UK tech sector facing structural difficulties, says analyst firm

Meanwhile, Federal Reserve sentiment sees US tech stock fall amid uncertainty

While US tech stocks have suffered in response to rising inflation, interest rates and general economic uncertainty, the UK tech sector — or what is left of it — is doing worse.

An analysis by UK research company Techmarketview has found the tech-focused NASDAQ finished 4.6 percent down month-on-month in August, or 24.5 percent down year-to-date.

This is "not its worst month in 2022 by any means, but [it's] disappointing after a strong showing in July," commented research director Tania Wilson.

The fall followed a meeting of global monetary policy leaders during late August in the US. But rather than reassuring markets, the Federal Reserve signaled [PDF] that rises in interest rates to control inflation might be necessary "for some time."

"Tech growth stock valuations are particularly vulnerable to rising interest rates because so much of that value is in future earnings and higher interest rates mean a heavier discount on those earnings," Wilson explained.

Still, tech's Big Five — Apple, Amazon, Google/Alphabet and Microsoft — saw a relatively calm period posting modest share losses, with only Facebook/Meta posting a small gain. Netflix held steady, with both Twitter and Tesla down.

But there were some losers in the continued turmoil on the tech markets. These included education tech specialist RM, outsourcing and system stalwart Unisys and consultancy and services firm DXC Technology, and CRM giant Salesforce.

On the macro-trends, higher interest rates could make it harder for tech markets — and startups in particular — to raise capital. Historic lows since the financial crisis had sent investors looking for higher returns. But this represented a correction, rather than a shortage, in the way tech companies access capital. They were simply going back to pre-financial crisis norms, John-David Lovelock, distinguished research vice president at Gartner, told The Register in July.

While the US stock fared about as badly as expected, in the UK there were signs of a more systematic decline, Techmarketview's Wilson pointed out. Takeovers are on the cards for a few of the largest UK tech companies, including Avast, Micro Focus, Darktrace and AVEVA. While the market reaction to M&A activity prompted a climb in FTSE tech stocks, diverging from the NASDAQ, it was not a good sign in the long term.

"If AVEVA is taken fully private and the merger of Avast with NortonLifeLock goes ahead, the FTSE 100 will be left with just one software and IT services company: accounting software provider Sage.

"A dearth of major UK tech players is not good news for the UK economy. Looking beyond the current inflation crisis, we know this country must improve its productivity if we are to improve our living standards. Tech is surely a huge part of that productivity debate," Wilson said. ®