As reported by Atradius, like 2016 the US market ofInformation Communication Technology it benefited from solid economic growth and the good performance of private consumption, supported by wage increases, employment growth and reduced energy prices. Consumer spending has hovered around 3% in recent years and this positive trend should continue in the near term. According to industry association data CTA (Consumer Technology Association), ICT retail revenues are expected to hit a record $351 billion this year, up 3,9% from 2017. The expansion of the smartphone segment is expected to slow slightly as manufacturers need to deal with the increased pressure related to the continuous increase in the prices of some essential components. CTA expects connected device sales to hit 2018 million units in 715, driven by smart devices, drones and wearables; however, consumers continue to have a rather cautious attitude towards discretionary spending and are constantly looking for the best quality/price ratio. And despite good growth rates in many ICT segments, stiff competition continues to drive down prices and shrinking profit margins for distributors and resellers.
At the same time, the Japanese ICT sector is well established and boasts an excellent international reputation for excellence and innovation. Japan is the third largest ICT market in the world after China and the USA and boasts world-famous companies (such as Hitachi, Sony, Panasonic, Fujitsu and NEC) which hold important market shares. According to analysts' forecasts, the market will remain solid thanks to the growing number of local consumers and the increasingly sophisticated business base, with strong growth in view of the 2020 Tokyo Olympics. This year, sales of the hardware segment should to reach 2,45 trillion yen (18,6 billion euros) and then slow down to 2,54 tln yen (19,3 billion euros) in 2021, with a compound annual growth rate of 1,2% . This situation is mainly due to the contraction of the PC market, penalized by the prolongation of the product life cycle and by the decline in the sales of low-end tablets and notebooks thanks to the expansion of smartphones.
In the USA the level of competition remains high and margins are continuously under pressure: an increase in margins could come from new product lines or from a greater share of sales deriving from services, which usually ensure higher profit margins. Manufacturers' profit margins are affected by the high market penetration of mature product categories, with the consequent need for innovation and therefore greater investment in R&D. Most firms in the sector continue to be heavily dependent on banks and external financing and therefore show a high debt ratio: high interest rates could have a significant impact on firms' net revenues and debt service capabilities. In this scenario, the approaching deadlines and the possibility of refinancing at lower interest rates will determine whether or not the risks increase. Most firms in the sector have high working capital needs, and therefore new debt securities issues are likely. Payment terms in the ICT sector usually range between 30 and 90 days, although in some cases they reach 120 days. When payment delays occur, it is usually a question of product price disputes rather than liquidity problems: manufacturers often offer discounts or "price protection" packages on products to help them move before they become obsolete due to of rapid technological innovation, with the risk of generating controversy. Hence, analysts do not expect a decrease in insolvencies in the sector in 2018 in the light of strong competition, the proliferation of start-ups and ever shorter product life cycles.
At the moment, moreover, the impact of potential import duties and the possible deterioration of commercial relations remains to be assessed. The first wave deliberately excluded ICT sector products; however, after the retaliatory measures announced by China, Washington is evaluating the introduction of further duties that could affect smartphones, PCs and televisions, with a consequent increase in their final price. Analysts expect US retailers to be able to absorb some of the costs, not to mention the fact that some companies can mobilize production from China to other countries, thus reducing the impact on US consumers. Companies with complex supply chains, especially high-tech industries, are able to change the way internal costs are allocated between subsidiaries in order to reduce the impact of tariffs. However, industry supply chains may suffer as products manufactured in China and exported to the US rely heavily on imports of US-made components (including semiconductors and software). Therefore, in the event of a deterioration in trade relations between China and the USA, a potential negative effect cannot be excluded not only from the point of view of the supply of components, but also with regard to consumption with the increase in sales prices.
In Japan, sales of the software segment are expected to reach 3,83 tln yen (29,1 billion euros) in 2018 and 4,31 tln yen (32,8 billion euros) in 2021, with an annual growth rate composed of 4%. In this context, investments in data analytics, cyber security and cloud solutions represent a growth opportunity for software vendors. Sales of IT services should reach 18,28 tln of yen (139,2 billion euros) in 2018, to then touch 20,64 tln of yen (157,2 billion euros) in 2021, with a growth rate compound annual growth rate of 4,1%, on the back of increased spending in 2019/2020 ahead of the Tokyo Olympics and higher investment by Japanese businesses. Japanese companies in the ICT sector have easy access to bank financing and can benefit from low interest rates: the current government strongly supports bank financing and encourages banks to grant loans even to the weakest companies. For this reason, Japanese companies generally exhibit a high leverage ratio, with payments taking an average of 90 to 120 days. However, the Japanese corporate culture promotes immediate payment and therefore the number of delays is therefore limited, with the level of insolvencies in the ICT sector expected to remain stable during 2018.
