Jan-Feb 2020 - ChannelVision Magazine

F or the first time in history, the U.S. economy has gone an entire decade without enter- ing into a recession. Indeed, what a run it’s been. At the time of print, the economy will have expanded for a record 127 months and counting. The reasons for the historic period of economic growth can be attributed to a few different factors, such as ongo- ing stimulus benefits, and responsible post-downturn behavior from consum- ers and businesses, among others. The expansion, however, is still an anomaly according to financial experts. “It is unusual that this has been such a persistent recovery,” said Mi- chelle Meyer, who is chief U.S. econo- mist at Bank of America Merrill Lynch. Fears mounted this past August, when the Dow Jones dropped by 800 points following a dreaded yield curve inversion, which is typically a telltale sign that a recession is loom- ing. Around that time, 60 percent of economists surveyed by the NABE anticipated that a recession would take place by the end of 2020. The recession, however, hasn’t hap- pened yet. Since then, the economy has rebounded, easing concerns slightly. “The latest update, which looks at October data, estimates the chance of a U.S. recession within the next year at 29 percent, after an upwardly revised 27 percent in the prior month,” Bloom- berg stated in its most recent report. “That reading is lower than highs reached earlier this year and will likely move lower given initial positive read- ings across November data.” Ian Lyngen, head of U.S. rates at BMO, also commented on the positive state of the economy. “The Fed is on hold, the economy is doing well, and trade tensions aren’t increasing,” Lyngen stated in a Decem- ber note. “In such a world, a steeper curve follows intuitively.” That’s not to say that we’re com- pletely out of the water, though. As Money & Markets pointed out, histori- cally the S&P 500 has performed well in between the yield curve inversion and start of a recession. Of course, it’s all speculation right now as to which way the market could turn in 2020. But telecommunications companies should take this time to make sure they’re prepared to respond in the event of a sudden downturn. According to McKinsey, as it presently stands the industry could be in for a rude awakening. CORE COMMUNICATIONS RIDINGTHE ECONOMICWAVE By Gerald Baldino Despite the current strength of the economy, McKinsey warns telcos are less prepared for another downturn Source: Computer Economics Percentage Currently Investing Percentage with Technology in Place 3. Business and Data Analytics 4. ERP 5. CRM 6. Human Capital Mgmt 7. Mobile Applications 8. Mobile Devices/Wearables 9. IaaS 10. E-commerce 11. Supply Chain Management 12. Enterprise Asset Management 13. Internet of Things 14. Artificial Intelligence 15. Robotic Process Automation Low Investment/ Low Adoption Low Investment/ High Adoption 2 4 5 10 6 8 11 12 13 14 15 7 9 What are the key factors needed to build a business case for IaaS/public cloud investments at your organization? Source: 451 Research Faster time to market/agility Resource scalability based on application/workload demand Reduces internally owned/managed datacenter footprint Hardware savings Improves application performance/availability Access to advanced capabilities embedded in public cloud platforms Improves efficiency of IT staff Preference for consumption-based model for IT resources Software licensing savings Extends geographic reach Other 35% 34% 33% 29% 28% 25% 23% 17% 16% 11% 7% Rising debt and falling profits have left operators exposed to liquidity risks, especially as operating conditions tighten during a downturn Source: CPAnalytics; Capital IQ; McKinsey analysis Leverage Debt/EBITDA Interest coverage ratio Unlevered free cash flow; interest expense Market vs telco operators 8.1 2007 2009 2018 2007 2009 2018 2.0 2.4 3.0 3.2 3.1 3.1 3.9 3.6 2.0 5.9 9.7 Note: Includes North American and European listed companies with 2007 revenue >$1 billion and telco operators with 2007 revenue >$100 million. Market Telco operators 50 CHANNEL VISION | January - February, 2020