The coronavirus (COVID-19) pandemic is affecting the economy across many industries as consumers and businesses delay purchases or postpone new projects until visibility improves. Some technology companies will not be immune from the slowdown – IDC projects worldwide IT spending will decline by 2.7% in 2020 – but there are several segments within the Technology Sector that are expected to benefit from the disruption. In many ways, coronavirus is a watershed moment for the adoption of new technologies, as we change the way we work and live, with social distancing becoming the new “normal”.
We’ve all aware of the surge of interest in online collaboration / video conferencing software providers like Zoom, and the inclusion of $200M in telehealth spending as part of the emergency spending bill in Congress. Here are a few other technology areas we expect will have opportunities to grow despite/during the crisis:
Telecom infrastructure – Enterprise teleconferencing tools and mobile social networking apps require ubiquitous connectivity and fast communication networks. A day before the declaration of the national emergency, Verizon said it was increasing planned capital infrastructure investment this year by $0.5 billion to $18.5 billion to accelerate roll-out of 5G networks. AT&T has made similar announcements about increasing investment in next generation network technology. The ecosystem of 5G equipment and software vendors will be big beneficiaries of the expected $275 billion (source: CTIA) that will be spent in the build out of superfast wireless connectivity infrastructure in the coming years.
Cloud software and services – As employees work remotely, applications and data move to the cloud. Demand for data center outsourcing, infrastructure managed services, private cloud services and cloud migration services are expected to increase. IDC projects that IaaS spending will increase by 33.2% in 2020, even with the broader spending downturn in IT.
Fintech – Forbes reports that the coronavirus has driven a 72% surge in the use of financial apps in Europe (according to a research from deVere Group). Mobile banking and retail trading and brokerage software top this list, but accounts payable and accounts receivable automation, fraud detection and other enterprise financial software are also likely to benefit from the shift to digital.
eCommerce and online retail – According to data from Rakuten Intelligence, online grocery retail order volume grew 57.6% from January 1 to March 15, compared with the same period in 2019. We’re seeing increased interest in digital payment processing, online checkout, and blockchain technology companies as purchasing shifts from bricks-and-mortar to online — See Stripe’s $20M investment in one-year old software startup Fast in late March.
ERP software – With manufacturers re-examining their supply chains to mitigate risks and future disruptions, we expect spending on ERP software to increase, with enterprises adding or expanding functionality in current platforms (or turning to specialist providers) to enhance supply chain orchestration, inventory control, and add more robust simulation and analysis capabilities. ABI Research projects spending on ERP to reach $14 billion by 2024.
IoT – On March 31st Oracle announced it was acquiring Mirus client LiveData Utilities to enhance its utilities industry management platform and make it easier for customers to add new grid-edge sensors and control points. We expect more investment in IoT solutions for remote monitoring, as these are still heavily human based activities and affected by the disruption. With more automation, the demand for sensors, IoT software and services should increase. But IoT impacts industries beyond the utility sector and manufacturing. Other areas expected to see increased investment include building automation, production asset management, freight monitoring, agricultural monitoring, and smart city solutions. According to McKinsey, the number of IoT connected devices is forecast to reach 43 billion by 2023.
These bright spots have not gone unnoticed by investors, private equity firms or strategic acquirors. A good case is telecom infrastructure. While overall tech M&A activity has paused, in recent weeks we have seen a wave of acquisitions of the sector – including two local New England businesses. The biggest-and most surprising announcement came from Microsoft, which announced on March 26th a big move into telecom infrastructure with the acquisition of Acton, MA-based Affirmed Networks, for its 5G enhanced packet core and cloud-based software defined networking products and expertise. Last week Palo Alto Networks acquired SD-WAN vendor CloudGenix for its cloud-delivered integrated networking and security offering. This week Cisco bought Fluidmesh, which was founded by four students studying at MIT, for IoT and wireless backhaul capabilities. We expect this activity to continue in the coming months, even amidst the disruption from the coronavirus.
Rudy Minar is a partner with Mirus Capital Advisors. He works with owners of middle market technology businesses and can be reached at email@example.com.