Consumer confidence hits tech spending

Over the last five or so years, the Consumer has been the driver in tech NOT the Enterprise. This had reversed the state of affairs which had existed since the start of IT in the 1960s. Consumer tech spending not only drove up the obvious candidates at the front-end (like Apple, Nokia, Nintendo etc) but also the companies supporting them (chip designers like Intel), the servers they utilised (like Cisco) and the networks they used (like Vodafone). This all had hugely beneficial knock on effects on the whole IT sector including the big iron makers like IBM, the consultancies like Accenture and the IT services player like Logica and Capgemini.

So how the consumer reacts to the economic slowdown is about the most important indicator around. In the last few months, the indications have not been good.

It started with warnings from the consumer backroom boys like Cisco who found that those at the consumer sharp end had waning confidence which affected forward orders for ‘heavy lifting gear’.

But now the full effects of the slowdown are apparent at the sharp end too. Carphone Warehouse and Vodafone have both warned of slowing demand for mobiles and, indeed, for broadband too. John Lewis and DSG have warned of a slump in sales of big ticket tech items like plasma TVs. Even Apple has had to completely reverse its strategy for the iPhone in the light of disappointing sales.

Today’s announcement from DSG gives further evidence with a massive 50% slump in profits from their consumer computer operations (eg PC World). This outstripped the 10% profits downturn in their home electronics operations (eg Dixons, Currys). The silver lining is that those consumers with any cash left after paying the mortgage, doing the food shop and filling up the petrol tank, can get some amazing discounts of up to £450 on a range of 60 laptops! As CEO John Browett said “We are operating in a challenging environment. The economic backdrop continues to be difficult and we remain very cautious about consumer confidence”.

Last year I gave a prediction that the whole UK IT scene would experience no growth in real terms in 2008 and 2009 (ie a headline growth of c3% when inflation is included). I gave the caveat that this would apply only if we didn’t see a major slump in consumer tech spending. As is now usual with Holway’s pronouncement, they were widely criticised for being ‘Too gloomy’. As is also usual, Holway would now say that they weren’t gloomy enough!

In the immediate post 2000 period, we saw the UK IT sector retreat by upwards of 5% pa for a couple of years - ie a real recession. I didn’t think we would see that happen this time around. I’ll update my forecasts later in the year but I’m getting a distinct feeling of déjà vu.