- The globalisation of internet access and market penetration opportunities are accelerating because of the physical distancing linked to the COVID-19 pandemic
- Exponential growth of connected goods
- Strong innovation, with AI having a growing impact on all sectors and future 5G technology
- Saturation of some hardware in large markets (tablets, smartphones, PCs)
- Long-term challenges regarding rare mineral reserves
- Tougher regulatory environment in the future for ICT giants, notably in terms of taxes, data protection and freedom of speech
Empirically, the boundaries are increasingly blurred between the product and service ranges offered by ICT companies and the ﬁrms’ traditional business activities.
The COVID-19 crisis has affected the different segments included in ICT to various degrees, even though it remains one of the most resilient sectors overall in the context of this crisis. However, despite the contraction of global GDP (-4.2% in 2020 according to Coface), all segments should remain resilient. Coface expects a global economic recovery, with a global GDP growth forecast of 4.3% for this year. The media segment has benefited from the mobility crisis induced by the pandemic, generating strong demand and an increase in production. As for the telecommunications and electronics segments, they are expected to gradually recover, albeit with disparities between regions. In fact, the aforementioned segments recorded a weaker activity during lockdown periods but a rapid recovery thereafter. The recovery should be weaker in Europe than in the United States and Asia. Finally, the computer hardware segment should continue to recover gradually thanks to significant demand due to the rise in teleworking and increased network performance.
In addition to the management of the shock resulting from the pandemic, challenges that the sector faced before the COVID-19 crisis remain. On the one hand, international trade tensions are increasing and are continuing to focus on technological issues. On the other hand, projects to introduce laws that aim at being more restrictive (notably towards the “Tech giants”) in terms of data protection, taxation and freedom of speech are still underway.
Notes for the reader
Coface’s sector assessment methodology for the Information and Communication Technologies (ICT) sector incorporates several segments: telecommunications, electronics, media and a ﬁnal segment comprising computers, software and IT equipment.
WORLD SEMICONDUCTOR TRADE STATISTICS (WSTS): The WSTS is a professional organisation, whose members are key companies in the global semiconductor industry. It is an international reference organisation for the production of statistical data on the semiconductor market.
Sector Economic Insights
The media segment has benefited from the COVID-19 crisis
The mobility crisis generated by the pandemic continues to primarily benefit the media segment, as opposed to other segments of the ICT sector. Indeed, the majority of segments have been affected by the double shock on demand and, to a lesser extent, on supply, depending on the different regions of the world, induced by containment measures, which were imposed by almost half of the countries worldwide, including leading economies in the second half of 2020. Supply was impacted by plant closures that led to abrupt production stoppages and supply chain disruptions. Demand has been disrupted by the drop in consumption of both households and businesses.
Indeed, individuals have been forced to stay at home more. Interest in new media has therefore increased, especially the supply of entertainment, resulting in an increase in demand. Because of this strong demand, supply has been vigorously stimulated and production has increased. Coface expects demand to remain dynamic, given an environment in which authorities in different countries around the world are expected to continue to promote teleworking, whenever possible, as well as social distancing, particularly if there are renewed periods in which the level of contamination rises to concerning levels according to the analysis of government health experts. This context, including teleworking, is likely to accelerate changes in lifestyle and work habits, which should maintain the demand for these types of products in the long-term.
A gradual recovery in the telecommunications, electronics and computer hardware segments is expected by 2021
Early signals of recovery in the abovementioned segments already occurred in Q3 2020, with semiconductor shipments (that are essential components to build electronic and computer devices for instance) having increased by 3% year-on-year globally in October 2020, according to the WSTS report. The telecommunications, electronics and computer hardware segments are therefore expected to keep on improving gradually, with a recovery in supply due to the reopening of production plants and an upturn in demand generated by the gradual economic recovery, both of which started in Q2 2020. The recovery in the electronics and telecommunications segments is expected to be weaker in both Europe and the U.S. than in Asia. The pandemic continues to result in a high unemployment rate, leading to a drop in income for European households, thus entailing a decrease in consumption. Coface expects the period of ‘stop and go’ to continue in the first half of the year, notably in Europe and in the U.S., with phases of mobility restrictions ordered by governments and then removed successively. As consumers have adapted to this ‘new normality’, demand is expected to pick up, although on an erratic trajectory, with a period of acceleration or catch up when restrictions are removed in Europe and the U.S.
