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Telefónica’s Tech Division: Flourishing Asset or Potential Sell-Off?

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News has recently circulated, courtesy of anonymous sources revealed by Bloomberg, regarding the possibility of Spanish telecom giant Telefónica potentially divesting from its flourishing Telefónica Tech division. These insiders share that the division is being shown off to potential investment funds, although whether any deals will transpire is still up in the air. If an agreement is reached, however, it’s speculated that Telefónica Tech’s valuation could exceed €2 billion.

Telefónica revealed Tech as part of a major recalibration strategy implemented in November 2019. Its main objective was to seize opportunities cropping up within the rapidly evolving B2B sector, particularly in cybersecurity, big data, and Internet of Things (IoT). Being one of the driving forces at Telefónica, it was unveiled concurrently with Telefónica Infra, a separate entity designed to amplify the telecom’s various network assets, everything from submarine cables and data centres to fibre.

In a short span, Telefónica Tech managed to gain a strong foothold in verticals such as cybersecurity, big data and IoT. Vital acquisitions include UK-based data analytics provider Incremental and professional services firm Cancom. On home ground in Spain, it has added IT services provider Altostratus, and Geprom, a frontrunner in the realm of digital transformation for the manufacturing sector.

Through acquisitions and strategic partnerships, Telefónica Tech has achieved swift revenue acceleration. In the most recent quarter, the Tech division accounted for €456 million, marking a pretty impressive annual surge of over 36%. However, that’s a relatively small portion of the group’s overall revenue, tallying up to just 4.5%. Interestingly, earnings of the Tech division are not disclosed by Telefónica, stating only its commitment towards ‘sustainable’ growth. raised a valid point regarding the ultimate vision of Telefónica for the Tech division when news of the Incremental deal broke. As it appears, the direct benefit of Telefónica Tech to the telecom’s day-to-day operations is still unclear. Speculations are rife that Telefónica might cash in on this asset through a float or stake sale, generating funds to decrease its debt or fuel investments in its core businesses.

In the coming months, the curtain may be lifted on what Telefónica truly intends for Tech. At a capital markets day conference in November, CEO Jose Maria Alvarez-Pallete is anticipated to unveil a fresh three-year strategy for the company. It’s also likely he will clarify what the future holds for Telefónica Tech.

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