Date of Graduation

5-2022

Document Type

Thesis

Degree Name

Bachelor of Science in Business Administration

Degree Level

Undergraduate

Department

Finance

Advisor/Mentor

Rennie, Craig G.

Committee Member/Reader

Rennie, Craig G.

Abstract

The Technology Hardware, Storage & Peripherals industry is stimulated by strong trends across numerous end-markets and categories of products. Advancements in 5G, demand for health-conscious wearable devices, and emerging services for next-generation devices are major prospects for the broader hardware industry through 2022. However, Headwinds such as trade wars, the COVID-19 pandemic, and the recession looming, could alter the healthy trends that are noticed. Enterprise spending is seen to keep improving, but consumer spending is encouraged to take a breather in 2022. As such, the outlook for the Technology Hardware, Storage & Peripherals industry for the next 12 months is neutral. There are many Goliaths in this industry that could tackle the headwinds such as Apple and Samsung Electronics that need to be noted when looking at the industry overall. These companies have the ability to maneuver around the trends that other companies in the industry follow.

Smartphone demand will improve through 2022, in reflection of the shift towards 5G devices and the greater adoption by consumers of these devices due to greater integration of 5G services across the globe. 5G devices are expected to represent 40% of the total smartphone market. Price points for such devices will also be forecasted to be available at lower price points in 2022 with new renditions of the Low-tier flagships to be integrated with 5G hardware. The Premium space of the smartphone market continues to show healthy performance with customer support for higher average selling prices. The products have provided longer refresh rates as they provide customers with support that lasts longer than 3 years, and more storage than previous flagships. Since the declined growth of the smartphone space from 2019-2020, 2022 will represent the second year of growth after growing 5.7% in 2021.

Although the supply limitations for semiconductor parts and logistical issues have caused a delay in shipments and products, the backlog for laptops stays raised. Rising interest in PCs and tablets from schools, businesses, and average consumers in a post-pandemic world has permanently integrated such devices into the lives of many individuals. There is a strong demand for Chromebooks and other-consumer-driven PCs in 2022, continuing from the surge in 2020 and 2021. Business orders are likely to increase with a higher price point relative to consumer devices. The education space continues to place more orders for students, especially since schools have permanently transitioned into a post-pandemic world.

CFRA expects orders for wearable devices to grow at a double-digit percentage basis through 2024 as momentum continues for adoption rates and new product categories. Integration of new sensors within smartwatches is expected to further increase capabilities and tackle new health monitoring solutions. The support for long-term demand will stem from increasing health care initiatives and opportunities arising from corporate wellness programs. The wireless headphone market is oversaturated, however, there is increasing traction with consumers as the trend continues to shift away from wired devices.

The storage market is seen to be growing at a low single-digit percentage growth in the longer term but segmenting the market into different storage types provides a mixed picture. The public cloud is expected to control a greater share of the market with stimulated growth. Flash-oriented storage systems will increase at a steady pace of 10%-plus annually for the next four years. Hard drives are increasingly getting replaced with their solid-state storage counterparts every year and the trend continues to accelerate as Solid-State Drive prices per Gigabyte continue to decline. Enterprises will continue to be the most important player in the market for storage as data collection for various purposes increases. Security threats for server infrastructure, particularly with cloud storage, and legal issues may cause headwinds for the storage space.

The multiples for the Technology Hardware, Storage & Peripherals industry is expected to shrink over the next year as growth rates will provide more stability after the demand from end-market products over 2021. As companies grow into their multiple, earnings growth is expected to outgrow share price appreciation. This is typical as the business cycle approaches the end stages. The industry currently trades at historical forward averages across numerous metrics. Based on fundamentals, the enterprise-driven aspects of the market will outperform consumer-driven end products.

Keywords

Information Technology Report; Industry Report; Equity Investing

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