Many multinationals have suffered from the impact of a strong dollar, but few as severely as U.S. technology companies. There is little sign the pain will ease soon.
Currency headwinds for more than a year have dogged the biggest names in the sector—including Apple Inc., AAPL 0.01 % Microsoft Corp. MSFT -0.24 % and International Business Machines Corp. IBM -2.32 % —and once again loomed large in the current quarterly earnings season. The problem, which is increasingly defying traditional solutions, is also expected to weigh down the numbers expected Monday from Google’s parent Alphabet Inc.
Silicon Valley is suffering disproportionately because of its unusual success in hawking hardware, software and services abroad. S&P Dow Jones Indices estimates that U.S. information technology companies generated 59% of sales overseas in 2014, the latest annual numbers available, compared with 48% for companies in the broader S&P 500 index.
“I would expect the technology sector to continue to be the most affected of any sector,” said Howard Silverblatt, an S&P Dow Jones analyst. “These companies have enormous presence abroad.”
Currency headaches are becoming more pronounced as tech companies run into economic weakness and other issues that are slowing demand for their products.
Apple provided a striking example last week. The consumer electronics company, which gets 66% of its revenue from outside the U.S., said last week that the strong dollar had cost it nearly $5 billion in revenue in the quarter ended in December. Apple, if currency moves were excluded, said it would have generated $80.8 billion in revenue in the most recent quarter versus its reported $75.9 billion, knocking an 8% increase down to 2%.
Besides taking customary hedging actions to counter the dollar’s rise, the company said it had been forced to protect its profit margins by raising prices on products like iPhones in Russia, Brazil and Turkey and other countries.
Tim Cook, Apple’s chief executive, said extreme measures were necessary given the unprecedented scope of an issue that ordinarily affects a few countries at once. This time, he said in an interview, the dollar is “incredibly strong nearly everywhere.”
Since September 2014, Apple estimated, the Russian ruble’s value has fallen more than 50% and the Brazilian real more than 40%, while Canadian and Australian dollars, Mexican peso and Turkish lira are all down by 20% or more. What was $100 in overseas revenue for Apple in September 2014 translated to $85 in December 2015, the company estimated.
“When the currencies move to that degree for that period of time, it’s meaningful to us,” said Mr. Cook, who told analysts that the combination of currency shifts and slowing economies has caused a “melee in virtually every country in the world.”
Other tech companies also blamed currency woes for suboptimal results in their most recent quarter. Microsoft reported last week that the strong dollar had reduced its revenue by about $1.9 billion in the period ended in December. IBM put the fourth-quarter impact of currency translation at about $1.5 billion. Software maker Oracle Corp. ORCL -1.46 % in December said exchange rates reduced revenue by about $540 million in the quarter ended in November.