Early signs of recession in the computer industry have galvanised BusinessWeek to do a study into what is going on, and it reports its findings in the October 17 issue. In characteristic American journalistic fashion, it prefers not to take a firm stand, instead saying that it is not yet clear whether another plunge is […]
Early signs of recession in the computer industry have galvanised BusinessWeek to do a study into what is going on, and it reports its findings in the October 17 issue. In characteristic American journalistic fashion, it prefers not to take a firm stand, instead saying that it is not yet clear whether another plunge is in prospect, suggesting that the key will be what happens to personal computer sales, which it reckons now largely determine the health of the entire industry. It cites InfoCorp’s finding that shipments through US computer stores were up 23% for the first eight months of 1988 but contrasts that with the view of a growing consensus of analysts, component suppliers and computer makers forecasting a severe slowdown – and perhaps a contraction – next year. It also has wind of an upcoming survey that will indicate that large corporate buyers plan to purchase 5% fewer personal computers in the year ending next June than they did in the same 12-month period just ended, commenting that such a sudden stall in personal computer sales could send the entire industry into another tailspin. BusinessWeek’s analysis of the perceived trend is that on the one hand the high cost of memory chips has kept prices from declining, and that may have stalled the growth of business from new customers at the low end. It also sees a restructuring in the personal computer industry, with a top tier forming around machines based on the 80386 microprocessor – and because these machines can replace minicomputers, their arrival in force helps to explain why makers of mid-size machines began warning of soft orders last winter. It quotes a Salomon Brothers analyst who sees the problem being further compounded next year by the fact that there will be an oversupply of the powerful new hardware, while the software needed to make the new machines useful won’t be ready, and customers will hesitate. Those two forces collide, and there’s your industry slowdown, he says. Our view, for what it’s worth, is that while the factors cited by BusinessWeek play a part, Meltdown Monday was signalling a significant recession that hadn’t yet arrived, but that we’re coming to the end of the phoney war period and the picture should be unambiguous by the time George Bush is inaugurated as president: indeed it is very possible that the strains in the US economy will reach breaking point in the couple of months’ gap between election day next month and when inauguration day rolls around in January.