Tech’s Terrible Week, in 10 Charts

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It really has been a terrible, terrible, no good, very bad week for the tech sector. From semiconductors and social media to computing and the cloud, the world’s largest companies that have made clear in the income report the fleet of challenges that they face. With a flood of unfavorable numbers coming their way, investors embraced the news and sold.

Most of the biggest tech names managed to regain some ground on Friday, fueled by Apple’s relatively healthy performance. But the general mood remained gloomy.

Several hundred different data points were shared with the market. Taken together, they tell a story of industries hit by a strengthening dollar, supply chain snarls stretching into a third year, inflation still under control and economic growth numbers looking increasingly bleak. We’ve distilled it all into 10 charts – be sure to tell us what we missed.

The malaise in the semiconductor industry can best be summed up by the disaster unfolding at Intel Corp., the largest US chipmaker. As a supplier of components for computers and servers, Intel has been hit hard by the slowdown and is trying desperately to adjust, even as it faces rival Taiwan Semiconductor Manufacturing Co. and Samsung Electronics Corp. in time fourth quarter numbers to help.

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A year ago, the world was short of chips and suppliers were rushing to buy equipment and ramp up output. Last month, they collectively cut 2022 budgets by more than $16 billion and are preparing to cut spending next year.

A recurring theme in earnings this season was the impact of a rising US dollar against nearly every counterparty. Few companies are immune, with Amazon.com Inc. to the hardest hits.

Apple Inc. looks quite strong compared to all the rest. His iPhone did pretty well, but a touch below estimates and bolstered by a few more days of availability. Services, the division that includes Apple Music and Apple+ TV, which is the company’s second largest contributor to revenue, continued to post solid growth, but at a slower rate than previous quarters.

Meta Platforms Inc. is hit from all sides. The owner of Facebook, Instagram and WhatsApp has been severely damaged by changes to Apple’s data protection rules, which makes it difficult to track users via apps and thus decreases advertising rates. The global downturn, including higher inflation, only adds to the difficulties. Although user numbers are slowly increasing – it has 3.7 billion monthly active users across the entire family of apps – average revenue per person is slipping.

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Meanwhile, the social media company is burning cash on its Reality Labs division — founder Mark Zuckerberg’s venture into virtual reality and the Metaverse, which inspired the name change last year. That business has lost more than $20 billion so far, and Zuckerberg has told investors that the shortfall will continue for some time.

Alphabet Inc. isn’t doing so well, but at least it’s growing. A 6.1% increase in third quarter earnings was the slowest since June 2020 after the Covid-19 pandemic hit. Its Google search-based advertising divisions are outpacing its network affiliate businesses and video service YouTube, while cloud services remain solid.

Over at Microsoft Corp., a decade-long transition away from client computing — where revenue is tied directly to the sale of computer and server hardware — is weathering the storm better than most. Income for the September period rose just 11%, the slowest in five years, but this is much better than most tech peers. Its cloud and productivity offerings are the main reasons for this relative strength. Customers – both consumers and companies – are somewhat in love with its suite of Office products, while those who have signed up for its Azure cloud services are in no position to escape when times get tough.

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Two recent charts show just how badly investors have reacted to all this news. The stock market crash is a global, cross-border phenomenon. But the technology sector fared much worse, with the Nasdaq down 30% from a year ago.

The most affected are those companies with a heavy reliance on advertising or short-term consumer purchases. Money appears to be moving to what could be seen as more defensive technology stocks, and Netflix Inc.

If there’s any consolation, it’s that investors no longer care about Twitter Inc.’s fortunes. That’s now Elon Musk’s problem.

More from other writers at Bloomberg Opinion:

• Chips Act will not work without any part of the chip: Thomas Black

• Money-losing Airbnb hosts have three options: Teresa Ghilarducci

• Tech investors overreact like they’re screaming at a cloud: Tim Culpan

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Tim Culpan is a Bloomberg Opinion columnist covering technology in Asia. Before that, he was a technology reporter for Bloomberg News.

More stories like this are available at bloomberg.com/opinion

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