COVID 19 and Its Impact on the Technology Sector

In the past few years, technology companies have been driving the boom in the financial markets. The FAANG companies (Facebook, Amazon, Apple, Netflix, and Google) have seen their valuations increase by leaps and bounds. However, COVID-19 is causing a worldwide stock market collapse. It would be fair to say that the pandemic is not affecting all the sectors in the world equally. Some sectors are seeing a rapid decline in their valuations, whereas some others are even benefitting from this crisis. In this article, we will explain the impact that COVID 19 is having on the technology sector.

Impact on the Technology Sector

The technology sector can be divided into three sectors viz. hardware, software, and IT services. The impact of COVID-19 on each of these three sectors has been described below:

• Hardware Sector: The hardware sector is going to face the negative financial impact of the COVID-19 crisis in the short run. However, in the long run, the sector is going to gain because of this crisis.

• This is because right now, the entire global supply chain of tech products has been disrupted because of the COVID-19 crisis. Computers, routers, and such other technological equipment have not been classified as essential in most countries of the world. As a result, the supply chains of these products have been disrupted. There is almost no production happening. Hence, in the short run, the sales of these products will be very less. The big technology companies are already aware of this fact. This is the reason that they have delayed the launch of their products, such as smartphones. Companies do not have the logistics to manage the supply side even if the demand for these products does exist. The raw materials such as copper, aluminum, etc. are in short supply, and companies will not be able to get their hands on the products at least in the next quarter.

• The future of the industry is going to be bright. As soon as operations resume to normal, companies are going to start spending huge sums of money on upgrading their information technology infrastructure. Organizations, as well as people, will buy hardware products in huge quantities. This is because they would want to develop business continuity practices, which would allow them to operate unhindered even if such a crisis were to strike again. Private organizations such as schools and small businesses will also invest heavily in hardware products that allow fast and effective work from home.

• Software Sector: The software industry is already witnessing a boom ever since the COVID-19 crisis began. This is because multinational companies have now been forced to let their work from home. This requires the usage of certain types of software. For instance, a company called Zoom, which provides software that allows teleconferencing for up to a hundred participants, has seen the number of downloads skyrocket. As a result, Zoom has seen its shares skyrocket, even as the entire stock market is plummeting. Zoom currently has a valuation of over $29 billion, which is more than the valuation of big airlines such as Delta Airlines and United Airlines. Unlike the hardware industry, software companies are facing fewer supply-side hurdles, which is why they are able to take advantage of this crisis.

• The future of the software industry is also bright. This is because bigger corporations will now try to build work from home capabilities, which would allow companies to operate from home for extended periods of time. As a result, there will be demand for a lot of software products that allow for companies to allow employees who use sensitive data such as bank details to work from home without any hassles.

• IT Services Sector: IT services sector will witness a fall in demand in the near future. This will be because the business of many multinational companies is adversely affected. Since these companies are not earning any revenue from the customers, it is likely that they will not pay much to their support partners. Any implementations of new software and enhancements of existing ones will be halted in the near future.

• IT services will be at the bottom of the priority lists of many companies. Hence, this sector may take some time to recover. However, this fall in demand will be for a short period of time, possibly till the recession ends. Once the recession ends and the demand comes to normal, companies will start spending on IT services once again.

• IT services are largely provided by outsourced firms who bring in some employees on temporary visas. In the post coronavirus world, it is unlikely that governments will allow free movements of people across countries. The visa restrictions are likely to be tightened. This will also have a negative impact on the IT services industry. Hence, it would be fair to say that the outlook for IT services is not going to be very bright in the future.

The bottom line is that technology is one of the few sectors which is poised to gain from the COVID-19 crisis. Some companies with the sector will gain, whereas others will lose. However, the sector is a whole is going to face a positive impact because of this crisis.

Authorship/Referencing - About the Author(s)

The article is Written By “Prachi Juneja” and Reviewed By Management Study Guide Content Team. MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. We are a ISO 2001:2015 Certified Education Provider. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to ManagementStudyGuide.com and the content page url.