The Financial Year in Tech 2016: Highs, Lows and Future Trends
2016 has been a rollercoaster year for tech companies. We’ve had numerous highs and lows which have been reflected in share prices across the spectrum. Over the coming week or so, we’ll be publishing a few articles going a bit more in depth on the financial impacts of the big events that have happened this year for the major tech companies we follow here at Wccftech, as well as what we can look forward to in 2017, but for this article I’ll take a look at some of the more general themes that have occurred as well as tip a few points to watch out for in our other articles for each section (Hardware, Gaming and Mobile).
2016 – The Highs
Nintendo (TYO: 7974 36,080.00 0.95%) to Mobile
Check out our Gaming financial round up in the coming days where we’ll talk more about the big switch (hoho!) Nintendo made with its jump into mobile and the initial huge jump in share price this resulted in as everyone expected the Nintendo IP rollout to iOS and Android to continue.
GPUs Finally Get a Node Shrink
Both NVIDIA (NASDAQ: NVDA 161.89 1.81%) and AMD (NASDAQ: AMD 12.29 1.98%) finally managed to get FinFet GPUs to market this year and saw record revenues and a turnaround in earnings respectively as a result of it amongst other factors. Look out for our Hardware finance piece to delve into these important companies’ performance and prospects a bit more figuring out how high NVIDIA can ride and how likely AMD’s turnaround is to materialise in earnings rather than just stock price.
Intel (NASDAQ: INTC 34.90 -0.07%) Earnings Performance
Intel continues to dominate the PC CPU space and reasonable earnings reflected this in 2016 even if the stock price has been largely stagnant over the course of the year. Expected shrinking demand in the PC space failed to materialise to the extent predicted (hooray!)
4K/UHD (Finally) Comes of Age (ish)
2016 saw the first hints of UHD really becoming a player in the home entertainment space. GPU rendering muscle is on the rise with the GTX 1080 and Titan X Pascal from Nvidia (along with the highly likely GTX 1080 Ti still to come), as well as low level APIs and some trickery from the PlayStation 4 Pro with updated AMD power. While the cost of entry for home entertainment in terms of TVs and 4k Blu-ray players/streaming content has come down significantly in 2016, it still feels like we’re not yet at the stage where it is becoming ubiquitous, but the spring is in place and coiled awaiting release.
The world continues to look to a more sustainable carbon usage future. Hybrid and electric as well as a limited number of hydrogen cars are on the road today and undergoing further testing. Whatever your thoughts on climate change, fossil fuels are clearly finite substances and alternatives of some sort must eventually be found. Although I’m personally a fan of the internal combustion engine (particularly in the glorious form it has in my new Maserati I just picked up yesterday!), progress must march ever on and 2016 is certainly a year in which the new age of vehicle power is continuing to grow up and expand.
2016 – The Lows
AMD (NASDAQ: AMD 12.29 1.98%) Earnings Performance
Turning a ship as big as AMD around is a long process. It would appear that AMD has been heading in the right direction but a focus on one off deals and consoles with low margins have been what stemmed the tide in 2016. Poor historical tie-ins to Global Foundries have also hurt the company as it has had to pay to escape some of its old foundry’s poor performance. Although the stock has had a phenomenal year on the promise of future products in the shape of Zen (or Ryzen as it’s now known) the firm still has a long way to go to really live up to its lofty valuation. Earnings have reflected this and anyone still holding AMD stock must have great faith that the company has a winner on its hands but certainly the year hasn’t been an amazing one financially.
Samsung (KRX: 005930 2,350,000.00 0.34%) Note 7
Samsung headed into 2016 perhaps with an eye on its strongest possible challenge to the iPhone yet. 12 months, multiple exploding phones and one bungled recall later, the executives must be wondering where it all went wrong. Although Samsung hasn’t been destroyed by the Note 7 fiasco, clearly it has been damaged and suffered serious reputational risk this year and it remains to be seen whether the firm can woo customers back next year. It definitely has the ability to make desirable devices, but check out our Mobile financial piece in the coming days to see more on this topic.
