Wednesday, 5 December 2007

Be worried, very worried

Throughout the last year on HotViews, I have given one warning over and over again. I’ve said that growth in Enterprise IT spend (hardware, software and IT services) is modest already and, with the current financial services crisis, will evaporate completely (in real terms). I see no recovery before 2009 at the earliest.

But what has been driving tech for the last years is consumer tech. Not just Apple and the iPod or Nintendo and the Wii, but everything that surrounds, supports and carries such consumer tech. Cisco would be a good example here.

If consumers stop buying tech, our industry is in for a seriously bad time.

Throughout the year, I have carried a debate about “Tech – the safe haven in a gathering storm”. I even extended this with the “Beer Syndrome”. The view here is that even if consumers tighten their belts, that will just mean that they stay at home more, drink more beer and play with their gadgets. But that assumes that the downturn is ‘modest’ and, indeed, that those consumers have a home to go home to. If the downturn is really steep, consumers would give up the gadgets too.

One of the first real indications of that came from Dell last week. Dell sees emerging markets and consumers as its two target areas (understandable if you consider the enterprise problems in the ‘old word’ and the huge growth rate differences between the old and new economies)

Dell’s Q3 results last week were actually quite good but their outlook statement shocked investors who marked Dell shares down 15% in the four days since. The headline worry was about costs – basically Dell said that margins would suffer as they addressed their well known infrastructure problems. But, to me the indicator that gave the most concern was that Dell’s revenues from their US Consumer business declined by 6% in the quarter. As George O'Connor from Panmore Gordon said in his newsletter yesterday "Dell reflects the consumer market but this is falling on deaf ears."

The evidence that consumer confidence – in the US AND UK – is shot to pieces seems to come to me in droves. Whether it is front page newspaper articles on the slump in new mortgages, sales in Starbucks and restaurants in general or even the intriguing "Sofa" bellweather. Thanks to HotViews readers, I’ve been sent many other newsletters expounding the consumer confidence downturn.

But still there is a view that “Tech will be a safe haven in the gathering storm”. Somehow, however bad it gets, we will still buy iPhones, new laptops and Wiis. That, in turn, will feed the need for new Cisco kit and advertisers will still flood to Google.

I increasingly feel that’s “head in the sand” wishful thinking.

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