Investing for a better world
Driving social change through new market opportunities
When the new normal keeps shifting, tech, media, and telecoms (TMT) are at the heart of how the world adapts to create new market opportunities.
TMT centrality was entrenched well before the impact of Covid-19. But “the rate of change has increased post-pandemic,” says Karl Keirstead US Software Analyst, UBS Global Research. “And the pace of change is greatest in the TMT space.”
The next two years will be more difficult, following the pandemic tech bubble. But we still expect growth to rebound.”
Karl Keirstead
US Software Analyst, UBS Global Research
“The pandemic drove a rapid shift into the home during 2020/21 and away from it in 2022,” says John Hodulik, US Cable, Telecoms and Media Analyst, UBS Global Research. “During successive lockdowns home connectivity and entertainment were the focus. Consumers are transitioning into outward facing lives again, only now they expect the same levels of connectivity, raising the demand for technologies that enable this, such as 5G.”
Dramatic stock drops and mass layoffs might give the impression that tech’s star is falling. But as Kelsey Perselay, TMT Sector Specialist, Global Markets, UBS, says: “Consumer technology, spurred by the pandemic, remains at the epicenter of our lives.”
Keirstead agrees the sector’s woes are temporary: “The next two years will be more difficult, following the pandemic tech bubble. But we still expect growth to rebound.”
Despite the short-term headwinds, TMT remains both an instigator of paradigm shifts, and the vehicle with which we navigate troubled times – towards a better future.
Kelsey Perselay. TMT Sector Specialist, Global Markets, UBS
Kenneth Miller. Chief Financial Officer, Juniper Networks
Jeff McElfresh. Chief Operating Officer, AT&T
The centrality of connectivity
“Every company today needs to become a software company,” says Brian Robins, Chief Financial Officer, GitLab Inc. – which provides an end-to-end software development platform. “Think about how you use your phone. You book airline tickets, hotel rooms, order a taxi, get food delivered to your house.”
The centrality of connectivity to daily life isn’t going anywhere. It is a long-term societal shift reflected in the prospects of the businesses responsible for the underlying infrastructure.
Juniper Networks Inc., a leading U.S. supplier of networking hardware and software, raised its 2023 revenue guidance in January to at least 8% growth, reflecting the strength of its portfolio, elevated backlog levels and improved supply. Trends like home working and telemedicine have become fully embedded in modern life, showing longevity beyond the Covid-19 crisis.
Telecoms giant AT&T is similarly bullish on tech’s continued importance, putting record investment into high-speed broadband. At the end of 2022, the company passed roughly 24 million customer locations with fiber, including businesses, while also rolling out 5G across the U.S.
Brian Robins
Chief Financial Officer, GitLab Inc.
Jeff McElfresh. Chief Operating Officer, AT&T
Brian Robins. Chief Financial Officer, GitLab
Kenneth Miller. Chief Financial Officer, Juniper Networks
It is all increasingly critical infrastructure for work, but also for entertainment. Total U.S. movie theater returns have rebounded to $7.4bn in 2022 from a 2020 low of $2.1bn, but they’re still a far cry from pre-pandemic levels - $11.4bn in 2019. Streaming may not be the sole focus as it was during lockdowns, but the prevailing trend is clear.
The shift to streaming was a challenge for media companies, but they’re beginning to make it work. In fact, Paramount Executive Vice President and CFO Naveen Chopra says that streaming is a “massive opportunity for us, because it allows us to address a much larger audience.”
It is a profound shift to the media landscape, enabled by high-speed connectivity. But as fiber and 5G proliferate, they are enabling even bigger changes.
The Fourth Industrial Revolution
We are only just beginning the Fourth Industrial Revolution (4IR) – a confluence of new, predominantly cloud-based technologies including AI, the Internet of Things (IoT) and robotics. Together, they promise to revolutionize productivity, while opening doors to previously unimagined possibilities.
Keirstead cites programming assistant GitHub Copilot as an example of AI’s potential: “Copilot suggests the next line of code. It’s a phenomenal timesaver, with a large industry productivity gain if you can code 50% faster.”
Indeed, Hodulik says that from an investment standpoint, “the biggest winners from 5G are likely to be the application providers, not the network providers, if we look at the trends from 3G to 4G.”
The applications will also be the drivers of social change. Kenneth Miller, Chief Financial Officer, Juniper Networks says his company’s networking solutions are crucial, “to enable clean energy, rethink education, improve healthcare around the globe, and empower social change.” The business is particularly focused on cloud-delivered AI, which is essential for Big Data analytics and predictive modeling.
John Hodulik
US Cable, Telecoms and Media Analyst, UBS Global Research
Naveen Chopra. Paramount Executive Vice President and CFO
Kelsey Perselay. TMT Sector Specialist, Global Markets, UBS
Brian Robins. Chief Financial Officer, GitLab
Technologies like these make high-speed broadband increasingly important, and increasingly beneficial. Jeff McElfresh, Chief Operating Officer, AT&T, says such connectivity is “helping cities, enterprise customers, students and teachers to [do] things they didn’t even dream possible before.”
This focus on social impact is typical of TMT businesses. They are increasingly aware of both their outsized – and growing – influence on society, and hardening consumer attitudes on issues like sustainability and inclusion.
Jeff McElfresh
Chief Operating Officer, AT&T
Investing in positive impact
Tech is notoriously energy intensive, becoming more so as processing requirements increase for technologies like AI, and IoT. The space also lacks broad diversity in many roles and functions. Women comprise only 26% of the tech workforce, for example. Consumers increasingly expect action on these issues.
UBS Global Research says that tech companies are “leading the charge” on responding to their increasing ESG obligations. Across TMT, this can be done by reducing emissions with efficiency measures and renewables, like Hollywood’s Sustainable Production Alliance, which aims to halve production emissions by 2030.
But ESG is increasingly seen as integral to better business, rather than a Corporate Social Responsibility-style add-on. For Paramount, that means responding to a demand for media that better reflects the people it speaks to. “Content is the lifeblood of our organization,” says Chopra. “That’s why we’ve launched Content for Change, an initiative to improve inclusion and representation – both on-screen and behind the camera.”
Similarly, Robins says GitLab’s use of remote working practices to recruit from all over the world helps create a better product by including a wider variety of voices – in a sector often criticized for unconscious biases.
Naveen Chopra
Paramount Executive Vice President and CFO
The future will be even more connected
The short-term outlook may be challenging. But long-term, TMT is continuing its trajectory of becoming ever more central to our lives.
“Tech, media, and telecoms were already central to society before the pandemic. Covid-19 accelerated those trends,” says Perselay. “The sector is undergoing a correction following the pandemic. But as new technologies like AI and IoT proliferate, its influence will expand. And with its renewed focus on environmental and social goals, that’s good for everybody.”
Investing for a better worldConnecting people, ideas and opportunities
