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Rory Cellan-Jones

Winners and losers in a tech recession

  • Rory Cellan-Jones
  • 24 Apr 09, 12:48 GMT

So how's the recession going for you? We now appear to be in the very eye of the economic storm - but in the technology world there are a few winners as well as losers.
It's been a week of results from the tech giants - Microsoft, Yahoo, Amazon and Apple are among those who've given us updates about their finances. So what have we learned?

Mournful Microsoft

steve ballmerThe biggest noise in software has suffered its first fall in sales since it floated as a public company in 1986.

A quick scan of the results shows revenue falling in most divisions - but it's the core Windows business which has suffered the biggest fall, with revenue down from $4bn to $3.4bn. So Vista has very quickly stopped being the money-spinner that was promised - no wonder Microsoft is keen to create a buzz around Windows 7.

Last October, when I interviewed the chief executive Steve Ballmer in London, he was already gloomy about the prospects for technology spending. Now those fears have been realised - and Microsoft's Chief Financial Officer Chris Liddell seemed almost to revel in the gloom: "We remain more cautious than most," he said. "While we'd all like to hope that the recovery will be short and painless, we unfortunately think it will be slow and difficult."

Upbeat Amazon

By contrast, the online retailer seems incapable of putting a foot wrong right now, except for the odd row over a "cataloging error".

Consumers may have taken fright on the high street - though rather less than some retailers have claimed - but they're still spending freely online, or at least at Amazon. Sales for the quarter rose by 18% compared to a year ago.

The big rise was not in Amazon's old core business - books, music, DVDs - where sales were only up 7%, but in sales of what is classified as "electronics and other general merchandise", which were up 38%.

In other words, Jeff Bezos' mission to become the world's online shopkeeper seems to be proceeding according to plan. The company has also being making much of its electronic book Kindle 2 and its cloud computing initiative - but it's the millions of shoppers buying everything from lawn-mowers to leisurewear who are providing the profits.

Yahoo Still Struggling

But if online retailing seems to be weathering the recession quite well, the online advertising market appears to have stalled. Yahoo's earnings press release was headlined "Company Exceeds Midpoint of Operating Cash Flow Outlook Range" - a classic case of burying some pretty poor news under a piece of gobbledegook.

yahoo2009_getty226.jpgFurther down, you find that search advertising revenue was down 3% and display advertising down 13%. Now, it was only a couple of months ago that internet advertising types were telling me that their industry was going to keep on growing through the recession, as companies sought the better value that the web could offer. While Yahoo has its own particular problems, it's not the only firm finding that those rosy predictions are not being borne out.

Oh, and another embarrassment for Yahoo today with the closure of Geocities, the free homepage service it paid more than $4bn for at the height of the dot com boom.

Apple Advances

It was Apple which produced the week's most sparkling results, with sales of iPhones and iPods both beating expectations. Even a fall in Mac sales - down 3% - didn't depress the Wall Street analysts, who rushed to upgrade Apple shares. In a home computer market forecast to fall 11.9% in 2009 - its worst ever decline - it looks as though Apple may increase its market share.

I keep expecting the high price of its products to deter cash-strapped consumers - especially now that you can get a netbook for about a third the price of Apple's cheapest laptop. But so far, that hasn't happened.

And with Steve Jobs' stand-in Tim Cook describing netbooks this week as having "cramped keyboards, terrible software, junky hardware, and very small screens", it seems that the company is determined to stick to its premium pricing policy.

So the recession is hitting corporate technology spending and online advertising hard. But a few companies are showing that hard times are the best time to steal a march on your rivals.

Comments

  • Comment number 1.

    Just a heads-up, the first link ("suffered its first fall in sales") doesn't work.

  • Comment number 2.

    Sorry, and "the closure of Geocities". I'm guessing you've got some sort of software error somewhere down the line. Not sure of the language but "echo" and "var" aren't exactly common prose.

    Other than that, an interesting report. Nice to see the winners and losers. But where do Google fit into this? Whilst they're obviously a dominant force, have they suffered at all in the recession?

