CAPEX will be Slashed in 2020
There seems to be no good news these days, but one thing we know for certain - the coronavirus (COVID-19) pandemic will impact the economy in a deep and meaningful way for a very long time.
In the wake of this news is that capital expenditures (CAPEX), which many companies rely on will be slashed to the bone as organizations look to survive by cutting costs and retaining cash.
For a deeper dive into the IT Services Market, please check out this insightful report from GlobalData (Global Data) Tech, Media & Telecom Trends 2020 that appeared in Channele2e (ChannelE2E) this Tuesday – it’s eye-opening to say the least.
So, what are the reasons for such a precipitous drop in CAPEX spending? Well, there are three (3) fundamental reasons that come to mind – they include:
There is fear, uncertainty and doubt (FUD) – I don’t know how this will play out, so I’m going to keep as much dry powder (cash) in the vault as possible and hunker down.
Economics 101 – when times are good, and your profitability is solid you look to re-invest in your business and make structural improvements to further strengthen it.
Taxes – when times are better than good and profits are through the roof, businesses would rather not share all the upside with Uncle Sam and up CAPEX spending to avoid larger tax bills.
These uncertain times will alter enterprise and small & medium business spending for the next year or two.
The good news is that as we start to climb up and out of this hole, we’ll need to make certain expenditures to meet the demands of the marketplace.
I contend that most, if not all businesses will look to do a heck of a lot more with operating expenditures (OPEX) that manifest themselves in subscription models and spend.
A shock like this changes people and people run businesses - most of us will be looking for ways to spend incrementally, as needed, and not in large tranches so we can effectively conserve cash.
Look for the subscription economy to benefit greatly from this crisis and as the world adjusts and looks to move from pause to play - we’ll climb out of the hole and get back to helping our customers and shoring up our businesses.
The biggest thing you can do, in the short-run, is to make the commit to make the changes necessary to create a significant subscription-based business that solidifies your most important revenue streams.
As always, your input is welcome so please share your thoughts with us. More importantly – be careful, be safe, be healthy…