Post #66: The future’s still happening, right?…

… although in some cases, it may be a bit delayed.

The first quarter reporting season is just beginning. It provides a fascinating insight into how companies currently see the world. This is all the more pertinent at present given the uncertainty being wrought by COVID-19. Having already listened to what over a dozen companies have had to say about the future, we have been generally impressed by their candour and honesty. Unsurprisingly, safety of staff is paramount. Every business has also highlighted the ability many of its employees have to do their jobs remotely. Where life can go on almost as normal, it does, even if financial guidance currently counts for little (hence why it has been withdrawn in many cases). Nonetheless, despite these similarities, there are notable differences in how businesses see the future.  

Looking good: data, cyber and food: ASML, the world’s largest manufacturer of the advanced lithography machines which produce semiconductor chips said on its quarterly earnings call that it had seen “no reduction of demand” for its tools. This view was echoed by TSMC, a significant contract manufacturer of chips. TSMC reiterated its capital expenditure plans for the year and highlighted “resilient demand” from its own customers. Both businesses called out long-term secular trends, particularly the need for high-performance computing  as supportive to the outlook. More data demand logically should imply higher cybersecurity spending. Comments from Avast, a leading business in the field, highlighted that owing to an increase in working from home, there was a notable improvement in conversion rates (from free to paid) and billings, especially through the latter part of the first quarter. And, we still need to eat. Results from Christian Hansen, a leading provider of food solutions, highlighted how its end markets were  “quite resilient.” Most notably, more people are apparently eating probiotics and taking dietary supplements, presumably in order to boost their immune systems.

Future deferred: autonomous cars and robotic surgery: While very different, both these categories could be categorised as being discretionary and hence less essential in nature. TomTom, a leading provider of location and mapping technology, noted that demand for its products from car manufacturers had been notably weaker in recent weeks. The key issue for the auto industry, as described by TomTom’s CEO is more one of “survival” at present rather than thinking about autonomous cars. From a TomTom perspective, enterprise demand (e.g. from the likes of clients such as Microsoft) remains robust. In the healthcare space hospitals are, unsurprisingly, allocating resource to managing COVID-19 challenges above all else. Intuitive Surgical, the major player in robotic-assisted surgery, noted that procedures performed using its tools were down 90% in China at the country’s nadir. Meanwhile, the US had seen a 65% drop during March. Procedures such as hernia and bariatric are being delayed, even if as Intuitive notes, symptoms may worsen in the absence of surgery. Finally, we took note of a leaked letter sent by Alphabet to Google employees highlighting how it would “recalibrate” its investments. We presume some of this decision is a function of a markedly weaker outlook in advertising, although anecdotal evidence would also seem to suggest that Google is losing momentum relative to its larger peers within the market for cloud computing services. 

Heptagon Capital is an investor in ASML, Avast, Intuitive Surgical and TomTom. The author of this piece has no personal direct investment in any of these businesses. Past performance is no guide to future performance and the value of investments and income from them can fall as well as rise.