However, demand should remain stable and dynamic in Asia. In this context, the propensity to spend on electronic equipment and telecommunications is higher in some Asian countries compared to the United States or Europe. Furthermore, the development of telecommunications is of paramount importance to the Chinese government, particularly in the context of its “Made in China” 2025 plan, under which the authorities aim to make China a leader in new technologies by 2025. Therefore, public investment in this segment should not suffer from the health situation or the economic environment in the country.
In India, the recovery is more uncertain, due to the difficulties in managing the pandemic. Furthermore, the economic situation is worse than in other major economies in the region, with GDP estimated to have contracted by 8% in 2020 and to rebound by 5.5% in 2021, according to Coface's estimates.
The purchase of computer equipment was boosted by the first wave of containment measures in the first half of 2020. Indeed, the implementation of teleworking in particular generated a strong demand for IT equipment and services.
This demand is expected to remain strong in the medium- to long-term, given the context. The technology giants, the FAANGs (Facebook, Amazon, Apple, Netflix and Google), have seen their results increase sharply because of containment measures, and they are continuing to invest in order to improve their performance. For instance, Google, which had already invested in wind farms, is continuing to invest in underwater cables in order to respond to the increase in internet traffic, as well as internal needs. The Internet networks of these leaders are becoming increasingly efficient, which could encourage companies and households to consume more, despite the financial difficulties linked to the knock-on effects of the economic crisis.
The pre- COVID-19 crisis challenges remain: the China- U.S. race for innovation and regulatory development
The global race for innovation continue to focus on technological issues. The COVID-19 pandemic demonstrated the need for greater network performance, which could be partly provided by 5G. In this context, tensions between China and the United States are expected to persist under Biden’s administration, and could hinder electronic commerce and alter the deployment of 5G.
Last year was marked by a tougher stance in terms of restrictions imposed by the Trump administration, including on one of China's ICT leaders, Huawei, (notably a leader in information structure), limiting its access to semiconductors. At the time of writing, Huawei is no longer allowed to use American technology to produce components. Any use of American software or manufacturing equipment to produce objects via Huawei requires a licence. Furthermore, former President Trump took important measures against the Chinese applications 'TikTok' and 'We Chat' in summer 2020. The Trump administration accused these applications of data misappropriation from U.S. users to the benefit of the Chinese government. Retaliation by the Chinese government has also been on the technological front. Indeed, in August 2020, China made nearly 47,000 applications in the App store of U.S. technology giant Apple inaccessible. At the time of
writing, it was also applied to other mobile game developers and not just to Apple’s suppliers. Moreover, the regulatory environment for ICT companies should become increasingly restrictive in the coming years, particularly regarding consumer data protection, following several scandals involving American companies.
Because of the COVID-19 crisis, the IT capabilities of technology companies have been called upon in a number of countries, in particular for the tracking of COVID-19 cases, in order to trace the transmission chains. These tools should be used in case of emergency and only for the common good. Once the emergency is over, the data should no longer be available. However, in order to do so, governments (particularly in advanced economies) could strengthen or implement a legal framework on private data protection to ensure transparency and privacy. This could result in even more stringent regulations.
The ongoing increase in data protection standards in important markets, such as Europe or North America, could affect the business models of the ICT giants and contribute to market fragmentation. Indeed, data protection rules could differ significantly from one State to another in the United States, for instance, as well as from one region of the world to another, while large ICT companies operate globally. Large multinational media companies are also expected to be challenged on the regulatory front regarding the freedom of speech, as has been the case in France for example. Following criticisms accusing Technology giants of contributing to the propagation of conspiracy theories, Facebook, for instance, pre-empted the call, by blocking selected hashtags that were shared to spread misinformation in the weeks that followed the 2020 U.S. presidential election period.
Last update : February 2021