Monday, 14 January 2008

The Beer Syndrome and Consuming Passions

Anyone interested in how the tech sector may fare in this new, changed economic environment should read Consuming passions are in transition in the FT 12th Jan 08.
The opening paragraph reads

"Flick through 30 or so trading updates during the past two weeks and a curious picture of Britain's typical consumer emerges. It is someone who on New Year's Eve will probably have stayed in and played on Nintendo Wii, rather than going on a big night out. Dinner may have been a Pepperoni Passion take-out from Domino's Pizza, washed down with lager from J Sainsbury."

This might be familiar to readers as it echoes my 3rd Oct 07 post entitled The Beer Syndrome.

UK consumers seem to have behaved over Christmas exactly as predicted in that earlier post. But the real question is whether things have changed since. Three months on the world seems much less confident. NASDAQ has declined by a pretty significant 13%. Apple is down 15% in the first few trading days of 2008. Nintendo, however, is pretty much unchanged - so has done extremely well relative to the market.

In my view, the Beer Syndrome only works if the downturn is relatively mild. If the UK and the US do get a recession - something that seems increasingly likely - I don't think it would apply anymore. Consumers would have to give up buying the new gadgets and rely on playing with the ones they already have.

As I have said repeatedly, tech's fortunes are now heavily reliant on consumer tech. If consumers stop buying tech, the industry is going to get hit hard.

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