Analyst Opinion – It was a scary day. NASDAQ down more than 9%, the Dow Jones index almost 7%. Shares were in free fall, led by Apple, thanks to downgrades by financial analysts who are concerned with the fact the U.S. consumer is probably putting all of his, or her, money under their bed for safe keeping at the moment. There is no doubt that the technology industry will be affected by what builds up to become a perfect storm for the U.S. economy. Rob Enderle has a closer look at the industry and examines whether we should expect changes in the IT industry and which ones are most likely.
The specific problem for Apple, which is actually in better shape than most CE focused technology vendors, is that it has too much of its income tied to the U.S. consumer. Dell is likely watching this with a feeling of Déjà vu giving they got hit for having too much of their revenue in the U.S. corporate market when that market slid some months back. The U.S. has, and I now say this in past tense, had an unusually powerful position in consumer electronics since there have been consumer electronics and it appears that this is about to change.
For those of us who live in the U.S. that may not be a good thing but let’s talk about what this change will mean for the market.
Shifting the focus to Europe and Asia
I spoke about two vastly different companies, Acer and Apple, earlier and one of the things I didn’t mention was that while the U.S. market was very important to Acer, the company’s projected growth opportunity was in Europe and Asia. Asia, in this case, includes parts of the Middle East and places like China and India are where there suddenly is a massive focus as the mammoth populations in both areas are reaching a point where consumer electronics can see serious growth.
The problem for U.S. companies, including Dell and Apple, is that these emerging economic powers are growing or have grown their own internal industries. For instance, both China and India have their own versions of Hollywood already and increasingly movies we think of as being done in the U.S. are actually done in India or China.
Most of the PCs we currently use already come from Asia even though they carry a U.S. domestic brand and we know from our own experience that local companies generally have a better idea of what a local market wants to buy. This places U.S. products at an increasing disadvantage and Apple, which is very powerful in the U.S., has not been that popular in Asia, India, or a large part of Europe. Dell’s direct mode struggled as well in many of these markets, which really don’t like to deal with large corporations and prefer smaller local businesses.
If you traveled the world over the last several decades, you may have observed a U.S. influence which has predominated much of consumer electronics, clothing and automobiles. Because there is the U.S., the big market firms all over the world seemed to design things for the U.S. first. Well, this is likely to change with Asia increasingly taking the design lead. In a few years many of our main streets and living rooms will gain a distinct Asian flavor as products will shift to being primarily designed for that market and then altered for the U.S. and other markets.
Europe is gaining significant influence as well, which also suggests that many products will be designed by companies there leading to what could be a rather interesting diversity in product design. This is clearly a shift in power and an indicator that, if we didn’t know this already, that the U.S. is no longer the Super Power (at least economically) it once was.
Read on the next page: Falling prices, climbing prices, conclusion
Prices should fall near term but may rise long term
At least short term prices should decline as manufactures targeted what they expected would be a stronger market than what actually seems to be materializing. This suggests that waiting to buy something, which generally is good advice this time of the year, is particularly prudent this year. If you haven’t bought something like an iPhone yet there is a reasonable chance that it will drop sharply as the related vendor moves to make sure it isn’t stuck with a lot of inventory at year end.
Watch for point sales that will come as a result of distributors or retailers failing. The folks with the cash will always have the most power, but I recommend to spend your money wisely. As we move into the next year, there is a distinct possibility of high inflation, so you may not want to wait indefinitely for something you want. The problem with bailout plans, which are largely based on borrowing as the one currently being considered is, is that they can dramatically reduce the value of money and that would cause prices to start to spike.
Since the bailout is fluid at the moment the only thing that is sure is that, short term, prices should drop, the rest will depend on the nature of the bailout.
A bailout will not fix the economy and that means that there will be more areas that have more economic strength and that will be driving the consumer electronics market. The next iPhone event will probably come from one of the companies located in one of these markets, address that market first, and the U.S. second or even third. That will mean more diversity in product design and a whole lot less control over what these products look and feel like over the next five or so years.
This should be to the advantage of overseas vendors like Acer, Asus, and Lenovo if they can step up to the challenge. For us in the U.S., we will now get a taste of what the rest of the world has been experiencing in terms of product design and focus.
I believe that we probably won’t like that taste any more than many of them did in the past.
Rob Enderle is one of the last Inquiry Analysts. Inquiry Analysts are paid to stay up to date on current events and identify trends and either explain the trends or make suggestions, tactical and strategic, on how to best take advantage of them. Currently he provides his services to most of the major technology and media companies.