By Staff Writer Timothy Howard.
Technology has been an ever growing market in both the United States and global economy, so much so that there is a growing fear that the technology sector may be a forming bubble which will soon burst.
This is horrific news for the U.S. economy as it is propped up by tech giants such as Apple, Microsoft, Google, and Facebook.
The vitality of these companies in many ways dictates the vitality of the U.S. economy.
The tech market is currently a three trillion dollar industry. They employ hundreds of thousands of people globally and even more people indirectly through their supply lines.
If, for example, Apple and Google were to collapse as corporations tomorrow, or even endure a sizeable shrink for that matter, that would have a cascading effect on the global economy. As Neil Degrasse Tyson once said, “innovations in science and technology are the engines of the 21st century economy.”
The signs of a global retreat in technology are already evident.
Tim Cook, the CEO of Apple, recently adjusted Apple’s revenue guidance in a note to investors over concerns of low iPhone sales. But why are sales slowing down?
Consumers are becoming aware of just how expensive it is to buy new cycles of phones when new models hardly vary from their older counterparts.
Smartphones produced four or five years ago still stand the test of time as effective pieces of technology, even if newer models seem flashier.
Ultimately, though, the iPhone X’s and Samsung Galaxy S9’s of the world don’t have enough innovation to justify paying so much money. People have to decide between paying $500 for an iPhone 7 or $1000 for an iPhone X, and people are realizing the upgrade isn’t worth it.
This is disrupting Apple’s revenue stream as it results in less people buying phones on the predictable, two year cycle.
In the non-phone space, global sales of gas powered automobiles have begun to decline as people are beginning to look to alternative means of transportation.
This retreat can also be felt in chip manufacturing, metal allocation, and marketing/sales revenue. So what happens if this decline continues?
Considering tech companies are some of the most powerful drivers of the stock market, this doesn’t bode well for the market at large.
All it takes is for investor confidence in one of these companies to severally decline (probably Apple or Facebook) for there to be a mass rout of investors and collapse the company’s finances in a short period of time. This would be analogous to the collapse of Bear Stearns during the 2008 financial crisis. Once investors smell weakness, they run. This would be very bad for the rest of the tech sector, as when company goes down, the rest will soon follow without aid.
So what can companies like Apple do to prevent this fate? First, they must make sure they have a diverse portfolio of products to ensure that consumer disinterest for one product will not lead to company retraction. Second, tech companies must spread out from over-saturated markets such as smartphones and laptops. Last, and most importantly, they have to accept that sky high revenue is not always attainable. Pumping money into R&D may suck for the company financials in the short term, but they pay off when you strike the next big thing.