Nintendo to Mobile Continues
Mario Run is out and the iOS exclusive didn’t please investors in the way they had hoped. The game is expensive to unlock in its entirety for a mobile product and there are questions as to whether the firm chose the right business model to continue to monetise its IP as it carries on with its expansion into the mobile space. With an almost 15% collapse in the stock price in the last few weeks, the firm is still significantly up on the year but continues to be a volatile proposition.
Intel had a major restructure effort in 2016 and laid off approximately 12,000 people or about 11% of its global workforce while trying to move the company away from one of its key markets which it continues to dominate in (PC). Intel is an even bigger ship than AMD of course and transitioning to new streams of revenue as investors want the firm to do will take time.
Will it, won’t it, yes! Twitter will sell itself! No! It won’t! Because ultimately the company is still a black hole and haemorrhaging cash at every turn. A hoped for buyout never materialised and although the share price had a great jump when acquisition speculation reached fever pitch in Sep/Oct, peaking at over $25, ultimately nothing happened and Twitter finished the year still losing money and with a stock price down almost 25% for the year. Perhaps with a prolific tweeter in the White House in 2017, the firm will be snapped up by a finance firm looking to trade Trump’s tweets before they hit the rest of the world but barring that, things make for grim reading.
Tesla (NASDAQ: TSLA 339.27 0.42%) Earnings
Tesla continued its appalling earnings record in 2016 which simply shows no sign of abating. The firm’s cars are of course respected and loved by many (just not me, I’m too much of a petrol-head), but that hasn’t stopped it from having poor share performance in line with its earnings (or lack of earnings).
From private venture capital unicorn darling to a collapsed business plan, lawsuits all over the place and withdrawn licences, the Theranos story has it all. Elizabeth Holmes convinced many that she would change the medical testing world. Unfortunately it seems to have all been for naught as the firm has effectively taken a bunch of VC money and done a very good job of pouring petrol on it then throwing a match at the pile.
Yahoo (NASDAQ: AABA 64.97 2.16%) Breach, Breach
The faded giant continues in its struggles in 2016. Finally convincing Verizon to buy it before letting the world know it lost 500 million customers details, oh but wait, actually there was another time where we lost a billion customers details. Verizon is likely to look for more favourable terms if indeed it can even stomach the acquisition at this stage.
Apple (NASDAQ: AAPL 159.57 1.50%)
The firm hasn’t had a terrible year overall and certainly financially it has returned a solid set of results, but continued innovation hasn’t been particularly forthcoming from Cupertino this year and with the €13bn recovery of taxes the EU has ordered Ireland to recover from the company still going through the legal channels there is concern that the firm may be past its best. Stock performance hasn’t been amazing and there may be calls for it to start returning some of its huge cash pile to investors if it can’t return to the sort of growth it has seen in years gone by.
2016 – The Too Early To Tells
VR became more of a thing in 2016. Is it the future? Possibly, but for many it’s simply too early to call. I’m not convinced it will be the massive pile of steaming dung that 3D was (again), but the first gen is marred by a serious lack of exclusive killer app content, expensive cost of entry to that limited content and a major stickiness problem where new users play with their shiny new toy extensively in the first few days or weeks, but then leave that new shiny to sit on the side and gather dust, only to be broken out to let friends and relatives try it out to “experience the future”.
The result which shocked many of the so called global-elites. The UK referendum resulting in a vote to leave the European Union has hit UK companies in terms of making them acquisition targets (such as Softbank buying ARM) and depending on how the negotiations shake out in the coming years, could still be a possible trigger for further economic disaster in the EU which may spread contagion globally. On the other side of the coin, perhaps the UK becomes an aggressively nimble trading nation, solves its long term productivity problem and goes onwards and upwards while the EU shuffles from one disaster to the next. It’s too early to tell at this stage, but we of course already know that the price of tech (along with many other goods) has already started rising in the UK.
