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With the advent of pandemic hybrid business becoming more apparent, and according to Morgan Stanley’s AlphaWise survey, Morgan Stanley’s hybrid business is here to stay.
The study, which is in its third year, suggested that current operating levels for hybrid work are largely stable, both Which requires less office real estate and more technology investment.
According to Morgan Stanley analysts, the survey found three interesting things – 1) that despite the overall deterioration, indicators for hybrid work remained largely the same (with some increased indicators for 3 days in the office); 2) Expectations of a lower real estate footprint than it was last year, with an increased expectation of having to pay more per square foot, yet there are still headwinds 3) Compared to a company’s CIO survey, fewer respondents see their organizations outgrow Peak spending on intra-office communication, indicating a longer investment period.
The company sees this as a positive for Cisco systems (Nasdaq: CSCO), Hewlett Packard Enterprise (HPE), Dell Technologies (DELL); Neutral to HP Inc (HPQ), Logitech International (LOGI), Juniper Networks (JNPR), Zoom Video Communications (Nasdaq: ZM); And negative for Xerox (XRX) Vornado Realty Trust (VNO) and Office Properties Income Trust (OPI).
The survey indicates that about 50% of peak office infrastructure investments will be after 2023 – an increasingly positive growth window for networking, PCs, video conferencing software and hardware. WiFi, video, computers and phones are still the main areas of investment, an advantage for Dell and HP Inc. and Logitech (IT Hardware) and supportive of Cisco, Hewlett Packard, and Juniper.
Demand for office space is expected to decline by -10% over the next three years as working from home and hotel office use continues to rise. Meanwhile, analysts added that occupancy headwinds as well as high financial leverage may keep REITs under pressure.
The company indicated that it was cutting its OPI price target -55%, Hudson Pacific Properties (HPP) price target -33%, Vornado Realty Trust (VNO) price target -8%, and Highwoods Properties (HIW) price target -4%. Meanwhile, UW’s rating repeated on Vornado and OPI.
networks:
The survey was increasingly positive about the trajectory of campus spending and investment in office networking.
The company added that despite exercising caution when dealing with networks, given the challenges of releasing backlogged data, the results were more encouraging than expected — a positive for Cisco, Hewlett Packard and Juniper.
In addition, the company said that on a stock level, it believes the market is very negative about Zoom’s position in video conferencing in the long term due to increased use of Microsoft Teams.
hardware:
The survey indicated that PCs are the main recipients of hybrid work technology spending, with a slightly positive/mixed for video conferencing products, but a negative for print. Company sees positive for Dell, mixed for HP Inc. and Logitech, but negative for Xerox (XRX).
comp:
CiscoSimilar to Cisco’s recent earnings call, the company continues to see higher investment from customers in its hybrid business scenario. The survey was supportive of Cisco’s view, with 53% of organizations seeing peak investment through 2023. The company added that with the most diversified portfolio of all in-office investments, Cisco is set to continue to benefit from in-office investing.
Hewlett-Packard: Hewlett Packard is likely to benefit from a longer term in-office investment. In addition to the company adding additional security and SD-WAN products to its portfolio, these products could benefit from the investment.
juniperAnalysts note that with the growing share of the campus switching market, along with the extent to which investment is occurring in in-office connectivity, it should benefit Juniper’s business. In times of total weakness, people are less likely to switch vendors, with Juniper being the competitor in the market, according to the company.
Zoom inThe continued reliance on video conferencing to help the workplace of the future continues to be a positive windfall for Zoom, according to analysts.
Suggested Statements – 1) Employers are investing in video conferencing tools to help use the product more in the office, which is a tailwind for Zoom Rooms; 2) A strategic focus in videoconferencing use will likely support the budget for many vendors, as Zoom is generally seen as providing superior performance across ecosystems.
Analysts said they’d like Zoom to continue expanding its portfolio and become more positive on the name.
