Fitch Ratings expects the Asia Pacific (APAC) region’s technology sector to stay gloomy, with revenue and operating profitability growth seen to pick up “only slightly” in the coming 2024, even from low levels this year, as consumer demand “improves gradually” and inventory correction nears completion.
According to the research firm, sector fundamentals have remained largely neutral. A key exception is the semiconductor sector, which Fitch expects an improving outlook thanks to the rebound from 2023’s severe downturn.
“We expect inventory levels to normalise and consumer demand to rise from end-markets such as personal computers, smartphones and autos. Demand from developments in artificial intelligence may also aid recovery.
“On the other hand, we have a neutral outlook on the other three sub-sectors; Chinese internet majors, global hardware brands and Indian IT services,” notes the research team.
Specifically, Fitch expects the Chinese internet majors’ focus on cost efficiency to continue to drive steady generation of operating cash in 2024, despite the uncertainty over China’s economic recovery pace, while large shareholder buybacks will temper the pace of deleveraging.
Meanwhile, “meaningful growth” in global hardware brands’ operating cash flow is “unlikely”, due to the continued challenging economic outlook, observes the research team.
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As for the Indian IT service providers, they are likely to face pressure on operating profitability due to higher labour costs although long-term growth will remain intact, says Fitch.
With persisting economic uncertainty and geopolitical risks from tensions between the US and China, Fitch is certain that the technology sector, which is highly susceptible to global economic volatility, will continue to face headwinds.
“However, Fitch-rated technology companies are well positioned to weather tough times given their strong market position and technology leadership,” concludes the research team.
