Chicago – U.S. technology industry CFOs, buoyed by strong returns over the past year, are feeling confident heading into 2014. According to BDO USA, LLP's 2014 Technology Outlook Survey, more than two-thirds (67 percent) of technology CFOs anticipate increased sales revenue in 2014, a 15.5 percent increase from the number of respondents expressing similar sentiment last year. Survey respondents who forecast revenue growth expect an average increase of 11 percent. This comes on top of other recent robust industry projections. According to financial research firm FactSet, technology companies in the S&P 500 are expected to see a 9.3 percent increase in net income this year, placing the technology sector among the most profitable U.S. industries.
Tech CFOs are also confident in their projections for growth in the coming year. Few anticipate significant headwinds or uncertainly in 2014, with 81 percent of survey respondents believing their ability to forecast future results is about the same or better compared to the past several years.
"Optimism among tech CFOs is a reflection of strong demand for technology services and products, the maturation of many companies with solid growth plans, and an improving economy," said Aftab Jamil, partner and leader of the Technology and Life Sciences Practice at BDO USA, LLP. "Following the NASDAQ Composite Index's impressive 38 percent growth last year, tech stocks continue to see considerable demand driven by ongoing product innovations. Wearable technologies, cloud computing, advancements in robotics and even space tourism have all contributed to a broader sense of possibility and, by extension, opportunity."
The CFOs surveyed also anticipate that merger and acquisition (M&A) activity will remain dynamic in 2014. Nearly all of the CFOs (94 percent) expect M&A activity to increase or stay the same this year, which is on trend with last year's findings (95 percent). M&A is an attractive option for companies looking to grow both their top and bottom lines while managing execution risks. Solid operational performance over the last few years and a strong equity market offer significant opportunities for larger companies, which use cash generated from operations and high valuations of stock to add intellectual property and talent. CFOs predict that acquisitions will continue to be primarily offensive (72 percent), with 30 percent identifying revenue and profitability as the key driver of deals, followed by technology assets and intellectual property (28 percent) and market share (18 percent).
Despite the optimism, survey respondents indicated that the complex and evolving U.S. tax system may pose a challenge to their anticipated growth, with 42 percent of CFOs saying it hampers their ability to compete in the global marketplace. Domestic corporate tax rates, which are among the highest in the world, remains a persistent worry for survey respondents, with 37 percent citing it as their greatest concern (down slightly from 39 percent last year). The survey also reveals increasing concern over the state tax environment with 27 percent of CFOs citing aggressive state laws as a top concern (up from 18 percent last year). Meanwhile, 19 percent are most apprehensive about the expiration of tax incentives. This is a significant increase from last year, when only nine percent of CFOs reported it as a leading concern, and is likely related to the failure of Congress to pass an extenders bill prior to the expiration of a number of tax incentives at the end of 2013, such as the Research & Development (R&D) tax credit. Interestingly, the percentage of respondents who consider the taxation of overseas activities their greatest concern dropped dramatically, from 21 percent last year to only eight percent this year.
These initial findings are from the seventh annual BDO Technology Outlook Survey, which examined the opinions of 100 chief financial officers at leading technology companies throughout the United States. The survey was conducted from December 2013 to January 2014. Additional findings from the study will be released in the coming weeks.
Other major findings from the 2014 BDO Technology Outlook Survey include:
- Software drives M&A activity, followed by social media. Sixty percent of CFOs surveyed continue to expect the competitive software/cloud computing sector to drive the most deal activity. However, with social media stock valuations on the rise and companies like Facebook and LinkedIn reporting earnings that beat market expectations, CFOs predict that the social media sector will be an increasingly attractive area for M&A activity. Twenty-four percent report that they expect this sector to drive M&A activity in the coming year, which is more than double those sharing this sentiment in 2013.
- Positive outlook for business valuations. Fifty-one percent of CFOs expect business valuations to remain consistent with current levels, while 46 percent expect valuations to increase. This positive attitude and stability may be a reflection of the strong equity markets over the past year combined with the upward trend of U.S. venture capital investment in the fourth quarter of 2013--an indication of improved investor confidence.
About the Technology & Life Sciences Practice at BDO USA, LLP
BDO has been a valued business advisor to technology and life sciences companies for over 100 years. The firm works with a wide variety of technology clients, ranging from multinational Fortune 500 corporations to more entrepreneurial businesses, on myriad accounting, tax and other financial issues.
About BDO USA
BDO is the brand name for BDO USA, LLP, a U.S. professional services firm providing assurance, tax, financial advisory and consulting services to a wide range of publicly traded and privately held companies. For more than 100 years, BDO has provided quality service through the active involvement of experienced and committed professionals. The firm serves clients through 52 offices and more than 400 independent alliance firm locations nationwide. As an independent Member Firm of BDO International Limited, BDO serves multi-national clients through a global network of 1,264 offices in 144 countries.
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