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In recent years, with improved revenue and earnings against the backdrop of the penetration of digital transformation (DX) and cloud computing, IT service providers have continued to produce strong financial performance, but a troubling occurrence occurred on October 25, 2020.
Saturday, November 14, 2020, 18:09 GMT
As a big ERP (Enterprise Resource Planning) package group, SAP Europe reported its July-September 2020 financial results (International Financial Reporting Standards) and documented a considerable decrease in revenue and earnings.
With SAP revenue down 4 percent year-on-year to EUR 6,535 million and operating profit down 12 percent to EUR 1,473 million, the effects of the spread of the latest coronavirus had a clear impact. The company’s stock price fell by almost 30 percent in a few days, combined with the downward adjustment of the full-year earnings outlook, and its market capitalization plunged by around 5 trillion yen. After that, also in Japan, the difficult financial success of major IT service firms came to the fore. A black cloud is in the future.
The influence of the fresh corona directly affects Fujitsu and NEC
Revenue, which is equal to revenue, fell 10.8 percent year-on-year to 1,631.8 billion yen, and operating income was 12.4 percent, according to Fujitsu’s April-September 2020 financial reports (international accounting standards) revealed on October 27, 2020 . It fell to 1 billion.
As with SAP, the explanation for the malfunction is the same. The spread of the new corona virus strongly impacted it. Specifically, because of delays in commercial agreements related to the implementation of the major corporate structure, the timing of orders and deliveries was postponed. The budget for IT-related activity in the automotive and other production sectors, which are major clients, was cut, in addition to delays in business agreements for system improvement programs for local municipalities.
“At a financial results briefing on October 27, Takeshi Isobe, Fujitsu’s Managing Executive Officer, said The current Corona was more highly affected by the first half of 2020. The material is more the project expansion. There are many consumers who will not start now for the time being.
Similarly challenging were NEC’s accounting reports. In the financial reports for April-September 2020 (International Financial Reporting Standards), revealed on October 29, 2020, revenues and earnings decreased. Revenue dropped year-on-year by 9.2 percent to 1,315 billion yen, and net profit fell by 57.4 percent to 0.19 billion US dollars.
At a financial results briefing on October 29, NEC President Takashi Niino said that the economic downturn triggered by the spread of the latest Corona outbreak will affect the operating revenue of the organization as of May 2020 for the fiscal year ending March 2021. We predicted the yen to be negative, but we expect it to rise to 0.62 billion US dollars at this point.
What all IT service firms that profit from declining market results have in common is that IT services have dropped sharply for the automotive sector. “For example, Fujitsu, which had a negative effect of 85.1 billion yen year-on-year on the new corona, said that the situation in the business sector was “significantly influenced by the analysis of the start time of the initiative, particularly in the industrial and automotive sectors” (Director Isobe).
In the April-September cycle of 2020, major IT service companies such as NS Solutions and TIS also did not do well. NS Solutions reported 119 billion yen in revenue, down 12.9 percent year-on-year and 11.1 billion yen in operating profit, down 21.4 percent year-on-year. System implementation for the steel industry-focused industrial business, such as the parent company Nippon Steel, has not advanced. TIS also announced a decrease in revenue and earnings, saying that in the automotive sector, the drive to curb IT investment has accelerated”
“Satoru Kikuchi, a senior analyst at SMBC Nikko Securities, said IT investment is mostly stopped in the automobile sector, aviation industry, railway industry, etc., which are significantly influenced by the latest corona, since the launch of IT does not contribute directly to market results. IT service businesses that do not do well with many clients.
What about those IT service providers, on the other hand? There are few areas where the score overall is good. The feeling is that there are some good performing parts and some that do not.
For example, NTT DATA’s April-September 2020 financial results (International Financial Reporting Standards) saw higher revenues and earnings, but were at about the same level as in the previous year’s era. Sales to businesses such as the textile sector declined, but to compensate for the decline, sales to government organizations such as the government improved.
Sales of DX projects for retailers such as QR code payment-related and electronic price tags improved, while system implementation at Nihon Unisys was slow. Sales fell 3.4 percent year-on-year to $1.38 billion US in the financial reports from April-September 2020, but operating profits grew 5.0 percent year-on-year to $0.2 billion US.