News

Analysis: The future of the tech sector when the dust settles

March 25, 2020
Blake Reid

author:

Analysis: The future of the tech sector when the dust settles

Monday saw the world turned upside down. Cafes and restaurants started closing their doors. Suit clad employees could be seen walking down the street, carrying monitors under their arms, and anyone who has tried to hold an online meeting will have realised the strain all this new digital activity is putting on internet bandwidth.

Monday saw the world turned upside down. Cafes and restaurants started closing their doors. Suit clad employees could be seen walking down the street, carrying monitors under their arms, and anyone who has tried to hold an online meeting will have realised the strain all this new digital activity is putting on internet bandwidth.

In 2020, we don’t even question this ability to work from anywhere and anytime. With a laptop and a smartphone, there’s no need for face to face, or specific locations to access equipment. When NAB at 700 Bourke Street in Docklands recorded a case of the Coronavirus, the entire 6000 occupants were evacuated and told to work from home, and they did without further ado. 

Imagine this same occurrence taking place in 1992. It is hard to imagine the even larger impact; entire swaths of the population being forced to isolate at home with only dial up internet appearing in the most technologically progressive houses and a fax machine to keep critical business moving. Isolation would have been spent with your collection of CD’s, your VCR and TV to keep you company – it would have been detrimental to the economy and left many more businesses unable to survive. It’s a testament to the strength of only three decades worth of technological advancements that it is possible to meet, share documents, collaborate, service customers, order takeaway food and even do yoga group classes, without leaving the confinements of the house.

Technology holds society together, especially during these difficult times, and so it isn’t strange that many investors believe this will be one of the sectors that might make it out on the other side stronger after the chaos has plateaued.

Dean Fergie, director and portfolio manager at Cyan Investment Management seems to agree with this sentiment and asserts that it is the tech companies that fulfill three requirements which he will be keeping his eye on.

He looks for “Companies that are cashed up [and have no need for additional capital in a bear market], have defensive earnings streams, and pay a reasonable dividend yield”.

The COVID-19 has paved the way for a wide scale experiment with full digitisation. Telstra has asked many of its employees to work from home for the next month and many other Australian companies are doing the same. Universities are going completely digital. People are online shopping for everyday purchases they’d usually get from a physical shop. It’s possible that the COVID-19 crisis could spark a radical change to daily life, work, and schooling.

“Things like Netflix and cloud-based accounting are well-entrenched, but I expect people are about to get significant exposure to online learning, remote working and take online shopping beyond occasional eBay and Amazon purchases,” said Martin Pretty, Director of Equitable Investors. This could mean that the internet could come to play an even more developed role in our personal and professional lives going forward. 

Furthermore, the current strain on the internet and digital services is unprecedented and could potentially benefit the tech sector beyond the crisis. And with so many technological devices around the world now further spread out, people are looking for additional convenience and security in a world increasingly providing neither.

A sector increasingly tipped to prosper in this difficult current period and beyond is the Internet of Things.

The Internet of Things (IoT)

The term ‘The Internet of Things’ (IoT) was coined 20 years ago by British technologist Kevin Ashton, to describe devices which are connected to each other via the internet. Today, in 2020, as IoT marks its 20-year anniversary, it is no longer a theoretical concept and is now common with an estimated 20 billion IoT devices in use today. That is about three smart IoT devices for each human on the planet.

IoT enables businesses to stay connected and reduce the need for legs on the ground. By connecting ‘dumb’ devices such as lamps, locks, cameras, doors, etc, it makes it possible to remote control and thus automise processes that were previously manual.

Uptake of IoT technology means companies can reduce costs and become more efficient. It is an important tool for key industries including retail and healthcare to overcome inefficient and labour intensive processes they’ve been facing for the past decades.

With so many industries now looking for key efficiencies that they have never had to explore before and these efficiencies essentially proving critical, the sector will likely receive further exploration, funding and use in the immediate term.

One of the most exciting applications of IoT devices is online shopping. The number of people buying products online has exploded, but the infrastructure of parcel delivery hasn’t kept up. Most parcel delivery companies still drop parcels off at the recipient’s door, but this is both not safe or efficient. The person might not be home and would have to pick up the parcel somewhere else, resulting in double-handling and extra driving time. With the Internet of Things, however, a parcel could be tracked every step of the way until being placed in a secure and electronically controlled smart parcel locker. The buyer could then collect their parcel at their own convenience.

AusPost already introduced parcel lockers in 2012 and Amazon recently introduced smart lockers as well. Now, with online shopping being the only option for millions of shoppers, this might become more common.

 

Smart cities, smart planet

IoT also has the potential to benefit society as a whole. According to joint analysis done by the World Economic Forum and GmbH, 84% of IoT applications are addressing and have the potential to surpass some of the United Nations Sustainable Development Goals. These goals aim to eradicate a host of social and environmental ills by 2030 and include development of sustainable cities, decent work and economic growth, industry, innovation and infrastructure, clean energy, and good health and well-being. [MOU1] [DW2] 

Using IoT to transition buildings into smart buildings will have a number of benefits for businesses, especially those that maintain facilities with fewer staff on-hand. IoT connectivity can enable reduced energy consumption through better control of climate control and lighting, enable predictive maintenance to offsite staff, and flag underused space and resources that are chewing up overheads and ROI.

 

Cloud computing

This societal change could also dramatically increase the demand for online services that support working or learning from home like cloud computing.

“We have had a bit of expansion to online learning and anything that is digitised, and remote working looks to be benefitting,” said Dean Fergie, director and portfolio manager at Cyan Investment Management in response to the current market conditions.

“With people working remotely employers are having to buy more software licences for them to do so, and some software companies will benefit,” he said.

According to Martin Pretty, these kinds of non-discretionary digital subscription services are likely to be well-placed in the post-COVID-19 market.

“Businesses are unlikely to let go of their cloud-based accounting services and other core software unless there is a significant cost saving available from a reliable competitor,” Pretty said.

 

Our team of contributors publish regular articles that look to take a view on the world of finance, world news, technology and trading. For more news and insights, subscribe to our newsletter here.

 


General Advice Warning

Any advice provided by Reach Markets including on its website and by its representatives is general advice only and does not consider your objectives, financial situation or needs, and you should consider whether it is appropriate for you. This might mean that you need to seek personal advice from a representative authorised to provide personal advice. If you are thinking about acquiring a financial product, you should consider our Financial Services Guide (FSG) including the Privacy Statement and any relevant Product Disclosure Statement or Prospectus (if one is available) to understand the features, risks and returns associated with the investment.

Please click here to read our full warning.

Live Investor Briefing

Gain exposure to Warren Buffett’s international investment opportunity

Leave a comment