social responsibilities. In particular, they are criticised for making huge profits while not paying enough taxes or using legal tricks to avoid paying. EU institutions are holding discussions on ways of imposing higher taxes on FAANG.

Overall, governments around the world, including in the United States, are now considering tougher data protection rules. For example, the EU introduced the General Data Protection Regulation (GDPR) in 2018, which aims to strengthen individuals’ rights and facilitate business operations in the digital age.

Supply

ICT is a concentrated market that has long been dominated by the US FAANG tech giants, whose market caps are among the highest in the world (see chart). They operate in various segments – such as media, e-commerce, internet provision and telecommunications – but are increasingly being challenged by China’s own BATX giants. In the context of the current trade war, and as governments gain awareness of the strategic importance of this sector, competition between the Chinese and US tech giants is heating up even more. The Trump administration has made it clear that the “Made in China 2025 Strategy”, through which China plans to become a global leader, notably in ICT, is perceived as a threat to US strategic economic interests and leadership. An emblematic illustration of this position was President Trump’s decision to block Singapore-headquartered Broadcom’s attempt to take over Qualcomm, a US company, for USD 117 billion in January 2018.

The telecommunications industry is forecast to continue to grow. The main upcoming innovation will be the arrival and implementation of 5G technology from 2019, which will enable faster internet access.

Semiconductors remain key materials for most ICT products, particularly given the rise of supercomputing. For example, China imports more semiconductors than oil. In 2017, China’s semiconductor imports totalled USD 260 billion, compared with crude oil imports of USD 162 billion.

Semiconductors are critical to developing AI tools and robots. Schematically, AI can be described as set of several complex technologies that require a combination of powerful computers and efficient software to function. AI extends the limits of what is currently possible, allowing machines to carry out tasks and jobs that people have performed until now.

 

Last update : February 2019

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