Tuesday, January 19, 2021
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Impact of COVID-19 on the technology sector

The outbreak of Novel Coronavirus has caused widespread concerns along with economic hardships for businesses and consumers around the globe. While most enterprises have business continuity plans, they still were not able to withstand the repercussions of the COVID-19 outbreak. Contingency plans are typically designed to ensure operational efficiency during unpleasant circumstances like natural disasters, power outages, cyber incidents, etc. Before the advent of COVID-19, widespread quarantines increased travel restrictions, extended school closures were not taken into consideration for contingency plans. In short, the COVID-19 crisis has produced several unique challenges to almost all industries. 

Enabling technologies like data science have been assisting national leaders and healthcare professionals in fighting the COVID-19 pandemic. While the technology sector has enabled us to combat the deadly contagion, in a more strategic way, the disruptions on the electronics value chain, raw materials supply, etc, have had a significant impact on the sector. Following is a brief overview that helps in understanding the impact of COVID-19 on the tech sector. 

Technology sub-sectors that faced potential long-term impact due to COVID-19 

Hardware or Software 

The supply chain constraints evolved due to the COVID-19 pandemic has deferred the launch of new products in 2020. Though a few factories in Asia are resuming a new normal, companies are facing certain challenges while trying to get production fully running. This might lead to a significant short- as well as long-term impact. While the hardware sector is dragged down due to supply chain disruption and shortage of parts, the software industry is relatively safe and secure.  

As matter of fact, there is an increased demand for enterprises with remote-working technologies. The security software will enjoy third-order benefits as the remote workforce is growing constantly and organizations strive to secure endpoints, particularly VPNs, log management, and cloud-based tools. 

IT Services 

According to forecasts related to IT spending, the demand for cloud infrastructure services soared as the COVID-19 pandemic compelled most companies to stay operational despite the shifts in working environment and normalcy. In all likelihood, this demand for cloud services will continue to rise as the forecasts project increased demand for telecom services and communications equipment since educational institutions have now adapted to online courses and organizations are increasingly encouraging employees to work from home. 

Several organizations failed to include a tech stack in place for an effective and reliable BCP (Business Continuity Plan). As firms have now witnessed that prolonged remote work scenarios don’t have a countereffect on productivity and efficiency, IT departments will play a major role in future business continuity plans. On the other hand, this will also increase their dependency on IT service providers to procure devices, establish a flexible, resilient, and secure networks, IT security, disaster recovery systems, among others.  

Semiconductors 

Raw material supplies like copper, aluminium, and chemicals were greatly disrupted as delivery was extremely delayed due to increased lockdown restrictions, making re-inventory even more difficult. The COVID-19 impact on the electronic manufacturing value chain consequently created choke points in the manufacture of boards and systems. 

As a result, in the long-run, the scheduled launch of new products was postponed and companies had to make significant changes in their go-to-market strategies. The unforeseen delay in product launch has in turn reduced participation in internal meetings, customer meetings, and external events. Due to this, companies might also have to address risks associated with lack of resiliency and geographical concentration to reduce the levels of impact in the future, if not to prevent single points of failure. 

Network equipment 

There was an unprecedented increase in the use of teleconferencing software programs as technology companies were left with no other choice but to embrace remote working at a large scale and for an unknown duration. This also increased the need for improved data access and automation, ultimately enhancing the focus on communication and network equipment like never before. Besides, the pandemic has also accelerated 5G network deployments and 5G equipment adoption.  

Financial reporting, tax, and trade 

The supply chain, workforce, and operational disruption caused by COVID-19 will induce financial reporting implications in the current as well as future reporting periods. Public companies are most likely to face increasing pressure due to the impact of COVID-19. 

Reconfiguration of the supply chain will trigger tax implications. Short term alterations to income statements will affect forecasts. Also, operations related to tax compliance could lag as remote employees may not always have timely access to information. 

Summing Up 

The prolonged economic downturn caused by the COVID-19 outbreak will result in firms eliminating discretionary spending and revising their budgets. While social distancing, online education, and remote work will increase the demand for products and services provided by the technology sector, the companies will have to build flexible and resilient business models to effectively handle such situations in the future. 

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