Tech companies' focus on consumer products could turn out to be exactly wrong.
January 12, 2004: 8:45 AM EST
By Justin Lahart, CNN/Money Senior Writer
NEW YORK (CNN/Money) - From the flurry of media coverage it got, you've probably gathered by now that the International Consumer Electronics Show is a very big deal.
The four-day confab, which finished up Sunday, is now Las Vegas' premier trade show. Meantime attendance at Codex, the computer show that everybody used to go gaga for, was down by more than half this fall from its peak levels.
None of this is particularly surprising. Many tech companies have been aggressively shifting their sights toward consumer electronics over the past year.
Apple's (AAPL: Research, Estimates) big announcement in Las Vegas was its new, somewhat-less expensive iPod music player.Hewlett-Packard (HPQ: Research, Estimates) announced a deal with Apple to sell a version of the iPod under the H-P name and to put Apple's iTunes online music store on its PCs. Dell (DELL: Research, Estimates) CEO Michael Dell said that selling flat-screen TVs would be a "big focus" for the company.
Now, we can spin a tale about how this shift toward consumer electronics fare shows how computer technology has matured, and that companies need to branch into new things. As PC prices plummet, it gets harder to make money.
It may also be reflective of what's going on in the economy. Consumer spending held up remarkably well during the recession that began in early 2001 and, thanks in part to easy monetary policy, low mortgage rates and a series of tax breaks, it has continued to be a driving force. The consumer has been, in other words, where the money's at. No wonder that's where companies are focused.
But in 2004 there should be a shift. A low savings rate, high debt-to-income and debt-to-net worth ratios, and a whole lot of full closets mean that consumer spending will likely grow by less than the overall economy, points out Merrill Lynch chief North American economist David Rosenberg.
At the same time, rising profits, improved balance sheets and a low cost of capital mean that businesses are going to be spending briskly. Rosenberg thinks that capital spending is going to grow by 11.9 percent this year -- way more than the overall economy's 4.3 percent.
The upshot? Tech companies may be crowding into consumer products at precisely the wrong time. And those that remain focused squarely on business applications -- IBM (IBM: Research, Estimates) comes to mind -- may have lots of open field in front of them.
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