From investor to customer the technology industry is just plain exciting as possibilities unfold into realities. A few years ago, for the average consumer, perhaps of a certain age and who hasn’t attend a CES conference, driverless cars remained an outside idea, akin to sending passengers to the moon. You know it to be a distinct possibility but perhaps 10 to 20 years from now tops.
Now driverless cars as an idea is ubiquitous and almost feels like yesterday. Just last year, Uber dropped the idea of flying taxis it is working with NASA to develop. And, again for those of a certain age, it feels like an episode of the Jetsons has come to life.
Currently, the tech sector feels like one of limitless potential but is this just a view from inside a bubble?
Bubbles and froth?
And, the sector has had an amazing run thanks to investors banking on its potential and ability to deliver. Nasdaq, the tech-laden index, returned 27.24% against the broader S&P index 22.49%. Technology, of course, is part of the long-running bull market.
In the current environment, quite a few sectors are benefitting from a triple boost: the promise of windfalls from tax reform (although techs less so); global economic growth and low inflation. Bank of America Merrill Lynch Global Research says its US equity strategy for 2018 is one that is positioning for euphoria.
BoAML’s view is to buy momentum and growth and that means a sector preference for technology and going overweight. Technology, it says, is the most globally exposed sector where growth remains strong. In its research note, BofAML said, “Technology is expected to win on momentum, despite lofty valuations and bubble-like behaviour.” The tech sector is expensive as a result and those bubbles are making froth.
The growth in technology is about both the consumer and businesses. Opportunities are present as every sector is looking at ways technology to transform their businesses.
Tech companies are seeing their products consumed in entirely different ways. In 2017, the new technologies highlighted included robotics, artificial intelligence (AI), augmented reality and 3-D printing.
Watch Paul Sallomi, Deloitte & Touche’s Global Technology, Media & Telecommunications industry leader talk about opportunities for growth in 2017. As Sallomi explains there are very few companies untouched by the digital revolution.
Big data are achieving expanded capabilities through cognitive technologies such as machine learning and speech and pattern recognition embedded in software applications. Voice controls like Alexa, Siri or Google’s assistant won’t appear just at home but also may be appearing in a device (headphones, smartphones, televisions or smartphone gadgets) in the near future.
Blockchain technology is an inescapable topic because of the high profile and incredible rise of digital currencies like Bitcoin, but the technology is already making groundbreaking change to the financial services industry.
So while the technology remains cutting edge and points to becoming more mainstream such as Sony’s incredibly interactive artificial intelligence dog Aibo promises to deepen its bond with its owner over time and with an over $1700 price tag it's the least it can do.
Or, LG’s "talking" washing machine which could bring comfort if you already have a habit of speaking to your white goods that it will talk back.
Watch the highlights from the CES conference 2018 here.
In 2018, the sector focus is on increasing partnerships. Companies are joining together to make innovation work. As Deloitte & Touche highlighted in its report while opportunities abound as these exponential technologies come to market, transformation of an enterprise is a complex undertaking, and the digital solutions needed by companies don’t come neatly bundled out of the box.
The solutions are to complex answers argues Deloitte and requires deep expertise in a range of area and are combinations of: hardware, software, networking, data storage, analytics, and cognitive technologies. This is causing a historic wave of collaboration across different industries.
There are a growing list of automotive companies and technology enterprises that have entered into joint ventures and partnerships making self-driving functionality, services and features a reality. Nvidia says it works with a network of over 320 partners to accelerate automotive breakthroughs that encompasses a range from car and truck makers, sensor companies, research institutions through to software companies.
Putting team into “self driving”
At CES conference this year held in Las Vegas, companies unrolled their latest products and innovations. Nvidia and Uber announced their collaboration at the opening press conference. Uber’s Advanced Technologies Group’s fleet of self driving cars and freight trucks would utilise Nvidia technology to run its AI algorithms that do much of the sensing and predictive functionality of the vehicles.
Self-driving technology has been around for a few years. Uber launched the first city trials in Pittsburg in fall 2016, followed by a second pilot in Phoenix in early 2017. Self-driving Ubers have completed more than 50,000 passenger trips and 2 million autonomous miles. But to get a sense of the scale of the undertaking that Uber and Nvidia are trying to achieve as they state it:
Nvidia’s CEO Jensen Huang said of the collaboration, “The future of transportation will be transformed by mobility services. Convenient, affordable mobility-as-a-service will reshape cities and society, and help support the billion-person increase in the world’s population over the next decade.” That’s not hubris. Nvidia has partnerships with Audi, Tesla, Volkswagen and vehicle makers centred on autonomous driving technology to be put on the road in some cases by 2020.
So as the industry moves forward on partnerships and collaborations to bring innovations forward what does that mean for mergers and acquisitions? Perhaps very little in 2018 for techs if these type of partnerships suffice but there are plenty of forecasters that say the conditions are ripe and blockbusting deals are on the way.
There were more than 50,000 M&A deals worldwide in 2017 according to Thomson Reuters a record run for the third year in a row and global dealmaking exceeded $3tn. Harvard Business Review (HBR) suggest that mergers then can tell us something of the possibilities in 2018.
Mergers of course are not only a means for companies to sustain growth and broaden product offerings but also to achieve significant cost savings so the pull could remain. In the semiconductor sector, chip makers could harness that potential in order to meet the growing demand.
In addition, as Laif Khalaf, senior analyst, Hargreaves Lansdowne explained, “The backdrop of rising equity markets and an improving global economy will no doubt have added some gusto to proceedings too. Ten years after the financial crisis the global banking system is beginning to show signs that it has healed and is now in a position to support economic activity from a position of greater strength.”
Ripe for consolidation are some areas of tech as seen by potentially the industry’s biggest takeover: Broadcom’s $105bn hostile bid for Qualcomm, which is causing a stir and HBR suggests that the “remix of this sector” is one “where, the mighty tech gods are fighting for control of the machines that run our world.” However, last year’s deal of Intel’s $15bn acquisition of MobilEye helped it to play catch up with some of its rivals already on the road.
Crystal ball divination
In addition, both Ernst & Young and Baker McKenzie issued reports at the start of the year predicting a big rise in M&A sparked by the tax changes as companies wield their financial latitude from bigger balance sheets. But of the predictions for what will acquire what research company, Zacks crystal ball divination, says Apple could buy Netflix.
Ctigroup analysts issued a note at the beginning of the year helping to fuel the rumour mill writing according to Zacks Apple is gearing up to make a major acquisition of a car company, video game company, or entertainment company. The analysts suggested that there is as high as a 40% likelihood of Apple acquiring Netflix soon.”
The thing about crystal balls is that they’re murky and often only 20/20 vision makes them clear.