Unforgivable Signals
This could be the canary in the coal mine for tech that faces a precarious rest of the year.
Personal computers are facing a drop in sales in 2023, and after banging the drum for the last year about an upcoming recession, it might actually be on the way, finally.
When exactly is hard to predict, but it is looking more likely around the third to fourth quarter, unless there are some black and gray swans that explode from nowhere.
Much of the weakness has been pre-empted by mass firings in tech and so the signs have been there.
The hollowing out of Silicon Valley has been due for quite some time now, so just don’t expect your freshly graduated children to ever get a full-time gig at a big name tech company anymore.
That will be reserved for just a few, just like getting a top management job at an NFL football team. These jobs are prized by all, but only begotten by a few.
The new iteration of tech companies will be comprised of an army full of algorithms and human sub-contractors. You might as well extrapolate that theme to the wider economy as well. This is basically the Japanification of the economy.
Apple’s personal computer shipment volume declined by 40.5% in the first quarter which I believe to many is quite surprising, considering the popularity and quality of the product.
Shipments by all PC makers combined slumped 29% to 56.9 million units — and fell below the levels of early 2019 — as the demand surge driven by the work-from-home movement has dissipated.
Among the market leaders, Lenovo Group and Dell Technologies registered drops of more than 30%, while HP was down 24.2%. No major brand was spared from the slowdown, with Asustek Computer Inc. rounding out the top 5 with a 30.3% fall.
Samsung Electronics Co., which provides memory for portable devices as well as desktop and laptop PCs, last week said it’s cutting memory production after reporting its slimmest profit since the 2009 financial crisis.
Apple is gearing up to launch its next slate of laptops and desktops later this year, including a new iMac.
It's also gradually diversifying the geography of its manufacturing base deciding to bet bigger on India and Vietnam.
Looking toward 2024, I foresee a potential rebound for PC makers, driven by a combination of aging hardware that will need to be replaced, and an improving global economy.
Tech shares bounced hard in March as expectations of interest rate hikes were triggered by a slew of bank failures in Europe and America.
That temporary bump in shares delivered a nice 8% return in March and the Mad Hedge Tech Portfolio performed well.
I can say that I am surprised that the Nasdaq only returned 8%, as it should have been more like 12-15% based on the massive re-pricing of rates to now 3 quarter point cuts by the end of 2023.
The market is now betting big that the Fed will pivot and I believe they won’t agree to such fast cuts, which is why, with an April short-term view, I expect bearish price action in tech stocks.
