In its 2018 outlook report, the credit rating agency predicted a year of “solid” revenue and "robust” earnings growth for the tech industry, driven by healthy demand for smartphones, software and cloud-based computing systems and stellar performances from Apple and Microsoft. Success in these areas, the report added, should easily offset an anticipated further decline in PC unit volumes.
According to Moody’s calculations, operating profit across the tech sector will grow between 6 percent and 7 percent in 2018, or between 5.5 percent and 6.5 percent when excluding contributions from Apple and Microsoft. The credit rating agency also expects the Cupertino, California- and Redmond, Washington-based companies to lift aggregate revenues, forecasting that sector-wide sales will grow as much as 4.5 percent with them and up to 3.5 percent without them.
"Smartphones and software will drive the most growth, with Apple and Microsoft having an outsized impact," said Stephen Sohn, senior vice president at Moody's. "The two companies collectively account for about half of the operating profit for the 24 companies that represent a proxy for the diversified IT sector."
Moody’s also predicted that the ongoing move to cloud-based systems will prove to be significant source of industry-wide revenue in 2018.
“Equipment and software purchases and services related to the ongoing migration to cloud-based IT systems from legacy IT architecture will serve as a tailwind," said Richard Lane, also senior vice president at Moody's. "Growth in Software-as-a-Service revenues now more than offset the declines in license revenues."
Microsoft is expected to be a major beneficiary of this shift. Earlier this week, investment banking firm Evercore ISI predicted that the Redmond, Washington-based company’s Azure cloud business will help it to reach a $1 billion market capitalization by 2020. (See also: Microsoft Could Be Worth $1T By 2020: Evercore ISI.)
Evercore ISI analyst Kirk Materne believes Microsoft’s cloud offering will steal market share from rival Amazon.com Inc. (AMZN) because the e-commerce giant’s aggressive expansion into various different industries is making it increasingly unpopular with many potential customers. "Amazon's ambitions in certain industries are now having a real impact on how certain enterprises think about AWS as a potential vendor,” he said.
Analysts also expect Apple to soon cross the $1 billion market cap threshold. Some observers believe the Cupertino, California-based company could even reach the milestone next year, thanks to the launch of the iPhone X. (See also: iPhone X Will Help Apple Beat Samsung in Q4: Report.)