COVID-19 has caused a rapid, unprecedented impact to the Hardware industry, creating business continuity uncertainty driven by a dramatic shift in consumption. Response planning to the COVID-19 disruption will require a multi stage approach.
- Hardware companies lost 9% or more of their market cap in the 3 months since the beginning of the COVID-19 disruption – performing better than the market overall but worse than other Technology sectors, including Software
- The median hardware company has relatively strong liquidity but will be sensitive to declining sales – particularly those with a customer base concentrated in hard-hit sectors or SMBs. If monthly revenue falls by 50%, an average hardware company could run out of cash in < 2 quarters
- Most companies will need to cut costs to maintain efficiency. In prior recessions, those that addressed both growth and cost in a balanced manner outperformed others ~2x on sales & EBITDA CAGRs
- Hardware companies may be looking to reduce R&D expense in line with declining revenues. But if the 2008 downturn and recovery is a good analogy, hardware companies that increased R&D spend saw higher R&D productivity over time, mitigating topline impact
- Ultimately, hardware firms are taking action to protect revenue including launching new offerings to support digital transformation, adopting as-a-service commercial models, and supporting at-risk channel partners