Falling currency, data concerns and the uncertainty of it all
he UK’s decision to leave the European Union has led to predictions of doom for the region’s tech industry. TechRadar reported how the move could cripple the sector by removing EU talent and funding, cut off access to data and markets, and complicate trading and data privacy laws for years.
American tech industry investors might see fit to cheer the weakening of international competition, but in truth they have little reason to celebrate: the effects of Brexit on the US tech industry strike a harsh financial blow, and could have long-term ramifications on US businesses, from tech giants to fledgling startups.
Through our own research and a conversation with Stanford University professor and technology forecaster Paul Saffo, we set out to determine just how unfavorable these events will be to US tech businesses, and whether there’s any silver lining to Brexit’s chaotic impact on the technological economy.
Strong dollar = weak foreign profits
Financial markets reacted violently to the news of Brexit, with the pound decreasing to a 31-year low, the euro similarly plummeting and the dollar rising 6.3% in one day, its fastest rise in 50 years.
This trend is, somewhat counter-intuitively, terrible for US businesses, as foreign consumers and businesses will avoid purchasing increasingly expensive US goods. CNN Money reports that the strong dollar has already cost American companies tens of thousands of jobs from reduced foreign sales in early 2016, and this will only become exacerbated post-Brexit. Worse, any sales already made, paid in pounds and euros, become less valuable by the second until businesses have the chance to exchange the currency.
Silicon Valley tech companies do huge business in Europe, and this has shown in their soaring profit and stock losses, both in recent months and immediately after Brexit. Apple, for example, lost $2.3 billion in profits due to weakening foreign currency this past quarter, and its stocks fell another 3% just one day after Brexit. Microsoft’s stocks fell 4% on June 24, and another 3% on Monday. Facebook, which gets a quarter of its revenue from Europe, fell 3% Tuesday.
We asked Google, Microsoft and Apple how they plan to combat foreign losses; Microsoft had no comment, and Google and Apple didn’t respond by time of publication.
“Nobody in Silicon Valley just has a company in Silicon Valley,” says Saffo of the globalized tech market. Companies from giants to startups tend to branch out throughout international markets; the fact that London has traditionally been the bridge to the rest of Europe means almost the entire Valley is facing scrutiny and worry from investors after Brexit. Saffo notes that Apple, which located its main EU headquarters in Ireland, “looks really smart right now.”
Strangely, the biggest financial winners of Brexit might be British companies that deal primarily with US firms and consumers. Market Watch points to Arm Holdings PLC, a British supplier of silicon for Apple microchips, which soared in the stock market because its profits primarily stem from US currency. Thus, we could see more British companies trying to export to American businesses in future, so long as the EU market and currency remain in turmoil.
See http://www.techradar.com/news/world-of-tech/how-brexit-will-impact-the-us-tech-industry-1324154 for full storyShare