A massive wildcard in the White House, unpredictable and in many ways a highly unknown quantity. If Trump is taken at his word, the US is about to enter a period of inflationary growth with major borrowing and spending on national infrastructure projects among other things. Tech is certainly a major consideration for Trump and he wants as much of the means of production brought onto US soil as possible. Whether as the doomsayers think he will end up causing World War 3 (with extra nukes) or as the eternal optimists think, he will save the country and make it great again, is still too early to tell. Reality is of course likely somewhere in between. The businessman is not stupid, but he is also not an experienced politician. The world will adjust, it has to, but in what ways are as yet unclear.
2017 Forward Guidance
There are many topics that could drive tech finances in 2017, we’ll look at some of the more detailed points in our individual section finance pieces so here I’ll be looking at some of the larger themes and giving an assessment of some possible paths the global economy may take in 2017. Do keep in mind that we are still in one of the longest market bull runs which has been ongoing since the end of the 2008-09 global financial crisis. History says that a correction is overdue and where the next big shock that triggers another global downturn comes from is unclear, but there are some possible candidates to look out for below.
Borrowing and spending seems to be the likely outcome of the Trump presidency. This of course is inflationary in nature and may lead to a weakening dollar, as well as a continued tightening of US monetary policy which the Fed started again last week with its 25 basis point rise.
Job repatriation isn’t a cheap business, US wages and costs of living are significantly higher than in countries like Vietnam and China among others. Bringing back jobs therefore will have a cost in terms of either the profits that companies report, the prices consumers pay or in most likelihood, some combination of the two. Given that global technology is a heavily US led and priced industry, it’s quite possible that as jobs move back to the US, prices may increase. Whether increased US interest rates and growth is enough to drive demand for the dollar to stop it weakening too much occurs or not is unclear as there are significant other factors which will affect these things.
Also watch for a significant lowering of corporation tax rates, a potential cash repatriation holiday and if/when that kicks in, if it’s effective, a possible increase in mergers and acquisitions activity as firms look to use their newly available money in the best ways possible. Special dividends and share buybacks are also not out of the question if this happens. The tech industry is of course likely to be a heavy user of any repatriation holiday.
It’s viewed as extremely unlikely that Trump would bring about a set of circumstances where the US could potentially default, but the brash businessman is nothing if not unpredictable. A US government default is something which would certainly create a huge amount of uncertainty in global markets.
There is a debt black hole in China. The world knows it, China knows it, but it’s unclear to what extent it exists and just how bad it may be if it explodes. Trump branding China a currency manipulator may exaggerate its effects if the country decides not to support its currency to the extent that it has and therefore allow it to continue its export driven growth. If significant defaults start occurring in China, this may be one possible catalyst of the next global downturn. China of course still holds significant US paper (although it is now no longer the highest lender to the US government), but a trade/currency/tariff war between the US and China could get ugly.
The UK isn’t a technology backwater, but neither is it a huge tech powerhouse like the US. If the pound stays weak, expect to see more acquisitions of UK firms (tech or otherwise) by foreign companies. Thankfully with inflation rising due to the weaker pound, UK interest rates can be expected to start rising if economic growth doesn’t deteriorate significantly which will be important for when (not if) the next global downturn hits. That much said, for those where money is tight, this may make life even harder than it currently is as government cuts to benefits etc and the rising cost of living and borrowing all combine.
The currency of the European Union has had its ups and downs. Mostly its downs in recent years. The continuing long term decline against the dollar, the continuing sovereign debt crisis, the continued rise of anti-European sentiment in the member populace and the rise of anti-EU political parties, also driven by the migrant crisis which continues to vex many mean that the bloc has lurched from one catastrophe to the next. It seems unlikely that the EU will solve its long term problems in 2017.