  • Comment number 3.

    Ha I remember your blog about Apple making their products more expensive and how it could affect them baddly. All kinds of nonesense was said... Look at them now. Was a good plan according to the industry.

  • Comment number 4.

    Have you ever been much of a mac user Rory ? I know that people get very argumentative about this entire debate but surely you can't believe that a netbook is nearly as capable as any of the mac laptops or even the mac mini. Everyone has their own personal experiences but a netbook running vista in my mind will be a horrible machine. Regardless of the aesthetics of it the actual hardware and reliability will be low too. Running Vista and all the anti virus rubbish on a cheap laptop effectively kills it for being of any use. Then again it depends what you need your computer for. I am talking about professional computers in terms of programming and software. Which makes me think that if you want a reliable computer which will last 5 years then buy a mac for £800. If you want netbook then youll probably have to buy a new one every year . Over time that makes the mac cheaper....

  • Comment number 5.

    $4bn pounds ? It must be either dollars or pounds right?

  • Comment number 6.

    A very helpful analysis. In particular the fact that the computer market is falling so much that Apple's modest decline in computer sales makes the company likely to move ahead in market share has not been pointed out by any other commentator I am aware of.

    As the happy owner of both a MacBook Pro and an Asus Aspire One running Linux, I can see the point of both, and I think we can expect Apple's smaller computers to remain premium items (I'm thinking MacBook Air here). But once you get into the rest of the product line, however, are they really more expensive for what you actually get? If you compare Apple with PC brands of similar public profile and choose models with comparable performance, it looks to me as if the premium is 10% or less.

  • Comment number 7.

    Great news for Apple, bad news for Micro$oft...

    I couldn't be happier!

  • Comment number 8.

    As I sit here typing this on my unibody Macbook I can't help but feel saddened by the clueless fanboys who think that dropping sales and resultant layoffs are 'great news'. I'm sure that the families of those affected by the crunch would have a few words to say on the matter - for example both the 5,000 recently shed by MS and the 1,400 retail staff shed by Apple.

    Of course MS will survive and continue to prosper in the future as will Apple. Other companies? Perhaps not.

  • Comment number 9.

    Mark_MWFC is spot on, THIS IS REAL.
    If Microsoft are feeling the hit from the downturn Apple will certainly get whacked in the next quarter. Tech spend is slowing quickly both in enterprise and on the high street (where Apple has invested massively in the last 5 years).
    The iPhone will probably be the high flyer for Apple in the next year but only if they relax their tied contracting deals and offer a broader consumer choice, (which personally I feel could be a real make or break point to the future success's of Apple).
    As a Mac user who normally upgrades on a two year cycle (desktop and notebook) - I'm holding on as the kit I have now is still perfectly capable of all my needs. Something tells me things are not going to get better for a while to come.............


  • Comment number 10.

    "1,400 retail staff shed by Apple."

    Apple have not shed any staff. Where on earth do you get your information? Comical Ali? Here's the truth:

    Apple have 14,000, or 15,600 full-time equivalents–basically, an accounting term that measures the number of man-hours Apple (AAPL) is paying for, not the number of men (or women) it employs. So the very strong likelihood here is that Apple have cut workers’ hours, but not workers themselves.


    Back to M$. As the saying goes "you reap what you sow" For years M$ have bullied their way to success and had revenue-losing "loss leaders" such as the X-Box, with sales of CALs and XP Pro (or is that Vista, and which flavour of Vista?) to business making up for the shortfall. They would not think twice about "embrace, extend and extinguish" any competitor just to stay as market leader, whether their products deserved to be there or not.

    Now businesses are tightening their belts, M$ are losing their CAL fees and it suddenly doesn't seem like such a good idea to have money losing projects... I'd anticipate M$ will sell their X-Box division pretty soon, seeing as its never made them any money - ever.

    I'm sorry to hear people have lost their jobs, but unfortunately that is the fault of this Capitalist society we live in. If we had a society based on available and renewable resources, not scarcity and consumption, then things would be much different. People will find other jobs, but I'm still glad that the convicted monopolist M$ is beginning to fail... Let's hope their road to irrelevance is short and sweet.

