COVID-19 and the technology industry

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The coronavirus (COVID-19) outbreak is causing widespread concern and economic hardship for consumers, businesses and communities across the globe. We’ve prepared some general guidance on COVID-19: What US business leaders should know, covering the key areas of crisis management, supply chain, workforce, tax and trade, and financial reporting.

Most companies already have business continuity plans, but those may not fully address the fast-moving and unknown variables of an outbreak like COVID-19. Typical contingency plans are intended to ensure operational effectiveness following events like natural disasters, cyber incidents and power outages, among others. They don’t generally take into account the widespread quarantines, extended school closures and added travel restrictions that may occur in the case of a global health emergency.

The crisis raises a number of unique challenges. In PwC’s inaugural COVID-19 CFO Pulse Survey, finance leaders in the United States and Mexico shared their top concerns. 

What makes the technology industry different?

Here is our take on some additional issues that companies in your industry may face:

Crisis management and response

Issues that the technology industry might face:

Business continuity planning does not account for the uncertainty of an evolving pandemic.

Raft of industry event cancellations mean fewer business development opportunities.

Vastly diminished business travel results in fewer client interactions. 

Steps to consider

  • Appoint a central, accountable leader, supported by a cross-functional team, to manage this continually evolving crisis.
  • Create a framework for data analysis and decision-making.  
  • Run simulation exercises based on realistic scenarios in the short, medium and long term.
  • Seek outside help as needed. 

Workforce

Issues that the technology industry might face:

Staffing concerns ramp up for full-time employees, as well as gig workers, such as drivers, delivery workers and retail staff, who often work as contractors.

A slowdown in recruiting resulting from the crisis could affect a future pipeline of skilled workers.

Cybersecurity risks are likely to rise as a result of more people working remotely. 

Steps to consider:

  • Determine which critical functions must remain onsite and which can be remote.
  • Communicate clearly, accurately and often about health and safety considerations.
  • Showcase cybersafe platforms that support remote employees. Having fewer workers in the office makes it safer for those whose jobs require them to be there.
  • Shore up workforce modeling.
  • Rethink benefits for gig workers. 

Operations and supply chain

Issues that the technology industry might face:

Production slows as a result of global supply chain disruption.

Cash-flow challenges will test undercapitalized companies and may require alternative sourcing and/or the need to subsidize during the crisis to confirm readiness in its aftermath.

As companies seek business solutions to address remote work, social distancing and the need for in-store alternatives, the demand for developer and engineering talent is likely to increase. Retaining top talent will be essential.

Expect relatively high impact on the smartphone industry because of its labor-intensive supply chain. Smartphone production is projected to decline by 12% YoY in 1Q20; server revenue is projected to decline by 16% YoY in 1Q20.

Disinformation proliferates on digital platforms.

Sharing economy inventory takes a hit.

Some component manufacturers rely on one or perhaps two main suppliers.

Additional containment zones around the world trigger more shipping and delivery bottlenecks.

Steps to consider:

  • Activate contingency planning for vendor management.
  • Anticipate and plan for supply chain modifications, should the crisis last longer than a quarter.
  • Reset operating model(s) with emphasis on supply chain and manufacturing footprint.
  • Move quickly to counter disinformation as it occurs, and communicate with employees, customers and business partners. 

Financial reporting

Issues that the technology industry might face:

Operational, workforce and supply chain disruptions will trigger financial reporting implications in current and future reporting periods.

Public companies will face increasing pressure to disclose revised guidance related to the COVID-19 impact. 

Steps to consider:

  • Evaluate financial reporting requirements and audit impact.
  • Revisit key assumptions in financial projections.
  • Communicate current and potential future impacts to shareholders. 

Tax and trade

Issues that the technology industry might face:

New state and local tax implications arise for workers who are now remote as a result of the crisis.

Tax compliance operations could lag, as newly remote employees lack timely access to information.

In the short term, changes to income statements — such as short-term losses — will affect forecasts.

Supply chain reconfiguration triggers tax implications. 

Steps to consider:

  • Craft a contingency plan to meet tax compliance obligations on time.
  • Improve tech-enabled functionality to confirm timely access to required information.
  • Conduct additional modeling to assess how changes to income statements will affect forecasts. 

Strategy

Issues that the technology industry might face:

Sudden or prolonged economic downturn will lead to companies considering significant budget cuts that eliminate discretionary spending.

Remote work, online education and social distancing will create demand for products and services delivered by the tech industry.

The crisis underscores the need for flexible, resilient business models, including increased focus on cash-flow forecasting and impacts on supply-chain and commercial-channel partners.

Company valuations may become more attractive for acquisitions by cash-rich companies that have been sitting on the sidelines, while keeping targets in mind.

Steps to consider:

  • Scan for M&A opportunities to shore up resilience.
  • Reevaluate cost structure.
  • Prepare for a slowdown by assessing which organizational levers to pull.
  • Shore up enterprise risk-management efforts.

Other considerations

In addition, technology companies may face some additional industry-specific challenges.

Customers

Possible issues:

Some tech sector companies rely on overseas consumption, which has slowed since the outbreak.

Customers are delaying purchases because the pandemic has exacerbated an already uncertain global economy.

Technology support may struggle to keep up with increased customer needs on applications. 

Steps to consider:

  • Reprioritize limited supply to the most profitable regions, segments and customers.
  • Team with technology channel partners to understand where future demand can be generated in the short term, such as in countries not as hard hit by the virus.
  • Evaluate pricing actions and other countermeasures to bolster current and future quarterly demands. 

The way forward

The technology industry has weathered past crises and found novel ways to emerge stronger each time. In fact, tech companies have led the way on a variety of strategies other industries are now using to cope in this crisis — from remote working to a globally dispersed supply chain to managing through disruption. This crisis might well spark further creativity and innovation. 

Contact us

Mark McCaffrey

US Technology, Media and Telecommunications Leader, PwC US

Joe T. Palladino

Partner, Advisory, PwC US

Robert Moline

Partner, PwC US

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