Why the Tech-led Recovery Has Not Materialized

Image by veer8 via Flickr

Wall Street’s desperate search for signs of economic  recovery is fixed on the technology sector, where frenetic activity is driven by hope for  accelerated consumers and business spending, and movement toward wireless digital ubiquity.  Don’t hold your breath!

Despite the aggressive pricing and pitching of dazzling tech devices and services,  consumers and businesses simply can’t spend money they don’t have.

Just because a rallying stock market (and The Organization for Economic Cooperation and Development for  G7 economies) are hailing the end of the recession doesn’t mean a genuine recovery is underway. In fact, a recovery  will remain elusive as long as 18 percent (the real number) of Americans are without full-time work, heavy foreclosures are fueled by conventional mortgages, companies continue to cut costs rather than fund research and development, and tight credit fails to relieve high debt.

The most recent quarterly earnings in all business sectors including tech were mostly fueled by profits artificially created by job cuts and other expense reductions. Increased revenues and sales needed to spur real growth are scarce, although tech executives believe slow demand has hit bottom.

Stronger than expected quarterly performance from Intel and Dell, buoyed by strong demand in Asia for laptop computers and flat-panel televisions, recently bolstered investors’ hopes for a tech-led recovery.

One analyst studying the year-over-year June quarter data for 337 technology-related companies determined they collectively lost $10 billion profits, a decline of 30 percent on a collective 16 percent drop in revenues –  despite cost reductions.

The top 20 largest technology companies, except for Apple and Google, accounted for more than half of the collective profit decline ($5.6 billion) and revenue decline ($30 billion), according to Naveen Selvaraj of Gridstone Research.

Still, technology players are repositioning themselves –in grand and subtle ways — to seize as much new business as they can in the approaching holiday season and through a gradual and uneven  2010 recovery.  Examples include:

–Apple next week is expected to unveil updated iPod-related devices even as sales of the popular devices have slowed during the recession and some cannibalization from the iPhone.

–Locked in brutal video gaming competition, Microsoft has reduced the price tag of its Xbox 360 console by $100 to $299.

–Amazon.com, Sony Corp., Google and other tech giants continue to battle over the exploding e-reader market, which has moved  into the courts  in an effort to resolve anti-competitive and digital copyright and infringement issues before the holiday shopping season.

– Sony plans to introduce a 3-D video liquid-crystal television video by the end of 2010 which is expected to ignite a major scrimmage among TV manufacturers.

–Facebook has announced the expansion of its Connect platform, which will drive the use and sales of all mobile wireless Web-connected devices and already is spiking the development of new Apps for its easy interface. More than 65 million Facebook members (triple from six months ago) access their pages from mobile phones. Facebook plans to integrate its access technology on all screens including TV (it is on Verizon’s FiOS) and game consoles (it is coming to Xbox 360).

Even as early adoption of new technology goes mainstream, according to a new Forrester Research report, consumers will continue to be hindered by fear of rising job losses, debt and taxes. Tech spending generally has remained strong during the Great Recession, recession, led by families and consumers age 35-plus relying on interconnected devices for communications and commerce.

Despite such optimistic developments, the complex failings and changes in our fragile economic ecosystem could obstruct a tech-led recovery. A convincing  argument can be made for why old spending habits, expectations and value judgments will never return. The recovery will be complicated and shaped by  a quantum shift in baseline economics, as described by Steve Hansen, president of international consultant Nesnah Associates.  There is no underestimating the impact of adjusting to the “new normal:” companies having to radically change legacy structures and processes, and consumers altering their priorities, habits and living standards.

The good news is that arts, entertainment, recreation and information were among  the industries reporting some new business growth in the June quarter, Hansen says. The bad news is that may mean nothing in the grand scope of things, which is the only way you can make pragmatic sense of what’s going on. Maybe someone can invent a new App for that, and we can call it economic stimulus.