Monday, April 15, 2013

Crushed Between Clouds and Insects

An article in the New York Times today suggests that Intel, which got about 84 percent of its revenues in 2012 from PCs and the more muscular servers, has now joined the ranks of major computer companies upset by the maturing of the PC industry (“Intel Looks Past PCs for Foothold”). PC sales have been declining of late; the economy is sluggish, hence corporations and institutions, the major users of that tool, are not investing. But Cloud Computing is on the rise. Cloud computing? The phrase refers to the use distant servers, owned by others, to store an institution’s or enterprises total data “in a cloud.” Cloud servers are simpler and have fewer features than those used by corporations to perform broader computing services, along with file serving, in-house. Therefore they are less profitable. Intel, apparently, finds itself crushed between clouds above and insects (read smartphones and tablets and pads) below; these latter, according to the Times story, rarely incorporate Intel processors.

Why this need to “look past PCs”? The only explanation I can find is pressure on Intel’s stock. The company is magnificently profitable. In the 2007-2012 period, the company’s net income in the worst year, 2009, was 12.4 percent of its net revenues. In 2007 it was 18.2, inn 2012 it was 20.6 percent. This is a company with 53.3 billion in sales (2012) which has grown at a compounded annual rate of 6.8 percent a year 2007 through 2012. There is nothing wrong here except for the bloody market, and I mean the stock market. The market cannot stand a maturing industry. The lady may be but 43 years of age, but as soon as she has shown the first few grey hairs, she is immediately labeled a crone—and we must now “look past” the lady. Here is a chart of Intel’s revenues, net income, and an index of its stock, with 2007 set at 100:

What, if anything is wrong here? Revenue and net income show the consequences of the Great Recession—and the sluggish nature of the recovery. But the stock has responded much more dramatically. And, to be sure, the people who run Intel are not in the computer chip business. They are in the stock market business. Never mind the fundamental value of a corporation that absolutely dominates a market, computing, by owning most of the market share of its most fundamental component, the central processing unit. The same madness also governs the pea-sized brains of almost all those who run publicly traded companies—even one like Food, which can only really grow as population does. That industry has ruined a basic, necessary, and “always will be present” industry by trying to squeeze growth from it by making more and more high-margin prepared foods with too much fat, salt, or sugar—or artificially formulated foods with less of those three than natural foods ought to have.

Ears that hear, eyes that see. But we are lead by the deaf and the blind.

Thursday, April 11, 2013

Revisiting Windows 8

Without much pleasure I note, in a Wall Street Journal article today (“Computer Sales in Free Fall”), that PCs remain in the doldrums—and that lots of people blame Windows 8. I held forth on that subject roughly six months ago (link) and have touched upon the essentially irrelevant war between hand-helds and desk-helds as well. It gives me no pleasure to note what are, deep down, knee-jerk and irrational reactions to markets by various once much admired leaders—like Microsoft, which brought us Windows 8 and Hewlett Packard which is still trying to dump its PC business. Hand-held devices and desktop computers are totally different products and markets. The difference might be described as that between a basket of hand tools on the one and a machine tool on the other hand. The PC market is now mature; the economy is still largely stagnant; hence, what with corporations holding off on purchases, PC sales are declining. But this decline is rooted in the economy’s performance, not in the operating system on the screen of the PCs. Replacing a quite excellent user-interface with a touchy-feely interface people in offices don’t routinely, habitually, use is simply not going to change broad market movements that have zero connection to flim-flam (link).

Here a quote from the WSJ article:

Ricoh Americas Corp., which replaces about a third of its 17,000 PCs every three years and upgrades to the most current operating system available, said this year it is sticking with Windows 7…. Tracey Rothenberger, the company’s chief operating officer, said the benefits of switching to the new software aren’t worth the effort of training employees to use it.

If our business media were innovative—rather than reacting simply to news releases—somebody would stage a trial. Pick a handful of heavy PC users in several companies—you know, the whole ball of wax: spreadsheets, databases, serious text processing like typesetting, and, in the graphics category, artists using Apples with extra-large screens for creating commercial graphics. Select tasks these people do on a certain day and note everything that they do. The next day deploy the same number of heavy iPad users to carry out the identical tasks during the same period of time. I’d love to read the story that would result from this comparison.

Is the PC really going away? I seriously doubt it. Will even the cyber industry mature, and probably quite soon? Most likely. Will the next great market be another of those where you can sell a pound of plastic, silicon, and bits of copper to hysterically-enthused consumers for $395 ever six month? Probably not. The big new markets may turn out to be quite different—and may have nothing to do with electronics.

Saturday, April 6, 2013

Employment Update: March 2013

The unexpected news of very weak gains in employment in March, as reported by the Bureau of Labor Statistics yesterday (link), were actually not quite so dismal. In effect, the BLS revised both January and February result upwards, showing gains of 90,000 jobs (29,000 more in January, 61,000 more in February). This total added to the 88,000 jobs gained in March brings total jobs added, since the last report, to 178,000. Okay. That number also produces a mood a little shy of exuberance but sounds a lot better. Here is the graphic, with January and February shaded in light blue, to indicate revisions, and red showing the weak gain.

The gloom and doom arises because of expectation. The expectations are that the economy will, finally, come roaring back. Finally we shall return to the old Sky’s the Limit, Growth Galore, Don’t Look Back, Spend-Spend-Spend. Well, that certainly isn’t happening. Indeed, as the next graphic shows, right now, projecting three months’ of numbers out to the entire year, we are on a pattern which will make job-growth in 2013 worse than either 2011 or 2012—unless something happens in the next three quarters.

The biggest decline (a loss of 24,100 jobs) came in the Retail sector, indicating that shopping is certainly no longer Job 1. Wholesale Trade, and, yes, Transportation and Warehousing, also came in with job erosions of 1,000 and 2,800 jobs respectively. Manufacturing also lost 3,000 jobs in March. Now, of course, these numbers may well be revised upward next month again, but the overall pattern is not one of the Return of the Good Old days.

There are really three problems here. One is Automation/ Mechanization, which is eating jobs, and we are finally seeing the consequences. The Second is income disparity whereby all of the economy’s gains are being absorbed by the top fifth of the top fifth income quintile. The Third is that our government is no longer willing and able to redistribute income from the 1 percent to the 99 percent. Alas, a strong economy needs masses of confident buyers.

Almost overlooked in yesterdays news coverage was that the unemployment rate remained at 7.6 percent—and that because, once more, people were voting themselves out of the labor pool by stopping to look for work. People who give up—because they cannot see any jobs—will make the unemployment number look good, sort of, but they are not shopping either.