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    IT & Telecom Q2 2020

    Q2 2020 IT Telecom

    Industry Trends

    Apple to Manufacture Custom Chips

    Apple Inc. is the latest tech giant to design and manufacture its own custom chips rather than outsource the component. During the company’s annual WWDC conference, Apple CEO Tim Cook announced that the company would begin shipping Macs later this year with Apple processing chips. This corporate makeover to in-house chips ends a 15-year partnership with the chip-making giant, Intel Corp., and is intended to boost product efficiency and graphics. Analysts predict that Apple will shave between $75 - $150 off the current cost of building a Mac computer.1

    Huawei Faces Increased Pressure from Countries Worldwide

    The Trump administration is seeking ways in which the federal government can increase pressure on Chinese telecom giant Huawei Technologies Co. The administration has been in discussion with U.S. tech giants, private equity firms, and various telecom executives to strategize ways the U.S can combat China’s current dominance in the 5G technology space. Administration officials have proposed U.S. tech companies such as Cisco Systems Inc. acquire European telecom companies such as Ericsson AB or Nokia Corp., to help hinder Huawei’s global dominance. The British government has also hardened its stance on Huawei, barring telecom companies from purchasing new equipment from Huawei, giving them until 2027 to remove the technology from their 5G networks. Huawei is the world’s top seller of telecom equipment, capturing 28% of global spending on telecom equipment in the first quarter of 2020.2 3

    Facebook Faces Backlash Due To Lack of Oversight

    Facebook is facing a significant hit to its advertising revenues as companies pledge to support the Stop Hate for Profit campaign. The coalition, which includes the Anti-Defamation League, the NAACP, and Color of Change, created the campaign to protest how Facebook handles hate speech and other harmful content. Since launching in mid-June, over 400 companies have pledged to stop advertising on Facebook, including Adidas, Ford, Lego, Dunkin’, Hershey, Clorox, and Microsoft and Volkswagen. Advertising income accounts for more than 98% of Facebook’s $70 billion in revenues in 2019.4

    Telecom Companies Bracing for Impact Due to Pandemic

    T-Mobile US Inc. says it expects the COVID-19 pandemic to hurt its bottom line through at least the end of 2020. The telecom giant that only recently finalized its merger with rival Sprint Corp. says it foresees adding only 150,000 postpaid connections in the second quarter. In comparison, this period added 1.1 million connections in 2019. Additional telecom giants such as Verizon Communications Inc. and AT&T have also told shareholders to expect rough waters throughout the remainder of the year.5

    Smart Technology Used for Contact Tracing

    As the U.S. begins to reopen, many states have started relying on coronavirus contact tracing via smartphone applications to help combat the continued spike in cases. Alongside aggressive testing efforts, as many as five states have agreed to adopt Apple Inc., and Alphabet Inc’s Google deployed coronavirus tracing technology. However, many local health departments are not fond of the privacy restrictions in the Apple-Google agreement that ultimately limits the information they can collect. Important questions remain unanswered with this technology. What type of information should be collected? Who should have access to it? Is the data collected even useful in slowing the spread of COVID-19?6

    Dell Looks to Expand Stake in Cloud Software

    Dell Technologies Inc. is exploring its options with its roughly $50 billion stake in the cloud software company, VMware Inc. Dell is open to the possibility of a spinoff as the PC manufacturer seeks to boost its share value. The goal is to address the divergence between Dell’s market value, roughly $36 billion, and the value of its 81% stake in VMware. A transaction involving VMware could also be used to lessen Dell’s hefty debt load of $48 billion.7

    Largest Transactions Closed

    • Target
    • Buyer
    • Value($mm)
      • Sprint Corporation
      • T-Mobile, Inc.
      • $83,649.18
      • Cypress Semiconductor Corporation
      • Infineon Technologies AG
      • $10,352.33
      • Mellanox Technologies, Ltd.
      • NVIDIA Corporation
      • $7,329.02
      • Tech Data Corporation
      • Apollo Global Management, Inc.
      • $6,914.79
      • Anixter International, Inc.
      • WESCO International, Inc.
      • $5,282.61
      • TiVo Corporation
      • Xperi Holding Corporation
      • $2,211.15
      • KEMET Corporation
      • Yageo Corporation
      • $1,971.85
      • Ziply Fiber
      • Canada Pension Plan Investement Board; British Columbia Investment Management Corporation; Public Section Pension Investment Board; Searchlight Capital Partners, L.P.; WaveDivision Capital LLC
      • $1,352.00
      • Saba Software, Inc.
      • Cornerstone OnDemand, Inc.
      • $1,294.88
      • Vlocity, Inc.
      • salesforce.com, inc.
      • $1,200.00

     

    Source S&P Capital IQ as of 7/15/2020 and PCE Proprietary Data

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    Data Assumptions

    This report represents transaction activity as mergers & acquisitions, consolidations, restructurings and spin-offs. Targets are defined as U.S. Based companies with either foreign or U.S. based buyers. Transaction information provided is based on closed dates only.

    Glossary

    EBIT - Earnings Before Interest and Taxes
    EBITDA - Earnings Before Interest, Taxes, Depreciation, Amortization
    LTM - Last Twelve Months
    TEV - Total Enterprise Value

    Sources:

    1. Mickle, T., “Apple Is the Newest Chip Giant in Town,” The Wall Street Journal, June 23, 2020.
    2. FitzGerald, D., Krouse, S., “White House Considers Broad Federal Intervention to Secure 5G Future,” The Wall Street Journal, June 25, 2020.
    3. “U.K. to Ban Huawei From its 5G Networks Amid China-U.S. Tensions,” The Wall Street Journal, July 14, 2020.
    4. “Over 400 Advertisers Hit Pause on Facebook, Threatening $70 Billion Juggernaut,” National Public Radio, July 1, 2020.
    5. Krouse, S., “T-Mobile to Feel Coronavirus Pain Through 2020,” The Wall Street Journal, May 6, 2020.
    6. Winkler, R., Haggin, P., “America Is Reopening. Coronavirus Tracing Apps Aren’t Ready.” The Wall Street Journal, June 22, 2020.
    7. Lombardo, C., “Dell Explores Spinoff of $50 Billion Stake in VMware,” The Wall Street Journal, June 23, 2020.

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