Friday, May 23, 2014

Weekly News Hilites & Commentary, 5/23/14

I am currently working on several different editorials concerned with widely divergent subjects and hope to publish the first installment of one of them next week (side note: Fridays are now my scheduled day for posting fresh articles.) While I develop the content of these other topics, I thought I'd follow up the "High Tech 'State of the Union'" series with some of the biggest news stories that have popped up over the past week and put them in context. As you'll see below, the revenue and market trends outlined in the editorial series are being reinforced by events and new data. Furthermore, some of the companies analyzed in the series are reacting to the fundamental changes that are sweeping across the High Tech industry.


Prithee, friend,
Pour out the pack of matter to mine ear,
The good and bad together. - William Shakespeare, Antony and Cleopatra

Cisco (Part 1: "The Big Iron") reported its latest revenue numbers. With year over year results showing both quarterly and aggregate 9 month declines, Cisco's revenue trend can now be confirmed as tending mildly negative for the near term:

As the old saying goes, "When it rains, it pours." Cisco itself may suffer more than just a slackening of business from the cascading effects of a slowing mobile computing market. Overseas sales are set to take further damage with the latest revelations of the NSA hacking Cisco firmware:

HP (also covered in Part 1) has announced new quarterly revenues as well. The company's revenue trend continues to gradually deteriorate, as it has since Q4 2010:

Microsoft (Part 2: "The Wintel Duopoly") is demonstrating real backbone. Despite losing $1.2B to date with its Surface tablet line, the company clearly intends to continue efforts to penetrate the mobile computing market:

One must remember that MSFT has had success in hardware before in the form of the Xbox gaming platform. Early sentiments are that the company may now have a second successful hardware product offering in the Surface 3, which rolled out this past tuesday:

Qualcomm (Part 3: "The Stone Masons") is evidently aware of the growing danger to its business and is trying to find ways to capitalize on their deep expertise in wireless handsets:

These next news items came as a bit of a surprise. Per the "State of the Union" series and the 3/30 editorial "TSMC, Smartphones and the IoT", I am indeed expecting this to be the last year of healthy growth in both smartphones and tablets. However, the following articles suggest that the smartphone market is slowing faster than predicted, as sales in China have softened more than anticipated:

China's economy is struggling under a shadow cast by both commercial and sovereign debt loads similar in scale to that of many of the major western economies, as well as Japan. This 'Achilles Heel' to China's stellar economic performance over the past 20 years is one which Beijing has endeavored to keep hidden, mostly through an accounting mechanism whereby central government debt is categorized as provincial debt (though the central government finance ministry is ultimately accountable for the total debt load.) This leveraging is now indicating strain in the national economy. A significant tightening in consumer disposable income - especially in China, where the principle of saving for a rainy day is deeply ingrained in the culture- is one of the inevitable side effects.

What It All Means

The ancients held that a man must never let himself be overcome by events unless those events taught something essentially new. They were more intent than were any men before or since on preserving the freedom of the mind. - Allan Bloom

Economists were once fond of saying "When America sneezes, the world catches a cold." Now that China has taken over the role of the premier economic powerhouse of the globe, its near term slowdown and long term leveraging burden have cemented the universality of a deficiency in worldwide consumer disposable income. Combined with this international weakness in consumer discretionary spending is the end of Moore's Law after 28nm and its cascading effects on innovation, feature enhancement and 3P optimization for products throughout the High Tech industry. 

These collective macroeconomic and technological factors are spawning a scenario which High Tech has never before faced - an era of very slow or zero growth. Stagnation is not a generally familiar situation for the High Technology industry - it simply isn't part of its lexicon. 

Such an environment will trigger a selection of predictable responses from the executive management teams of most Technology firms - further efforts to reduce fixed costs, increased outsourcing of any functions or capabilities not deemed absolutely mission-critical and conducting marketing & sales operations using price as the primary competitive weapon. These actions in their aggregate will turn High Tech business operations into a zero sum game of stealing market share from competitors.

Yet all of these responses are defensive, reactionary and short term in conception and effect. Stated differently: they are merely tactics. As a consequence, these sorts of reactions to current pressures lack a broad view and the productive, positive direction that can only be provided by a comprehensive long term strategy. 

To put some further perspective on it: the price and cost tactics described above stem from the now widely held assumption that High Tech is a 'mature' industry that is 'settling down' to the more 'normal' profile of the overwhelming majority of business sectors today. I take exception to this view and will be spending my efforts on this blog proving beyond a shadow of a doubt that the conception of High Tech as a mature industry is false.

It is, in fact, this very issue which will drive the VF blog forward in topic selection and discussions in the weeks and months to come. This will include examinations of new technologies that show promise, the current strengths and weaknesses of various sectors, their companies and technology offerings, and how High Tech can best react to soft markets and desperate, cornered competitors by breaking out of the pack with a long term plan and operational framework that gives birth to fresh technologies for untapped markets.

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