A Confident Tech Industry Revs Its Growth Engine – BDO Survey

Tech Deals and IPOs Expected to Pick up Steam in 2018

CHICAGO--()--Confidence is soaring in the technology sector. A strong economy and healthy investment in the industry have U.S. technology CFOs feeling optimistic that robust growth lies ahead in 2018, according to BDO’s 2018 Technology Outlook Survey.

“We expect 2018 to be a metamorphic year for tech, but success won’t come easy”

The vast majority (84 percent) of tech CFOs surveyed expect revenues to increase in 2018. The anticipated net increase of 12.2 percent is the highest ever recorded over the past 11 years of conducting the study. Global industry growth is projected to be strongest in the U.S. (cited by 34 percent of CFOs), followed by China (26 percent), India (24 percent), and Latin America (10 percent).

Ripe market conditions have tech CFOs eager to strike deals: 48 percent expect to engage in merger and acquisition (M&A) activity this year, up from 31 percent a year ago, and 72 percent anticipate a rising volume of tech deals in the year ahead. The hefty pipeline of tech unicorns, such as Lyft and Dropbox, may finally see lift-off on their IPOs. Sixty percent of respondents believe IPO stock performance will improve in 2018.

Still, significant obstacles are weighing heavily on the tech sector. Shifts in U.S. immigration policy are exacerbating the stresses of finding good tech talent, compelling major industry players to take a stand against restrictive measures. More than half (51 percent) of respondents anticipate recruiting and retaining key talent will be their greatest personal challenge this year. Scrutiny around cybersecurity vulnerabilities has also intensified, with the public demanding greater levels of accountability and transparency.

“We expect 2018 to be a metamorphic year for tech, but success won’t come easy,” said Aftab Jamil, assurance partner and global leader of BDO’s Technology practice. “Leaders are battling major political and economic forces that threaten to throw them off course, from changing trade agreements to shifts in immigration policy to sweeping tax reform. Nevertheless, the industry’s resilience is not to be underestimated, nor the community’s ability to transform setbacks into opportunities.”

Mixed Reactions to Tax Reform

Tech companies have yet to determine whether the recently passed tax law, formerly known as the Tax Cuts and Jobs Act, will ultimately have a positive or negative impact on their business. In fact, 65 percent of those surveyed after tax reform passed cite understanding its full impact on their business as their top tax reform-related challenge in 2018.

Nearly all CFOs surveyed post-tax reform emphasize the importance of the corporate tax rate reduction from 35 to 21 percent: 43 percent report that it will “very likely” have a significant impact on their business. While the tech industry’s average effective corporate tax rate was already well below 35 percent before reform, many companies still stand to benefit from the reduction. Nevertheless, organizations must assess the new tax provisions holistically to get an overall picture of the new tax law’s effect.

“Tax reform—particularly, the corporate tax rate reduction—may be seen as a boon to the U.S. tech industry, but not all companies will emerge as clear winners,” said David Yasukochi, Tax office managing partner and co-leader of BDO’s Technology practice. “Various international tax provisions may tilt some tech companies in favor of domestic operations, but the overall impact on both domestic and international tax structures is still unclear. The first round of earnings this spring will help shed light on how tax reform is impacting the sector.”

Additional findings from the 2018 BDO Technology Outlook Survey include:

Elevated Cyber Confidence

As the severity and frequency of cyberattacks and data breaches intensifies across all industries, tech CFOs are investing in a more secure future for their organizations.

  • 82 percent said their organizations used new software security tools in 2017, and 37 percent hired a chief security officer.
  • 61 percent were “very confident” in their organization’s ability to detect a data breach, and 32 percent were “somewhat confident.”
  • 20 percent cite compliance with data privacy and protection policies as their top policy concern.

Major Investments in Cloud and Data Analytics

Emerging technologies may be all the rage, but more dollars are being devoted to getting the basics right.

  • 70 percent plan to invest in cloud computing this year.
  • 64 percent plan to deploy capital to enhance their data analytics capabilities.
  • 85 percent have no plans to invest in artificial intelligence in 2018, and 58 percent don’t plan to invest in the Internet of Things (IoT).

These findings are from the 11th annual BDO Technology Outlook Survey, a national telephone survey conducted by Market Measurement, Inc., an independent market research consulting firm, whose executive interviewers spoke directly to 100 chief financial officers at leading technology companies throughout the U.S. The survey was conducted from December 2017 to January 2018.

Download the full report here.

About BDO’s Technology Practice

BDO has been a valued business advisor to technology companies for over 100 years. The firm works with a wide variety of technology clients, ranging from multinational Fortune 500 corporations to more entrepreneurial businesses, on myriad accounting, tax, and other financial issues.

About BDO USA

BDO is the brand name for BDO USA, LLP, a U.S. professional services firm providing assurance, tax, and advisory services to a wide range of publicly traded and privately held companies. For more than 100 years, BDO has provided quality service through the active involvement of experienced and committed professionals. The firm serves clients through more than 60 offices and over 550 independent alliance firm locations nationwide. As an independent Member Firm of BDO International Limited, BDO serves multi-national clients through a global network of 73,800 people working out of 1,500 offices across 162 countries.

BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms. For more information please visit: www.bdo.com.

Material discussed is meant to provide general information and should not be acted on without professional advice tailored to your firm’s individual needs.

© 2018 BDO USA, LLP. All rights reserved.

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Release Summary

The 2018 BDO Technology Outlook Survey is a survey of 100 chief financial officers at leading technology companies throughout the U.S.

BDO USA, LLP