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The COVID-19 crisis has accelerated the Digital Transformation across industries and can lead to a wave of consolidation in the TMT sector

23/06/20

Bratislava, 23 June 2020 – While many industries have been severely affected by the COVID-19 crisis, for the Technology, Media and Telecom sector (TMT) the economic impact has been largely neutral, or even positive for some industry segments, shows a recent PwC CEE analysis.

“The pandemic has had tragic consequences for millions of people across the globe, who have been either directly affected by the virus, have lost someone dear, or have suffered due to the lockdown measures necessary in order to contain the spread of the virus, with so many losing their jobs. Yet, the crisis has also triggered a tremendous acceleration in the digital transformation of the global economy”, stated

Dejan Ljustina, the CEE TMT Industry Leader.

The analysis was presented in detail at a recent PwC CEE TMT online event, which had as guest speaker Mr. Daniel Dines, the CEO of RPA giant UiPath, a technology unicorn originating from Central and Eastern Europe.

The most severely impacted market segment of the TMT sector has been the traditional Media & Entertainment one, with cinemas, theatres, and concert venues closed due to the pandemic. Also, traditional advertising has been declining at a fast rate, while there was a switch to digital advertising, with players such as Google and Facebook as the biggest winners.

On the other hand, the digital media & entertainment market segment has seen a strong growth in the past three months, with many consumers switching to video on demand platforms, while the gaming sector has seen a strong growth in downloads. 

Similarly, the telecom operators activities have grown, due to an increase in data traffic, while technology companies have seen a mixed impact, with companies with B2B tech products being more negatively affected by the crisis, than B2C companies. As such,  over the past three months, e-commerce platforms, tele-conferencing and tele-medicine apps have seen a surge in usage.

“These shifts in consumer behaviour were reflected by the stock markets, with big tech companies registering strong gains in market capitalization, recovering much faster after the initial losses registered in March and outperforming the general market indexes. Yet the situation is more complicated for tech start-ups, with many confronted with liquidity issues. As such, we might see in the near future a wave of consolidation on the TMT market, with big players, including telecom operators, who are rich in cash, aiming to seize the opportunity to increase their market presence in fast-growing technology segments,” added

Dejan Ljustina, CEE TMT Industry Leader.

This wave of M&A activity was already seen in the past three months, with companies such as Facebook, Microsoft, Uber, DocuSign, Intel and Zoom all announcing acquisitions.  

During the PwC event, Daniel Dines, the CEO of UiPath, stated that the current crisis will accelerate the change in which companies work and the way they do business.

“At the minimum we are moving to a mixed environment of work. The typical 9.00 to 5.00, Monday to Friday, work schedule, with mandatory showing up at the office, is going to be a thing of the past,”

Daniel Dines, CEO UiPath.

He also pointed out that there may be more opportunities coming out of the Covid-19 crisis for CEE than for Western Europe.

“We have an opportunity to skip a generation in our development toward digital technology and remote working if we move fast and don’t miss on the opportunity that this wave of digital transformation is bringing,” added

Daniel Dines.
As the impact of the pandemic on business increases, companies in the Telecom sector must adapt in order to emerge from the crisis ready for the new reality. That means focusing on 5 areas that are going to be critical for the future: 
  1. Rethinking the omni-channel approach and the digital experience of the customer; 

  2. Preparing for potential government interventions in the economy, such as asymmetric taxation targeting high-growth sectors, or restricting dunning measures to protect vulnerable consumers;

  3. To manage liquidity carefully and prepare for a potential surge in bad debt;

  4. To assess acquisition opportunities;

  5. To consider entering new high-potential market segments, such as online education or telemedicine. 

For the technology companies, depending on their financial strength and growth potential, there may be four strategic options:

  1. Companies with high-growth potential, but with a weak financial situation, would need to focus on fixing the basics - cash management, securing external financing and cost savings. 

  2. Companies with weak financial situations and active on a market segment with low growth will have to find ways to survive - looking for turnaround strategies, rapid cost reduction, ensuring the support of a strategic partner, or potentially selling out. 

  3. Those in the privileged situation of having strong finances and high growth potential can play offence - by looking for opportunities for expansion, including M&As in order to secure missing capabilities and get best talents. On a more cautious approach, such companies could look into gathering comfortable cash pools to secure against pessimistic scenarios. 

  4. Financially strong companies, but with weak growth potential, may use the current crisis as an opportunity to transform, by looking into ways to make fixed costs variable, doing contingency planning, searching for inorganic growth opportunities at a discount. 

In the media & entertainment sector, priority should be given to introduce rapid cost reduction measures to sustain profitability in the context of diminishing revenues. They most also act now to manage content cost increases due to the current limited global content production capacity. 

The media & entertainment players can also explore alternatives for content creation to enhance supply and reduce content costs, while at the same time try to win new customers through lowering the barriers. They may also search to participate in mergers to gain scale and create synergies.  

 

“To sum it up, this wave of digital acceleration can bring plenty of opportunities for companies in the TMT sector, but companies need to navigate carefully into the unchartered waters of this yet ongoing crisis,” concluded

Dejan Ljustina.

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