Steve: Even if you are correct that the growth rate in demand for
computers, servers, etc., has never dropped in past recessions ( you
are probably wrong, but I will accept your point for the sake of
argument,) there is good reason to believe that the next recession may
be different. Why? Because in past recessions companies could save
money by firing people, and then put that money into equipment. My point
in my last note was that most companies have used up that option already.
Thus they may be forced to choose between paying their bank or buying
shiny new boxes; they would prefer the latter, but will do the former.
The other thing to understand is the degree to which the demand for
high tech products has been a consequence of the booming stock market.
Hundreds of billions of dollars have been raised by companies in the
last few years through IPOs and additional stock offerings, plus all
the venture capital money raised by private companies with the hope of
going public at some point. A huge percentage of those billions have
gone to purchase information technology products. You've had an upward
spiral - booming market creates demand for products creates great
earnings creates booming market, etc. Upward spirals have a nasty habit
of turning into downward spirals. That is how recessions turn into
depressions. (For the record, I have no idea whether such a recession
will get started in 1997, 1998 or later. I am just saying that when it
shows up people will be stunned by the impact on profits, cash flow,
and thus capital spending.) |
