We are currently living during extraordinary times; a subprime mortgage mess that has effectively put the entire world economy on hold. Everything from neighborhood grocery stores to the biggest software makers are feeling the pinch. Chipset makers to hardware provides are not immune either and are laying off employees left and right to help remain profitable.
The past few weeks have been brutal to tech industry employees. Microsoft made a historic announcement and said that it will be cutting 5,000 jobs, Sony will cut 16,000 jobs, Seagate will axe 800 jobs, Google will remove 100 jobs, Logitech cuts 500 jobs and the list, unfortunately goes on and on with companies slashing jobs.
The slowdown in the economy has put a massive damper on consumer spending. For the most part, consumers are holding off on big dollar item purchases and instead are saving their money. While it is good to save your hard earned cash the unfortunate downside is that the marketplace solely depends on you purchasing items of want rather than need. This can be seen in the massive downfall of home sales, new car purchases, technology purchases and other tangible items that are not needed to survive day to day.
When consumers stop spending revenue streams for corporations dry up. If you're not in the essential industry (food, water, clothing) generally your products are the first to be ignored as consumers reduce spending. This is prevalent by the amount of jobs lost across the globe.
This is especially true for the technology based sectors that heavily depends on consumer purchasing for pleasure as noted by the job lost listed above. What many fail to understand is how this will impact the market place for consumer based goods.
It's a simple business idea that you can increase profitability in two ways, boost sales or cut expenditures. For a corporation it is much easier to cut expenditures than it is to boost sales, especially in today's marketplace. When a company cuts costs it looks to the areas that it spends the most amount on with the lowest return; in general it's the R&D department. The reason for this is that to create the "next big thing" you have to create a bunch of "not the next big things". Take for example Logitech, they make great peripherals that are generally all the same shape and size. During this hard time they will keep funding proven methods of evolution and will stop funding revolutionary products that may or may not sell well. It's the method of sticking to the tried and true investment, essentially you cut all risky or unproven products to ensure a solid return on your investment. It's this idea that will slow down the advancement of technology.
Many technology corporations have only begun to cut costs. They have been funding R&D for many years and today we see the fruits of that labor. There is no set time table that takes products being in the R&D lab to being on the consumer shelf but it's safe to say that we probably will not see any revolutionary products hit the shelves in the next 24-36 months because of cost cutting done today.
The cost cutting methods are a necessary evil of the stock market as companies need to please shareholders by returning high dividends or earnings per share each year. As we sink into a long dark recession we are all trying to save as we don't know long the recession will last and if you're saving you're not spending. Little spending leads to lower revenues and job cuts which finally results in fewer products to the marketplace in the future; let's all hope we get out of this mess soon so that we can all go back to work again.