Sector trends & challenges
Development and growth
A Tech-enabled economic recovery is seeing an acceleration in investment with a focus on building resilience in tech infrastructure within corporate and home environments. Growth of IoT and AI is expected to increase through 2021.
Higher operating standards
Privacy, security and reliability concerns mean companies are being held to higher operating standards in the form of an increase in regulation. New investment in this area is increasing pressure on liquidity and working capital.
Technology companies are facing the sharpest rise in input costs for two years, which stems from supplier price hikes, exchange rate movements and greater salary costs. Manufacturing capacity is still struggling to catch up on lost volume.
Sector rating profile
There are no significant signs of stress or distress in the major Technology sub-sectors. Regulatory requirements and the consequent need to invest in capex may however drive working capital, cash flow forecasting and funding opportunities.
The immediate demands requirements resulting from the COVID-19 pandemic have generally helped the technology sector, from hardware manufacturers and suppliers through to service providers. Indeed, the challenges faced by some tech operators has been managing capacity challenges, particularly on web-based services, due to the rapid increase in usage. This trend is continuing as the global economy recovers from the pandemic and we expect both the demand for and dependence on technology to grow further.
Deal activity in the sector is strong with many businesses making acquisitions to supplement organic growth. The increasing reliance on Technology of multiple other sectors means activity will continue to grow.
Technology projects tend to be insulated from wider economic challenges as investment in this area is expected to remain a major priority for corporates. However many technology providers have faced supply challenges due to significant demand for semiconductors. We anticipate that further consolidation within the UK tech ecosystem is likely. Many start-ups continue to have additional cash requirements and in the post-COVID environment may be seeking alternate funding to see products through the development cycle. Manufacturing capacity is still struggling to catch up on lost volume as we move out of the pandemic and shortages remain.
Privacy, security and reliability concerns mean companies are being held to increasingly high operating standards in the form of increased regulation scrutiny. This may start to impact business models and investment requirements as legislation in this space evolves. The ethics of censorship have recently come under the spotlight following government and social media companies’ crackdown on COVID-19 related posts.
Find Your Expert
Mark Raddan is Interpath Lead for the Technology, Media and Telecommunications sector. Neil Speight leads our approach to Technology nationally. For a full list of our senior people with experience in the sector use the button below.Our senior team