The automotive and mechanical engineering sectors, among many others, are driven by European technology, which puts the sector in a position to determine the future of the whole European economy. In light of current global events and historical stagnation, Deloitte projects Peak Technologies Europe Annual Revenue sales until 2030.
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The Mutually Beneficial Partnership Of European Tech
With 1.5 trillion in sales and over 8% of the European economy, the technology sector is a vital economic driver for the continent. The industry's gross output increased even during the COVID-19 epidemic.
For instance, European technology has significantly aided several other industries and is now essential to the digitalization of mechanical and automotive engineering. As a result, special digital priorities have emerged: The European IT sector fosters synergistic links with older businesses rather than relying as heavily on big software and internet organizations as it does in the US or Asia.
European technology firms have seen fierce international rivalry in various domains as they have converted industrial digitalization into increased sales. This is particularly true in the hardware sector, where production has sharply declined throughout Europe. The outcome has been evolution that has been effective overall but occasionally painful: Given that the software and services sector currently generates two-thirds of industry income, there is a lot more attention being paid to it now than there was twenty years ago.
The growth and decline of software vs hardware
It is remarkable to observe the change in focus from hardware to software and services when examining the history of sales over the previous 20 years. Sixty-one percent of technology sales at the start of the new century were hardware. It was just 33% by 2021. Given that the significance of the two main categories has precisely flipped over the last 20 years, these numbers demonstrate the fundamental transformation of the European IT industry.
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Since 2000, income from software and services has nearly tripled. Digitization is the catalyst here as Peak Technologies Europe Annual Revenue.
In addition to significantly increasing the need for different software, the desire for digital services has also led to a dramatic increase in the requirement for IT services due to the growing number of digital solutions, many of which are sophisticated. Technological advancements in fields like data analytics, particularly in the last ten years, have increased demand because software and services are now more commercially significant.
In contrast, the hardware market became much less substantial, especially in the years leading up to 2014. In several instances, sales actually decreased year over year at that time. Numerous factors contributed to this, including the decline in the value of traditional consumer electronics, the steady decline in the cost of many hardware categories, and the addition of talent, infrastructure, and—most importantly—scale from Asian nations like China and Vietnam, which allowed for efficiencies not possible in Europe. As a result, European hardware growth was extremely slow and could not capitalize on the digital megatrends.
In the hardware sector, however, there are indications of a trend reversal. Hardware's percentage of tech sales has not decreased since the 2014 start of the European tech boom. Conversely, for the last seven years, it has gradually increased by two percentage points. The significant advancements in software and services, which need for matching hardware, are the cause. The hardware industry's recent stability can also be attributed to businesses finding new, future-proof ventures, such as shifting their focus from consumer hardware to business-to-business (B2B) markets.
Industry interdependence: The catalyst for technological advancement
Nowadays, technology is not a single entity. Rather, its performance is directly related to digital products from other sectors. The fact that these areas of intersection—commitment, optimism for the future, and significant investments—are significant drivers of macroeconomic development is what makes the technology sector especially appealing. FinTech, linked automobiles, smart cities, and digital health services are a few examples.
Where in Europe do technology and other industries have the strongest interdependencies? Figure 2's sales figures demonstrate the findings of our input-output research and demonstrate the unique significance that the financial services sector plays for European IT businesses, since no other industry or sector generates higher income. The public sector also has a sizable but much smaller need. Middle-range sales are made to the automotive and mechanical engineering sectors.
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Important insights are revealed by looking at the industry-level sales ratio of hardware to software and services. Software and services obviously dominate the financial services industry; the increasing usage of online and mobile banking, as well as the now-predominantly electronic payment transactions, necessitate the need for related software solutions and consulting services.
The financial services industry's digital products are extremely complicated, thus software and services will continue to bring in large sums of money. Similar circumstances have recently arisen in the retail and wholesale sectors, as well as in the fields of social work and health care: Software and service sales are dominating, driven by an increase in the quantity of digital products.
In mechanical and automotive engineering, the situation is completely reversed. Technology businesses are providing more hardware components than software and services in both areas. For instance, a focus on Industry 4.0 in mechanical engineering is increasing demand for sensors, cameras, and robotics, which in turn is increasing the hardware market share. Similar hardware is needed in the automobile sector to deploy technologies such as entertainment, in-car connection, and assisted driving.
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Key drivers: 5 megatrends ensure continued expansion
When compared to the many changes and difficulties facing the sector, the recent growth in technology sales in Europe is quite remarkable. However, the issue of whether the upward trend will continue at the same pace until 2030 is unavoidable. And which megatrends will propel the ICT sector in Europe to expansion?
Six megatrends that will drive the industry's expansion through the end of this decade were recognized from a modern standpoint. While many of these factors are pertinent to the entire world, others, like the relocation of vital hardware manufacturing, are distinctly European. With one exception, these megatrends are already having a direct, palpable, and practical influence rather than being only theoretical predictions of the Peak Technologies Europe Annual Revenue.
