Saturday, 6 September 2008

"Eventually even Apples fall" - FT 6th Sept 08

A year ago I introduced you to the Beer Syndrome. The Beer Syndrome is where, when consumers cut down on expenditure like eating out, holidays etc, they maintain (even increase) their expenditure on their entertainment (ie consumer electronics) at home. It was hailed as the reason why Tech would be a safe haven in the gathering storm.

However, I made the point in Nov 07 that the theory only worked if the downturn was ‘mild’. Putting it cruelly, I said that you could only stay home watching the 50inch plasma if you still had a home to go home to.

Last December I wrote a piece entitled Be Worried, Very Worried. I reiterated that it was consumer tech that had been driving the tech sector ever upwards. 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 of a company heavily dependent on what consumers do . I warned that, if consumers stop buying tech, our whole industry was in for a seriously bad time.

I had little evidence to back up the concerns I expressed nine months ago. But the evidence now is pretty overwhelming. Results last week from DSG (Owners of Currys, Dixons and PC World) indicate Declining demand across Europe and a marked slowdown across the whole consumer electronics board. PC sales were particularly badly hit and this was reemphasised by Dell last week too.

Then on Friday came perhaps the biggest (because it was relatively unexpected. See Nokia warning surprises investors) warning of all from Nokia which wiped 10% off their share price.

Let me quote from the Lex Column in FT (6th Sept 08) – Nokia’s message - which concludes as follows:

"This is just the latest sign of a broader slowdown in consumer technology spending that investors had imagined would not happen. It began in the US, spread to Europe and, post-Olympics, has hit Asia. It has also spread up the food chain - from computer chip makers to computer makers themselves, and now handsets. In tough times, perhaps that new touch-screen gizmo, or even that new iPhone, is not so essential after all. Eventually, even Apples fall."

I am increasingly concerned that the industry I know and love is Living in Denialagain. I’m a keen fell walker. Fell walking is not dangerous but some people die doing it – like the poor lady who died when she fell off Sharp Edge last weekend. They normally come a cropper because they either ignore or don’t even look at the weather forecast. They die because they are ill-prepared and ill-equipped.

I feel our industry is like the couple I met on FairField a few weeks ago dressed only in trainers and a T-shirt with no map. It was sunny when they had started out but now it was raining and the mist had come down. They were lost and actually in some danger.

In the next 12 months (at least) I am now pretty certain that the weather is going to be horrid. You can survive but only if you are well prepared and equipped. Please don’t – like too many people I talk to - venture out believing that the sun will forever shine on you.

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