I’ve only been away for a week and, yet again, August has brought a financial meltdown. The FTSE100 ‘crashed’ by 9.8% this week and, I admit, my own heavily tech portfolio is down a similar amount. With the exception of Misys (See Misys and FIS leave the table) , where the bid was rejected (I’d have taken less than 400p and been very happy…), there really wasn’t any major trading reasons for the decline. It’s now all a matter of confidence – in Europe, in the US (where S&P has reduced the US debt rating to AA+) and the increased view that a global recession is just around the corner (again). When respected newspapers like the FT use words like ‘meltdown’ and ‘panic’, you have to be worried.
The trouble is that when you ‘worry’ you tend to stop spending. A report yesterday showed that the UK’s SME increased their cash holdings by 41% last year. Large enterprises are returning cash to investors rather than investing in new ventures. All very sensible on an individual basis but a disaster when replicated widely. Businesses (incl TechMarketView) need our customers to spend – not horde – cash.
TechMarketView published its latest Market Trends this week (See Two more years of market misery) to some excellent reviews from customers and the media alike. Readers will remember that we first warned that the UK SITS sector was in for a long term deflationary phase back at my ‘IT’s all over now’ speech in 2002. Although highly controversial at the time, it has proved to have been spot on. Worth pointing out that this prediction held true not just for UK SITS but for almost every part of TMT including hardware. Indeed, the latest (and excellent ) Ofcom report this week showed how this applied also to the UK Telecoms, Radio and Television industries whose collective revenues declined from £54.3b in 2000 to £53.4b in 2010 – obviously an even greater decline, in excess of 30%, in real terms. Average spend per month per household has declined from £106.5 in 2005 to £93.10 in 2010. But consumers are getting a huge amount more bang for their buck. 91% now own a mobile phone. Half of all mobile phones sold in Q1 2011 were smartphones. Indeed a third of all people now use their mobiles to access the internet. Average broadband speed is now 6.8mbps (not in Farnham sadly…) 93% of households own a digital TV. I could go on (and the Ofcom report does…) to list area after area where we are all enjoying hugely better /faster service for a much, much lower price.
If you want an excellent example of a long term deflationary sector, then look no further than TMT in the UK.
Which brings me back to one of my other ‘old’ themes – Diversity of Performance. Very clearly even in a benign economy, if you are in TMT and you are only performing in line with the average for the sector, then you are in real trouble. (BTW – this was NOT the case for 1960-2000.) You have to be both exemplary with your strategic marketing and hyper efficient with your operations to succeed. Then you add the current global economic woes and you realise that not even the Apples, Autonomys and ARMs are immune to consumers and corporates who are so fearful for the future that they choose to horde their cash rather than spending it even on the most wondrous products.