1. Life and business are intertwined
The total number of "connected" things in Europe has surpassed 1.5 billion. By the end of this decade, that number is probably going to nearly double, according to Deloitte's estimations. It is evident that the Internet of Things has vast potential that extends well beyond standard communication devices like computers and smartphones. The need for relevant software and hardware solutions is increasing due to the emergence of new cross-industry business models.
Fiber and 5G networks are crucial enablers. Even more advanced IoT services, like aided driving or ambitious digital health care (such remote diagnosis), will be made possible by the new generation of networks' reduced latency periods and great dependability. In this regard, fixed wireless access (FWA) will also play a significant role, offering high-speed internet to a large number of underconnected locations and individuals in the years to come. It is anticipated that the technology sector would gain a great deal from this, since it will not only offer the hardware for the new network infrastructure but also contribute its expertise in the deployment of software and services.
2. AI and analytics
In the upcoming years, the amount of data generated by our networked lives and businesses will continue to grow considerably. Consequently, the significance of AI and analytics will only increase. Accurate data analysis benefits customers, businesses, and society as a whole.
AI-assisted X-ray image diagnostics, for instance, or the ability to enable targeted advertising or predictive maintenance, show promise for broad advantages. AI can potentially result in considerable energy savings, cost reductions, and a decrease in the impact on the climate through intelligent traffic flow regulation. These extremely particular use cases are being developed and implemented by European businesses across a range of industries, and technology is a crucial part of the solutions. Key participants in this context are IT businesses in general and the software and services sector in particular.
3. XaaS
Radical changes have already been made to many corporate structures. Rather of selling a related product once, providers are increasingly concentrating on providing a predetermined and assured service. As-a-service (XaaS) business models are now widely used, particularly in the technology sector.
Tech businesses will greatly benefit from their knowledge and expertise advantage in this area. This is due to the fact that XaaS will only grow in significance and play a significant role in the development of novel technologies. For instance, "AI-as-a-service" will greatly aid in the dissemination of AI and make it available to small and medium-sized businesses.
4. COVID-19 digitization booster
Throughout Europe, the COVID-19 epidemic further sparked and expedited digitalization efforts. Until the end of this decade, technology sales will benefit from the gradual implementation of several of the initiatives. For instance, COVID-19 has shown that several European areas, including public administration, education, and health care, urgently need to catch up digitally. Many businesses have also pushed for the digitalization of services, procedures, and consumer contact channels as a result of the epidemic.
The COVID-19 pandemic has also helped the consumer segment. For example, the number of digital media subscriptions rose by 21% in Germany during the first few months of the epidemic.2.Consequently, streaming and digital media offers have grown in popularity. The nonlinear share of media consumption time will only rise with new products like video on demand with advertising. Long-term gains will be sustained in sales of necessary consumer gear, such as networked audio components and linked TVs.
5. Examining supplier chains
Global supply networks have proven to be delicate systems in recent months. Although the output of semiconductors has increased quickly, demand has outpaced supply. The massive supply constraints in semiconductors are clear evidence of the impact on the European technology sector. The significant relocation of hardware manufacturing to Asian countries has had negative effects. Furthermore, the conflict in Ukraine has resulted in shortages of raw materials (palladium, platinum, and nickel) and further delays to the supply of highly precise hardware components (such as car wiring harnesses).
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An outlook for future expansion
The six megatrends' pertinence already indicates that the European technology sector's sales will keep increasing. However, how robust will this increase be in reality? According to Deloitte's model-based simulation, the European technology sector is anticipated to expand by 5.1% year on average until 2030 (see figure 3). Although this growth is less than the 8.4% growth during the 2014–2021 boom period, it is nonetheless noteworthy.
Maintaining market power
Long-term, the optimistic outlook provides a strong foundation for European tech businesses to maintain their place in the global tech industry. However, they still require the proper concentration and tactics in this technologically advanced setting. We determined six crucial actions to fortify the European technology sector based on our examination of the economic framework data:
Prioritize digitalization at all times. Although European businesses and sectors have not been fully digitized, COVID-19 has significantly increased the pace of this process. Software and services, among other industries, may continue to gain a lot from their proficiency in digitizing business models and processes. Additionally, XaaS products' growing significance will be crucial.
Continue to have strong connections to financial services while enhancing collaboration with important European sectors, such as mechanical engineering and automobiles. The input-output analysis demonstrates more development possibilities in this case. Digital business models in the intersection of technology and other sectors can be collaboratively established through equitable and cooperative partnerships, regardless of the partner industry. There is still a lot of promise in fields like Industry 4.0, linked autos, and FinTech and InsurTech. Because of their existing strong connections to other industries, European technology businesses are well-positioned to take advantage of this.
Continue to advance AI and analytics. Data and its analysis will continue to grow in importance and serve as the foundation for business models involving advanced technologies. European IT businesses will continue to be essential partners in creating cutting-edge, data-driven solutions across sectors thanks to their analytics and artificial intelligence skills as well as their familiarity with EU laws.