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    IT & Telecom Q3 2020

    Q3-2020-IT-Telecom

    Industry Trends

    Apple Blocks New Fortnite

    Apple has faced a backlash from several large companies like Facebook and Epic Games (maker of Fortnite). They argue that Apple has too much control in deciding what apps appear for consumers in the app store. Currently, Apple and Epic games are locked in a legal dispute over Epic Games, including their payment system. The result is Apple users are no longer able to download the popular game and its latest installment.1

    T-Mobile Beats Out AT&T for 2nd Top Carrier in the Country

    T-Mobile ended June with 98.3 million U.S. customers, beating AT&T for the 2nd largest cellphone carrier. This increase in customers is partly due to T-Mobile merging with Sprint in April. Unlike its competitors, the company appears to continue growing throughout the pandemic, adding 235,000 new postpaid customers. Moreover, their revenue has jumped from $11 billion to $17.7 billion within the last year.2

    Huawei Struggles to Produce Chips as U.S. Tightens Their Grip with Restrictions

    Recently, the U.S. Government required all manufacturers who utilize the U.S.’s chip-making devices to receive a government license. The new requirement made it more difficult for foreign producers like Huawei to make their chips. While Huawei previously made their chips in Taiwan, that production ended earlier this year. Consequently, Huawei is in search of a new manufacturer. Qualcomm, a U.S. chip manufacturer, hopes to address Huawei’s demand for chips. The company recently applied for a license to sell its chips to Huawei. Qualcomm had procured chips for Huawei in the past but slowed down procurement as more sanctions blocked Huawei from procuring any more chips from the U.S. 3

    Pentagon Interested in Domestic 5G Cellular Network

    The U.S. Department of Defense recently requested information about 5G wireless networks. They are working on a proposal that would allow the Pentagon to control the airwaves that radars and military hardware utilize while also allowing commercial operators to utilize the wireless network. If the proposal were approved, Federal Communications Commission wireless spectrum auctions, events that usually bring in billions of dollars from companies like AT&T and Dish Network, would decrease. Moreover, a domestic cellular network would make 5G available to more consumers.4

    Rise in TV Streaming Service Costs Reflect Increasing Demand

    As consumers continue to stay at home, live TV streaming services like YouTube TV, Hulu + Live TV, and Fubo TV continue to register new customers. Consequently, they have raised their subscription prices. YouTube TV increased its $55 subscription service to $65. Fubo TV, a streaming service that lets customers watch live TV on computers and mobile devices, raised their standard package priceby $5 to $60 when they added more channels. Despite these increases, live TV streaming remains cheaper than traditional internet and TV bundles. The growing demand in these services reflects the rise in accessible and affordable live TV.5

    Frontier Communications Tries to Redeem Itself Post Bankruptcy

    Frontier Communications Corp. services 3 million internet customers, building cables in locations that its rivals (AT∓T and CenturyLink) do not serve. However, due to poor customer service and high fees, Frontier was driven to file for bankruptcy protection in April. Frontier Communications has set up a prearranged $10 billion debt cutting proposal to mend their lacking business. Moreover, they have named John Stratton, a former executive at Verizon, executive chairman, hoping that he can use his expertise to get Frontier performing similarly to its competitors.6

    Apple Temporarily Stops Taking Percentage of Event Fees from Facebook

    Apple will stop taking 30% of transactions from small businesses that host paid virtual events through the Facebook app. This change comes from Facebook's urging Apple to cease taking 30% due to small businesses' current unstable economic conditions. Moreover, Google agreed to stop taking a 30% cut of the transactions occurring on the Facebook app on Android devices.7

    Big IT Companies Found 5G Open Innovations Lab

    Amdoc, Microsoft, and VMware have teamed up with Intel, NASA and T-Mobile to start the first 5G innovation lab. The lab will pick 15 to 20 early and late-stage companies to participate in a 12-week program twice a year. The companies will work on new solutions for artificial intelligence, edge computing, and IoT, while the founding companies will assist with engineering, technology, mentorship, and industry resources. Each founding company will contribute its expertise. For example, VMware plans to contribute ideas to help communication service providers meet the increasing demand for 5G services.8

    Largest Transactions Closed

    • Target
    • Buyer
    • Value($mm)
      • Ellie Mae, Inc.
      • Intercontinental Exchange, Inc.
      • $11,019.34
      • Project Viking Holdings, Inc.
      • Roper Technologies, Inc.
      • $5,350.00
      • LogMeIn, Inc.
      • Francisco Partners Management L.P.; Evergreen Coast Capital Corp.
      • $4,677.03
      • RSA Security LLC
      • AlpInvest Partners BV; Symphony Technology Group, LLC; Ontario Teachers Pension Plan Board
      • $2,075.00
      • Optimal Blue LLC
      • Black Knight, Inc.
      • $1,800.00
      • Forescout Technologies, Inc.
      • Advent International Corporation; Crosspoint Capital Partners, LP
      • $1,664.46
      • Prepaid Wireless Busienss of Spring Corporation
      • DISH Network Corporation
      • $1,400.00
      • Silver Peak Systems, Inc.
      • Aruba Networks, Inc.
      • $925.00
      • Majesco
      • Thoma Bravo, LLC
      • $732.94
      • Reflexis Systems, Inc.
      • Zebra Technologies Corporation
      • $575.00

     

    Source S&P Capital IQ as of 10/13/2020 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. Kovach, Steve. “Apple Reverses Decision to Charge Businesses Fees for Events, but Facebook Still Isn't Happy.” CNBC, CNBC, 25 Sept. 2020.
    2. FitzGerald, Drew. “T-Mobile Overtakes AT&T to Become No. 2 Carrier.” The Wall Street Journal, Dow Jones & Company, 6 Aug. 2020.
    3. Kharpal, Arjun. “Huawei Says Qualcomm Applied for a License to Sell It Chips and the Chinese Giant Will Use Them If Allowed.” CNBC, CNBC, 23 Sept. 2020.
    4. FitzGerald, Drew. “Pentagon Opens Door to 5G Network Shared With Civilian Cellphones.” The Wall Street Journal, Dow Jones & Company, 21 Sept. 2020.
    5. FitzGerald, Drew. “Cheap Online Live-TV Bundles Aren't So Cheap Anymore.” The Wall Street Journal, Dow Jones & Company, 2 July 2020.
    6. FitzGerald, Drew. “Frontier Taps Former Verizon Executive to Lead Telecom Out of Bankruptcy.” The Wall Street Journal, Dow Jones & Company, 1 Sept. 2020.
    7. Kovach, Steve. “Apple Reverses Decision to Charge Businesses Fees for Events, but Facebook Still Isn't Happy.” CNBC, CNBC, 25 Sept. 2020.
    8. Phillips, Rich. “Amdocs, Microsoft, VMware, Other Technology Leaders Join 5G Open Innovation Lab as Founding Partners to Help Start-Ups, Entrepreneurs Develop Groundbreaking 5G Services, Applications.” The Wall Street Journal, Dow Jones & Company, 24 Sept. 2020

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