The two legs on which the technology industry stands,consumer electronics and corporate spending,are looking a little wobbly next year.
There still is sales growth to be had in 2009 in consumer electronics, according to Shawn DuBravac, an economist at the Arlington, Va.-based trade group Consumer Electronics Association.
But growth will be a lot slower than in previous years, DuBravac said.
The association is readying a projection for the first half of 2009 to be released in January.
“Right now, we are officially predicting 6% growth for 2009 but there is certainly a possibility that it will come down,” DuBravac said. “The economy has been slowing now for a year and a half. But in the past few months it’s been slowing more rapidly.”
For the nine months through September, consumer electronics shipments grew by 9% from a year earlier.
“We’ve had a pretty good year in the face of a pretty bad economy,” DuBravac said.
Next year is shaping up to be difficult as consumers are “still pretty leery of going out and spending,” he said.
“They will want a little more visibility into the future as it pertains to their jobs, their real estate holdings and equity,” DuBravac said. “We see them being very selective on what they spend.”
Consumer electronics have become big business for many local technology companies, including Irvine chipmaker Broadcom Corp., Santa Ana tech products distributor Ingram Micro Inc. and Lake Forest disk drive maker Western Digital Corp.
“We are faced right now with an uncertain marketplace,” Ingram Micro Chief Financial Officer William Humes recently said at an investor conference.
Bright Spots
There are a few gadgets that are projected to be bright spots next year.
They include Blu-Ray DVD players, flat-panel TVs and video games, according to DuBravac.
Broadcom makes chips for all three products.
Basic cell phones are set to see less demand next year. But phones that access the Internet, play music and videos and do other tasks could see growth, DuBravac said.
Sales of standard DVD players, TVs and video games are expected to hold up as consumers cut back on other forms of entertainment, he said.
“Consumers are finding that they are staying home more and traveling less, yet they want to maintain a very consistent quality of life,” DuBravac said.
Here are 2009 shipment projections for various consumer electronics:
– Digital TVs, up 4%
– Desktop PCs, down 20%
– Notebook PCs, up 11%
– Portable navigation devices, up 10%
– Digital cameras, flat
– Portable music players, down 6%
– Cell phones, down 25%
– Smart phones, up 46%
Corporate Spending
Like consumers, companies are taking a hard look at their technology budgets next year.
They are likely to delay spending decisions on PCs, software and data storage gear altogether or perhaps just opt for smaller upgrades.
Global technology spending could rise a meager 2% next year to $3.5 trillion, according to a recent forecast from market tracker Gartner Inc., which cut its outlook from an earlier forecast of 6%.
In North America, spending is seen as flat.
El Segundo-based market tracker iSuppli Corp. recently slashed its 2009 forecast for PC shipments by two-thirds due to the “rapidly deteriorating conditions in the global economy.”
ISuppli expects worldwide PC shipments to grow 4% next year, down from a prior forecast of 12%.
For the past five years, PCs have seen yearly growth in the 10% range.
“The result of the financial turmoil is less money to spend and often that money itself is more expensive,” said Matthew Wilkins, a computing platforms analyst for iSuppli. “The task of refreshing or acquiring new IT equipment has taken a back seat.”
COMPANY TO WATCH: STEC
Santa Ana’s STEC Inc. could be snatched up by a big storage industry player in 2009, thanks to an early lead in flash memory drives for servers.
“They have a nine- to 12-month lead over anyone else,” said Richard Kugele, analyst with Needham & Co. in Boston. “That puts them as acquisition target No. 1.”
STEC makes flash memory drives that industry insiders refer to as “solid state” because they have no moving parts. They are smaller, more durable and require less electricity to power up and operate.
The company has started to make inroads with its drives, landing them in servers and taking away one of the last bastions of good profits for makers of traditional disk drives, such as Seagate Technology LLC and Western Digital Corp.
Analysts have speculated that Seagate, the No. 1 maker of disk drives, could buy STEC. Another potential buyer could be Japan’s Hitachi Ltd.
But right now, Lake Forest’s Western Digital, No. 2 in the disk drive market, appears to be the most likely buyer in the coming year, according to Kugele.
“They have room on their balance sheet and they are both Orange County companies,” he said.
There’s another convenient coincidence: STEC’s new plant in Malaysia is next door to a site that Western Digital got with its $1 billion buy of Komag Inc. last year.
Kugele estimates a buyer may be willing to pay about $850 million.,
Sarah Tolkoff
PERSON TO WATCH: H.K. DESAI
In 2008, H.K. Desai showed he wasn’t quite ready to end his 14-year stay at the top of Aliso Viejo’s QLogic Corp., a maker of electronics for data storage networks.
But he could be ready to pass the baton in the next year or so, making 2009 interesting for any early signs of succession.
For now, Desai, 62, says he’s staying put.
Like others, QLogic is in “wait-and-see” mode until the economic picture becomes clear-er, Desai said.
It’s also hustling to get ready for a new technology that’s set to come to market next year, dubbed fibre channel over Ethernet.
“The decision made by me and the board is that I’m going to stay and make sure I’m the one to steer the ship during this transition,” Desai said.
The company recently tried a succession plan. Desai and other directors picked IBM Corp. veteran Jeff Benck to be his successor in 2007.
In March, Benck abruptly stepped down as president and chief operating officer, after about a year on the job.
A few months later, Benck took an executive post at QLogic’s rival Emulex Corp. in Costa Mesa.
For now, there’s no clear No. 2 at QLogic. Day-to-day tasks are handled by a team of other executives and general managers.
“I have an inner life beyond QLogic,” he said. “I can change and I think we can make a change when it’s time.”
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Sarah Tolkoff