Look for continued Euro weakness against the Dollar, further economic distress in weaker EU countries such as Greece, Italy, Spain, Portugal and potentially even France, restricted activity by the ECB to combat this weakness and a potential reduction in political will to the “more Europe is the answer to all problems” mantra which the EU has used as its default argument for all ailments with several elections coming up.
The rise of data continues to drive a lot about the new economy. Big data, and how best to handle, analyse and profit from it. Whether the data you’re talking about is transactions reported to financial regulators which are too numerous to analyse, twitter sentiment, machine readable news algorithms or something completely different. There is only ever more data in the world and in recent years, the value of data has exploded.
Blockchain technology continues to be investigated, prototyped and implemented into products by the global financial community. For the time being, the focus continues to be on cryptocurrencies such as Bitcoin and its alternates but the technology has genuine value. Expect to see more commercial financial operations launching based on blockchain ledgers in the future.
VR will no doubt continue its meandering path towards mainstream acceptance. A lot of money has been invested in the technology by numerous players but the killer app still remains undiscovered and the question arises whether it will ever become anything more than a niche offering. Given that the majority of gamers, whatever their format are still on 1080p, it feels likely that there is either a long road ahead before VR genuinely becomes a “big thing” at the least. Certainly in the PC space, the lowered cost of GPU requirements to drive it will help and this will only gather pace as GPUs become more powerful but it still feels like we’re a generation or two away from it truly fulfilling its potential. Wires still feel like a problem, particularly for room scale.
As much as it galls me, the push towards driverless technology continues unabated. Whether it’s from car manufacturers, Uber, Mobileye, NVIDIA, Intel or others, the pace is certainly gathering steam. Will it ultimately prove safer? In every day usage, it’s quite likely. Of course at the stage where everyone is reliant on an automated system which then gets hacked with malicious intent, we may find ourselves questioning the logic in pursuing this approach but for the time being questions such as this are a long way off. Look for driverless technology to continue ramping up in testing and implementation throughout 2017.
Although there is continued talk of the next global downturn, it’s fair to say that this long bull run we’ve been in has very much been a market led one. Real world individual earnings in much of the developed world have stagnated and although many in the tech and financial industries have had good years, household incomes haven’t exactly seen an amazing period of growth with recent “good years”.
Global interest rates are at historic lows and a period of inflationary growth isn’t necessarily a bad thing. Bonds have also suffered in recent times, not least since the US election as the flight to equities has continued. If and when interest rates do return to more normal levels (barring weak economic data or a major downturn) expect to see bonds and basics companies do well in the event that a downturn hits.
Also at odds are the massively increasing financial regulation expected in the European Union (and even in the UK despite Brexit) in the shape of the Markets in Financial Instruments Directive 2 (or MiFID II) which is scheduled to come into force in January 2018 and the Trump election which despite campaigning on the basis of helping out the little guy is also clearly aimed at helping Wall Street with the attacks made on US financial regulation since the 2008 crisis. Which route turns out to be best will be unclear for years. US banks and international banks with major US operations have had a stock price bonanza in the wake of the Trump election with the expectation that it will be easier for them to make money and there will be significantly less oversight but the question obviously remains that if a major downturn occurs and the US taxpayers are expected to again bail out the banking system, how well would it be stomached for a second time in as many decades.
Technology with its focus on increasing automation and pushing down the costs of production whether at the expense of American jobs or human jobs (whichever country they reside in) is well placed to continue with its good track record. However when the downturn occurs, as is usual, disposable incomes are likely to go down and people tend to worry less about getting a continuous 144 frames per second on the latest game at Ultra as they do about paying the mortgage and other bills. As such, be ready to shift portfolios, or even take a punt on some derivatives to give you volatility exposure if you think it’s coming as a hedge.
Whatever your thoughts, I hope you all had a great 2016 and wish you a prosperous year of investing in 2017.