This Year's Big Tech Keyword is 'Daehaksal'... Marked by Growth Slowdown and Intensified Competition

[Asia Economy Reporter Jeong Hyunjin] 'Carnage'

This is the media's assessment of the situation faced by five major big tech companies?Apple, Microsoft (MS), Alphabet, Amazon, and Meta?this year. It is the aftermath of technology companies being hit hard due to soaring inflation and recession concerns following the post-COVID-19 boom. While the U.S. S&P 500 index fell 19.3% from the beginning of this year to the 23rd (local time), the tech-heavy Nasdaq Composite Index plummeted more than 30%, marking a difficult year for tech companies.

[Image source=Reuters Yonhap News]

◆ Market Capitalization of 'Big Tech 5 Companies' Lost 3,800 Trillion Won

According to Bloomberg News, the combined market capitalization of the five big tech companies has disappeared by more than $3 trillion (approximately 3,825 trillion won) over the past year. Microsoft, the largest by market cap, reached $2.5224 trillion in Q2 of fiscal year 2022 (October to December 2021) but dropped to $1.7796 trillion as of the 23rd. Amazon's market cap fell from $1.7 trillion in Q4 last year to $869.7 billion as of the 23rd. Alphabet also saw a decrease of over $700 billion during the same period.

In terms of stock prices, from the beginning of this year to the 23rd, Apple fell 26.6%, MS 29.0%, Alphabet 38.4%, Amazon 48.9%, and Meta 64.9%. Although there are differences among companies, all declines exceeded the S&P 500 index average of 20%. Meta, which suffered the most, had a market cap exceeding $920 billion in Q4 last year but plummeted to $309.5 billion as of the 23rd.

Big tech companies that experienced stock price crashes have carried out large-scale layoffs this year. This marks a reversal for the tech industry, which led the labor market with the 'Great Resignation' movement during COVID-19. Amazon announced plans to lay off 10,000 employees first in November and said it would reduce more next year. Meta also laid off 13% of its workforce. Apple declared a hiring freeze for the next year in November.

◆ Why Did Big Tech’s Growth Halt?

The reason big tech companies faced such difficulties this year is due to deteriorating earnings. The Economist reported that these five companies recorded revenue and profit growth rates five times higher than the U.S. GDP growth rate over the past decade until last year and experienced even greater growth after COVID-19. Why did these rapidly growing tech companies suddenly collapse in the market this year?

[Image source=AP Yonhap News]

According to analysis by The Economist on the 25th, first, the digital market, which had shown growth for years, has matured. For example, in the advertising sector, a major revenue source for Meta and Alphabet, the shift from traditional media such as newspapers and TV to online has slowed. Since two-thirds of advertising spending in the U.S. this year is already digital, it is difficult to expect revenue growth from further shifts. In fact, Meta recorded its first-ever quarterly revenue decline this year in July due to a drop in advertising revenue.

Increased competition in the tech industry was also analyzed as a factor in worsening earnings. Looking at the video streaming market alone, besides the existing leader Netflix, Disney, Warner Bros., Apple, and Amazon have all entered the market. Meta’s user base declined due to the rapid rise of China’s social networking service (SNS) TikTok. Amazon’s cloud computing segment’s growth slowed, with some analysts attributing this to Google’s investment in its own cloud services.

The Economist analyzed, "(The tech industry) is highly competitive. For years, the tech industry meant a 'concentrated market,' but there are increasing cases of tech companies encroaching on each other’s territories."

At the same time, The Economist explained that central banks’ interest rate hikes made financing difficult, leading to stock price declines and market cap reductions. Tech companies often attract investment based on future growth potential rather than current value, but as interest rates rise and costs increase, investing in companies with poor immediate profitability becomes difficult. Additionally, big tech companies were hit by geopolitical risks, such as Apple facing difficulties operating factories in China.

◆ Can Big Tech Rebound Next Year?

[Image source=Reuters Yonhap News]

With growing concerns that a U.S. recession may occur next year, the market expects most big tech companies to continue experiencing deteriorating earnings similar to this year. Having already implemented cost-cutting measures such as layoffs to tighten belts, these companies are expected to focus on exploring additional ways to improve efficiency.

However, some analysts suggest that since the tech sector has plummeted this year, there is room for a rebound next year. U.S. market research firm Insider Intelligence evaluated that "the tech sector has not yet escaped the crisis, but the worst appears to be over."

According to U.S. economic media Business Insider, analysts including Dan Ives of Wedbush Securities named Apple as the company to watch most closely next year and predicted that MS and Salesforce will rebound in the cloud sector. Wedbush forecasted, "Next year, companies with management teams capable of navigating the stormy macroeconomic environment will receive support."

This content was produced with the assistance of AI translation services.