Industry Voices—Blaber: Time to kick ‘Good Times’ delusion to the curb

Geoff Blaber

It can be hard to suddenly change mentality and a pre-set way of thinking. We’re conditioned to like consistency, and for all the talk of “disruption” in our industry it takes time to deliver. Disruption is more a steady process of iteration than a sudden and dramatic event.

I say this because we’re observing an alarming trend whereby some in the technology industry (and beyond) seem to be operating in a different reality. They’re still living and thinking in 4Q19 rather than 2Q20. This might seem a strange observation but despite the headlines, the IMF predicting recession and continual revision of growth forecasts, there are some which seem to be viewing it as an event that is external to them.

Whilst we are all experiencing the direct effects of coronavirus on daily life, an alarming number don’t seem to be drawing the parallel with what this could mean for their business and ultimately their ability to pay the bills. Unfortunately, the same was true as the virus started to spread. Despite the warnings and grave reports from China, Italy and Spain, people in the U.S. attended Mardi Gras and spent spring break on Miami Beach as if nothing had changed.

Around the world we’re all seeing closed businesses, rising unemployment figures and a graph that the New York Times struggled to fit on a single page. But for whatever reason, for some, the dots aren’t being connected. I’ve read reports about how the situation could be a boon for virtual reality over the next few months. I get the theory around escapism, but thinking that folks will splash out on headsets to play Beat Saber when they can’t make the next mortgage payment is devoid of reality.

Not all can remember what happened when the dot com bubble burst or the financial crisis of 2008. Others weren’t old enough to have experienced it. Others are still on the sugar high of the last decade. Even as pensions and investments decline, the “Good Times Delusion” means some are finding it hard to equate these factors with their own business and circumstances. It’s been that long since we’ve seen this kind of financial and economic turmoil that those who aren’t among the first wave to be affected are numb to the potential consequences.

A similar phenomenon was evident at MWC 2009 following the financial crisis at the end of 2008. It was as if nothing had happened, but reality bit hard later that year with widespread forecast revisions and layoffs. What we’re seeing is arguably a classic lag of sentiment going into recession which will probably lag again as we re-emerge on the other side. This isn’t to say that blind optimism is universal – France’s Bouygues is temporarily reducing its workforce by 20%, for example.  

I don’t want to be seen as overly pessimistic. The hope is that this is a short term jolt to the system from which the economy sees a swift V-shaped recovery. This isn’t the structural economic downturn of 2008. But this could also prove to be more of U or even L shaped recovery. I’m not an economist so it’s not for me to determine where we’re heading, but these scenarios have all played a role in our forecast revisions.

Whatever the scenario, it won’t just be the hospitality industry and Uber drivers that are affected. If a start-up such as OneWeb - the SoftBank-backed low earth orbit satellite communications company with over $3 billion in funding - is on the rocks, you can bet that many others are going to follow, and spending is going to tighten from top to bottom of the economy.

I sincerely hope that everyone wakes up to this. Preventative measures can be taken now ahead of what is likely to worsen in the months ahead. Failure to do so is likely to compound the impact as liquidity tightens. The business news cycle will deteriorate of course, but may not be helped by 1Q20 earnings which won’t reveal the full picture. Equally others may choose to “kitchen sink” the quarter and dump every conceivable item of bad news. Either way it’s coming and I worry that some are sleep walking into a second and third quarter that should not be a nasty surprise.

Regardless of how quickly we recover I would argue that the era of growth over profit has gone. We were in the final throws of this in 2019 as the Uber and Lyft IPOs demonstrated. This downturn has closed the book on the last 11 years of growth. This doesn’t mean that a new cycle won’t be born, but it will start with a far more measured view of fundamentals and a return to the importance of the balance sheet.

Geoff Blaber is vice president of research for the Americas at CCS Insight. Based in California, Blaber heads CCS Insight’s Americas business and supports the range of clients located in this territory. Blaber's research focus spans a broad spectrum of mobility and technology, including the lead role in semiconductors. He is a well-known member of the analyst community and provides regular commentary to leading news organizations such as Reuters, the Financial Times and The Economist. You can follow him on Twitter @geoffblaber.

"Industry Voices" are opinion columns written by outside contributors—often industry experts or analysts—who are invited to the conversation by Fierce staff. They do not represent the opinions of Fierce.