IT recovery -- I just don't see it
As I've written here before, most managers I talk to in IT are saying that they are planning for 2003 to be another down year and that, when it returns, growth will never be the same as it was in the 1990s because the market is largely saturated in the United States, Europe and developed parts of Asia. Future growth in IT will come at the low-end, as it did in the automotive industry after most Americans had one or two cars in their household. When Datsun (now Nissan) and Toyota came along, it transformed an industry into a tightly bound margin that is largely about replacement sales based on style. Apple gets this intuitively, as it is clearly the Porsche of PCs. Dell is the monster of the industry, like General Motors, etc., etc.
I'm a Porsche guy when it comes to PCs. I've spent more on IT in the past eight years than I have on the car I bought eight years ago. Of course, I only have 46,000 miles on a 1995 Mustang GT convertible while I have put many thousands of hours in on my PCs and the broadband networks I use.
Yesterday's earnings news bears this out. Intel sales were up, but only eight percent (compared to the late 1990s when 20+ percent growth was "normal") its earnings were the result of earlier cost-cutting much more than increased sales. Yet, Intel CFO Andy Bryant went out of his way to say he saw no evidence of an IT recovery.
Motorola's semiconductor sales were down 11 percent year over year. Sony Ericsson Mobile Communications, the handset alliance, had better sales, but its losses widened and it cautioned there will be no profits this year. It shipped 34 percent more phones, but basically it is giving them away because revenues rose by only 18 percent.
No, I just don't see anything like a recovery to old levels. Instead, we'll see a recovery to a new low level of growth. Based on that, the current P/E ratios, which are still well above historic averages, are unsupportable.
Posted by Mitch Ratcliffe at July 16, 2003 09:25 AM | TrackBack