  • Comment number 11.

    @twelveightyone

    So your happiness at MS's profits dropping outweighs your sadness at people losing their livelihoods?

    OK.

    Apple have cut 1,600 FTE. They've increased their FTE count by about 8,000 over the last two years and are now cutting back. Yes, some of the numbers are seasonally adjusted but, no, that's not the only reason - growth is slowing across product lines (please do not quote the '123%' growth in the iPhone because you should know why that's a meaningless statistic and you'll just look silly if you do).

    This happens to all companies in when demand flattens or contracts. Apple are no different. I suggest you look at their SEC submissions over the last three years to get a picture of their staff demand curves before you start spouting nonsense derived, no doubt, from the usual blogs that really have no clue about economics and instead just spout the party line that Apple can do no wrong.

  • Comment number 12.

    You say "The company has also being making much of its electronic book Kindle 2"


    What kind of BBC English do you speak ?

  • Comment number 13.

    i thought one of the main causes for the recession was people borrowing money they can't pay back to buy things they wouldn't normally be able to afford. Surely this is the case when people are choosing to buy a macbook for 800 pounds when all they can afford is a netbook for 200. Why sign up to a 30 pound a month, 24month iphone contract when all you can really afford is a 20 pound pay as you go? How else are they maintaining these incredible sales figures? Im not saying theres a problem with the product or the company, its customers that are shooting themselves in the foot.

  • Comment number 14.

    I can't believe in an article and comments based on Apple making profits and Microsoft's falling profits people are still using the M$ and Micro$oft spellings from the earrlier this decade ne century.

    Honestly are you all that blinkered that MS are so bad and Apple love you all. Get a grip they are making money hand over fist and laying off staff too but they aren't an hardened corporation like MS?

    Also might I comment on the netbook versus Mac Book comments? A netbook, like the one I have with linux on it, is designed to be a quick portal to the web. Of course, a mac book weighing in at £800 is going to kick it up the bum. But I only paid £200 for my netbook and it does what it is supposed to do. It's like comapring a Ferrari and a Skoda Fabia and saying the Ferrari is quicker and higher spec'd. Just ridiculous.

    The sooner people open their eyes to the fact that Apple, Microsoft and Google (To name only 3 of thousands) couldn't care less about you unless you were buying their products the better. Apple aren't your friend, yet you all speak as if they are. They just love your money like every other faceless corporation and are trying to finds new ways to get you to part with that money.

    Also celebrating the fall of MS profits is sad really. You are clearly happy that people will lose jobs, as I believe someone else has mentioned.

    How bad are Apple also if they can post profit increases yet cut staff? (I notice the staff cutting stories were kept at a low murmur when they were revealed a couple of weeks back.)

    Again they are all corporations with money on their minds. I don't care for either really but like everyone else should be doing... I pick the technology that works for me. So I have a PC running Ubuntu, Windows XP and Vista. I also have a MacBook and my netbook running linux. All have their pros and cons.

    Finally, Please no more $ signs in MS or Microsoft it's so last last last last last last last year.

  • Comment number 15.

    At the risk of benig hugely optimistic - I run a 20 person web development company and we're doing fine - had our best ever month in March this year. We operate in sport mainly - so that might help - what with the Olympics but neverthess, things don't look too bad. We've also just set up a live stream from any telephone business, anywhere in the world - www.ipadio.com and that is attracting investment interest as well - perhaps because the technology is patented and brand new - but again investment doesn't seem to hard either. Or maybe I am feeling poorly with the flu and this is just a dream?

  • Comment number 16.

    It is a strange cultural phenomenon that you feel a closeness to the brands you own. My Xbox means I fing it easier to forgive MS. I know Nike have some rather dubious business practices yet I can't resist a good pair of Air Force 1's.

    The death of rational thought by branding I suppose

  • Comment number 17.

    #16 You hit the nail on the head with that comment.

 

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