The high-tech industry's near-term health depends on how much you need that iPod or flat-panel television. After catering to corporations...
The high-tech industry’s near-term health depends on how much you need that iPod or flat-panel television.
After catering to corporations in its early days, the industry has grown increasingly reliant on consumers.
Even during economic slowdowns when businesses tightened their belts, Americans kept buying bigger TVs, sleeker cellphones and faster computers.
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Hunting for price cuts
But analysts say that with people losing their jobs, home prices plummeting and retirement savings deflating, consumers won’t continue to spend blithely on high-tech gear. For those who do, bargains will be more important than ever.
“Consumers are definitely scared and are going to tighten up,” said Michael Spence, former dean of Stanford University’s graduate business school and a 2001 Nobel laureate in economics. “If it goes on for much longer, the tech sector will suffer.”
Stocks of tech companies with heavy consumer exposure have been hit even harder than the broader market.
In the most recent 30-day period, the Nasdaq composite index has fallen 18.5 percent. But shares of Apple have tumbled 24 percent. Computer maker Dell is down 19.5 percent.
The computer industry rose to prominence selling mainframes, databases and other wares to government agencies and major corporations. Although enterprise computing remains a huge business, many companies shifted their attention to consumers as electronics became seen as more of a necessity than a luxury.
In the past two years, Brad and Jennifer Schafer, of Newport Beach, Calif., have purchased three flat-panel TVs, a digital camera, two game consoles, three TiVos, a GPS device, a cellphone and a computer.
“If we want it, we usually buy it,” said Jennifer Schafer, a stay-at-home mother of two, as she and her husband, an accountant, shopped recently at a Best Buy.
Consumers have helped to accelerate innovation.
Having millions of buyers has spurred hardware companies to streamline their manufacturing and trim prices faster, which in turn boosts sales.
As a result, technology that once took a decade or more to penetrate the mass market now takes far less time, said Kurt Scherf, vice president and principal analyst of Parks Associates in Dallas.
Consumers driving purchases
The growth of wireless networking equipment was driven by consumers, who adopted the technology for its convenience even as companies that worried about the expense and security issues were slower to use it, Scherf said.
“It used to be that technology trickled down from the corporation to the consumer,” he said. “That’s really turned on its head. Consumers are now driving the purchases and the innovation.”
Nowhere is the consumer’s effect on technology more evident than in the personal-computer market.
This year, 44 percent of PCs sold worldwide have been to consumers, compared with 29 percent in 1996, according to research company IDC. With laptops, sales to consumers make up 26 percent of worldwide market share, up from 3 percent in 1996.
“The growth engine for the last couple years has been the consumer market,” IDC analyst Richard Shim said. “The risk is that given the recent economic turmoil, the industry is headed for bad news.”
At the Apple store in Emeryville, Calif., Kevyn Davis, 22, recently stopped in to pick up the 3-year-old laptop he brought in for repairs. But he wasn’t making any purchases. To save money, Davis says he has stopped using his cellphone.
“I used to be the person who had to have the latest thing,” said Davis, a teller at Chase Bank.
Sales of home-entertainment electronics, such as game consoles, are expected to remain relatively strong. Analysts expect some consumers to justify these purchases as a way to stay busy at home while they cut back on vacations and dining out. In the 10 weeks ending Sept. 26, flat-panel TVs sales were up 43 percent compared with the year-earlier period, according to the Consumer Electronics Association.
From frivolity to functionality
But TV sales are unlikely to continue at that pace.
“There may be a shift from frivolity to functionality,” said Ely Dahan, an assistant professor of marketing at the Anderson School of Management at the University of California, Los Angeles. “Do I need to spend $2,000 on a flat-screen TV to be happy?”
Technology companies can slash prices to attract customers. But price cuts can backfire, damaging a high-end company’s brand or signaling to consumers that even bigger discounts might be coming.
Some sales do work, piquing the interest of people such as the Schafers who help the industry through rough times.
“If there are more sales, we may buy more,” Jennifer Schafer said. “It’s something we do real well — boosting the economy.”