From songs, movies and even mobile data plans, the average technology, media, and telecommunication (TMT) consumer today has the world at their fingertips. And with the privilege of an endless stream of content comes a staggering reality: every action a consumer takes within a platform or app creates new data for TMT companies to produce additional intuitive offerings.
Consumer data often reveals purchasing patterns that are highly personal and drive responses that are ultra-timely, allowing tech companies to reinvent their customer experience to include more services, products, and personalized offerings to fit these demands.
However, several macroeconomic factors and unpredictable consumer behavior are challenging the ability of TMT sectors to predict what these demands might be in the coming fiscal quarters. Inflation, rising interest rates, record-high credit card debt, record-low savings, and wishy-washy consumer sentiment index have adulterated consumer data to be an unreliable source of intel. Without a lineup of deliverables guaranteed to drive engagement and profits, the industry as a whole is questioning: how are TMT leaders forecasting demand for 2023?
In the AlphaSense platform, we collected insights from the four perspectives (company, analyst, journalist, and expert) to give you a well-rounded outlook on how the TMT industry is recalibrating its selling approach in a time when consumer data can often feel unreliable.
The State of Consumer Demand in Tech
The TMT mid-market has performed strongly over the last few quarters, with M&A deals and private equity activity seemingly unaffected by ongoing macroeconomic uncertainties. But as interest rates continue to hike up, inflation increases and supply chains face continued disruptions due to the Russia-Ukraine war; experts believe these factors will eventually take a toll on industry performance.
Market recalibrations and resets are not new to TMT, but the magnitude of volatility displayed throughout the first few quarters of the 2022 fiscal year has raised cause for concern when it comes to consumer spending and demand.
Inflation
While supply chain mishaps and labor shortages are often cited as the major reasoning behind inflation within the United States, consumer demand is largely responsible (60%) for driving up prices for all types of products in the last two years.
Over the past few months, an increasing amount of Americans have changed their spending and shopping, becoming more conscious of how they can stretch their dollar and are more likely to delay major purchases to offset their losses in the oncoming recession. In accordance, TMT companies have and continue to drop product prices to encourage spending.
Interest rates, Credit Card Debt, and Record-Low Savings
For Americans today, the cost of carrying a balance on your credit card is the highest it’s been in nearly 30 years. This news comes as no surprise after the Federal Reserve raised interest rates to combat inflation, a return that Americans have not seen in decades.
In an attempt to slow economic volatility and lessen pricing pressure, major banks are making it more expensive to borrow capital and ensuring their most creditworthy customers pay the price. When the federal fund rate increases, so do prime rates–which are currently at 7%.
Consumer Sentiment Index
According to Michigan State’s US Index of Consumer Sentiment, future consumer spending projections are at a current level of 54.70, down from 59.90 last month and from 67.40 one year ago. Illustrating an 8.68% drop from last month and an 18.84% decrease from one year ago, the Index’s score relays how anxious Americans are over the cost of living and the economy’s direction.
Forecast Consumer Demand Across TMT Subverticals
In the wake of uncertainty around macroeconomic events, the state of the economy and consumer confidence within it, TMT leaders recognize that consumer data no longer simply translates to consumer demand. A sudden shift in these areas can drastically change how, where, when, and what consumers spend.
To get a firmer grasp on predicting what demand will look like in the coming fiscal quarters, companies across sectors have adopted a variety of methods to get the answers they need. We leveraged the four perspectives and collected insights from across the industry to give you an idea of what they entail:
Technology
Across the technology industry, most companies reported slowed consumer purchasing activity due to inflation, with most product transactions serving to replace older, outdated tech. However, as some companies explore how they can weave new forms of technology into their product rollouts, others are prioritizing customer relationships and instilling prudent spending reforms to combat the oncoming recession.
Company Voice
“Global economic uncertainties and broad-based customer inventory corrections worsened in the latter stages of the September quarter, and these dynamics are reflected in both near-term industry demand and Seagate’s financial performance. We have taken quick and decisive actions to respond to current market conditions and enhance long-term profitability, including adjusting our production output and annual capital expenditure plans, and announcing a restructuring plan that will deliver meaningful cost savings while maintaining investments in the mass capacity solutions driving our future growth”
— Dave Mosley, CEO at Seagate Q3 2022 Earnings Call
“Supply chain issues and the impact of inflation on consumer demand persist across many of our product categories. For revenue, we are raising the lower end of our range by $10 million for an updated range of $930 million to $960 million. We are increasing annual non-GAAP operating expenses by approximately $15 million at the midpoint to a range of $510 million to $530 million and are lowering the top end of our operating cash guidance by $10 million to a range of $210 million to $230 million, due primarily to the impact of rapidly increasing interest rates on our variable rate debt.”
– Xperi Holding Corporation