March Industry Update from Real World Tech

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The article is here. Not a lot of news, which says something.

Couple points are worth commenting on, though.

Recession, Depression, Or Both?

“Recently, spokespersons for several manufacturers mentioned that the past few weeks have seen a noticeable increase in sales, with some indicating that Q1 sales were better than Q4 of last year and they are forecasting an even better Q2. However, others have indicated that Q1 is flat compared to Q4, and do not expect to see much growth in Q2.”

Keep in mind that Q1 historically shows a considerable dropoff in computer sales. Staying even or doing better in Q1 than Q4 (which, as we’ve stated before, was a disappointment, but hardly disastrous) would be a good sign.

Intel said it’s going to do badly, but the CPU world isn’t Intel anymore. If AMD has a poor fiscal quarter, it’s going to be because they’re paying taxes and the price of flash memory is dropping, not because they can’t sell TBirds.

There’s three possible reasons why computer sales have been tempered more than a bit:

  • Waiting for something better
  • I got no money (or expect that soon)
  • Nothing’s going to be “better” than what I got

    The first is what I call the “Apple Effect.” Apple sales are much more erratic than the sales of most PC companies. That’s primarily because Apple doesn’t update models anywhere near as regularly as PC OEMs. Sales atrophy in the weeks and months before an expected product update, and flourish immediately after one.

    The Apple Effect can be rather extreme, though, 25% or more. We’ve seen nothing like that, so it’s probably safe to say that while some people are waiting for upcoming developments, this is not a huge phenomena.

    Fear of recession is probably the biggest factor, at least in America. Just saw a poll indicating 75% of Americans expect a recession coming.

    This is a rough one to call. America hasn’t had a bad recession in almost twenty years, and not even any real economic downturn in about ten. In general, those under 35-40 years old don’t have any personal memory of general bad times.

    We may see some people continuing to spend, spend, spend, just because they’ve never known to do anything else, then panic. That could make a modest downturn into something more serious.

    Temporary Recession, Permanent “Depression”?

    You buy a lottery ticket. You look in the paper. Your ticket didn’t win. How depressed are you? Probably not very.

    You buy a lottery ticket. You look in the paper. The numbers in the paper exactly match the numbers on your ticket. You run down to cash in, and find out the paper mistakenly printed last week’s winning numbers. Now how depressed are you?

    The tech sector has certained been savaged in the stock market. But what really happened? A bunch of companies that had little or no chance of ever making money went down. This made saner businesses realize that the Internet was not the be-all and end-all to everything. Due to both, we
    re not going to see the overall tech market growing 30%, 40% or 50% a year, but probably closer to 10%-15%.

    That’s more a bubble popping than anything else. It’s one thing if you look at the bubble pop. It’s another if you’re part of the bubble.

    People will continue to invest in computers and the Internet, they just aren’t going to bet everything on it. A lot of fluff has and will continue to vanish, then we’ll move on at a slower clip. The immediate question becomes, “if it’s bad for Cisco, is it bad for America (and the world)?”

    My best guess is that we’ll see about six months to a year of uncomfortable times overall (much like the 1991-2 recession), starting sometime this year, then we’ll move on.

    However, the tech sector will remain “depressed” for a much longer period. People couldn’t believe anything bad about the tech sector two years ago, now they won’t be able to believe any good.

    More importantly, though, if you think 30% growth is lousy, what does 10-15% look like? What it looks like is that people aren’t going to throw fortunes at you for owning stock in a company with average-growth prospects.

    Even if you do manage to get hooked up with the next great thing, a lot of people got very burned by “techstacy.” They’re going to be very skeptical about you, even if you have the Real Thing.

    So if you expected millions for working or investing in a start-up company for two years, then retiring on the cashed-in stock options, those days are over, and they won’t be coming back anytime soon.

    Besides that, a look down the road for the next few years is far from enticing, even after you’ve swallowed the notion that the gravy train is over.

    In America, if you have ever had any real desire for a computer, you already have one. Most developed countries are behind, but not that far behind America’s pace. Developing countries are certainly picking up computers, but lack of money is a real constraint to mass acceptance.

    Wherever you look, computers are going to be a harder sell than in the past. In a maturing market, you have to look towards replacements and upgrades, and here you have a real problem developing.

    The challenge of the computer industry over the next decade is going to be to convincingly answer the question, “What do you have for me that is going to make a real difference in my life?” to the vast majority of users who just use email, go around the Web a bit, and type letters.

    A 3Ghz Clawhammer or Willamette is not the answer for these people. A far more likely answer is the XBox (or something like it), and that will be very bad news for computer OEMs.

    Voice recognition as the great savior? Please. How well is voice recognition going to work in a crowded office? Voice recognition might be pretty good if you could just tell the computer what to do, rather than mouth keyboard strokes/mouse clicks, but don’t hold your breath for that. Finally, how much will people pay for it? Probably not much.

    I’m not saying nobody is ever going to upgrade, but they’ll do it more slowly. If the average person hangs on to a computer for four years instead of three, that’s a 25% decline in upgrade sales. Make it five years rather than four, and that’s a 40% decline. If upgrade sales are what you’re depending on, that’s terrible.

    I think that’s going to be the real anchor on computer sales within the next couple years.

    Eventually, an answer will come. I think it will be video: easy cheap ways to make it and send it all around. When the day approaches that any bozo can send a video email for next to nothing, that’s going to be the next big technology wave. You need cheap fiber optics and hookups to do that, and that’s going to take five-ten years to happen.

    Will the Horse Get To Run A Little Bit Before Getting Coralled?

    People are waiting for the horse named Palomino to show up.

    The Real World Tech speculates that AMD is going to let the Palomino run around in notebooks first, then go on to the desktop.

    This makes sense to me for the following reasons:

    The mobile area is the only one where Intel is actually doing something. AMD did pretty well with K6-2 notebooks, and Intel has been putting some serious effort into coming up with low-power PIII to grab that part of the market back.

    We often ignore notebooks, but there’s a lot of them out there. Certainly more of a market for notebook CPUs, especially right now, than for servers, and notebook users don’t quite have the “I will die before leaving Intel” server buyers often have.

    So Intel is seriously competing against you in the mobile area, and not on the desktop. If you’re AMD, you’ve got to stretch what looks like a 1.7Ghz max chip for about another year, anyway, which Intel is very obligingly letting you do. You also would really rather match your Palominos with DDR so the initial benchmarks look better than either one of them alone.

    So you stall on speed upgrades and Palominos for the desktop as long as you can, and you put your efforts towards the mobile markets, where the standards aren’t as high, and the audience a bit less technically oriented.

    Annoying for us, but understandable from AMD’s perspective. Wait until Via gets its mobos out. Wait until DDR is cheap. Then push Palomino/DDR.

    Email Ed

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