Oct 30, 2020 - Economy

The pandemic isn't slowing tech

Illustration: Eniola Odetunde/Axios

Illustration: Eniola Odetunde/Axios

Thursday's deluge of Big Tech earnings reports showed one thing pretty clearly: COVID-19 may be bad in all sorts of ways, but it's not slowing down the largest tech companies. If anything, it's helping some companies, like Amazon and Apple.

Yes, but: With the pandemic once again worsening in the U.S. and Europe, it's not clear how long the tech industry's winning streak can last.

Apple's results were particularly strong.

  • The company reported its best September quarter ever, even though it got no revenue from its new iPhone lineup. Typically, Apple starts selling the iPhone in September, giving it at least a couple of weeks of sales in the third calendar quarter (Apple's fiscal fourth).
  • While iPhone sales were down from a year ago, revenues from iPads, Macs, wearables and services were all up.
  • The Mac sales growth was even more impressive considering Apple plans to begin its transition from Intel chips to homegrown processors later this year, a shift that normally could slow sales.

Amazon saw its revenue grow 37% from last year as consumers continued to shift spending online.

  • Despite incurring an estimated $2.5 billion in pandemic-related costs, Amazon profits reached $6.3 billion, just under triple what they were a year ago.
  • Amazon's Web Services business, meanwhile, saw revenue grow to $11.6 billion, up from $9 billion a year ago.

Google parent Alphabet, after seeing its first-ever decline in revenue last quarter, returned to growth in the third quarter, posting better-than-expected revenue of $46.2 billion.

Facebook reported only modest user growth, but its quarterly revenue beat Wall Street expectations.

  • The company said growth in monthly active users in the U.S. and Canada was down slightly from the second quarter, which the company attributed to an easing of COVID- 19-related lockdown protocols.
  • CEO Mark Zuckerberg also said preorders of the company's Oculus Quest 2 headset exceeded expectations and were five times those for the original Quest.

Between the lines: The results reveal that the companies can do much even in a suffering economy, with many people unemployed. In part, that's because tech is the lifeline to work and school for significant chunks of the global population.

  • That helped Apple sell laptops and Amazon sell all kinds of things, and made Facebook and Google even more critical lifelines to friends and information.

Context: The federal government reported strong growth in the U.S. economy for the third quarter Thursday morning, making up some of the record losses in Q2 but still leaving the economy in a deep hole compared to its pre-pandemic peak.

  • While Congress has yet to pass any new coronavirus relief, the economy was still protected some last quarter by expanded unemployment benefits and other stimulus.
  • Fresh relief appears unlikely, which could start to lower consumer spending.

The big picture: The tech companies face additional challenges beyond the pandemic and its economic effects.

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