Tech Execs Lose Optimism, Focus on Low Growth Economy

Economic and political instability, including the impact of a strong U.S. dollar and weak oil prices, have tempered optimism, according to an Ernst & Young report.

EY and tech industry

While 84 percent of technology executives see a stable or modestly improving economy, the number of those projecting strong improvement have dropped 38 points from six months ago, according to an Ernst & Young (EY) survey of 1,700 executives in 45 countries across industry sectors.

Economic and political instability, including the impact of the strong U.S. dollar and weak oil prices, have all tempered optimism, according to the report.

Tech-sector confidence has also receded in corporate earnings and capital markets, with 57 percent of tech executives seeing corporate earnings as stable, but far fewer—38 percent, down from 75 percent—said they now have the positive growth outlook of six months ago.

The survey recorded similar drops in confidence in equity valuations—42 percent are now positive vs. 56 percent in October 2015—the short-term market (47 percent vs. 74 percent) and credit availability (47 percent vs. 78 percent).

Just 52 percent of executives project mergers and acquisitions (M&A) growth, down from 80 percent six months ago, and 40 percent of executives are planning alliances to create value from underutilized assets.

Cost concerns also have reduced hiring intentions in the tech sector, 23 percent in the current report from 56 percent in October 2015.

Even so, attracting and retaining talent was identified as the second-highest priority for driving growth (44 percent).

The top tech-sector priority was making better use of digital technology and analytics (53 percent), which topped the list across all sectors.

Cost reduction and regulatory oversight tie for the top boardroom concern in the report, at 41 percent, given low economic growth and recent antitrust scrutiny of proposed megamergers.

Both concerns also support a growing trend toward alliances, as companies look for less-costly corporate growth strategies with fewer structural complications than M&A.

The tech sector is seeing more sharing-economy business models and what EY calls “industrial mash-ups,” a new form of dynamic and increasingly automated alliance-building that brings sharing economy benefits to the business-to-business (B2B) market, according to the company.

Uneven global economic growth is driving companies to look for deals across the board, with 73 percent likely to pursue a cross-border acquisition within the next 12 months.

At the same time, more potential buyers are walking away from deals (84 percent vs. 71 percent in E&Y’s last report), in particular because of issues uncovered during due diligence.

The report revealed many actual buyers have been disappointed with deals not delivering the intended synergies (20 percent) or strategic value (15 percent).