Electronics Going Gangbusters and Signaling a Coming New Tech Boom (But Not Now)

History does not repeat itself, but it does rhyme – Mark Twain

In spite of the increasing doom & gloom in economic indicators – the market clearly expects a big downward GDP revision tomorrow – I am hearing of component shortages for consumer electronics being hastily manufactured in China. Apple is still supply constrained on iPads and iPhones, shipping every one they can assemble, and this may be impacting commodity components (like diodes and MOsSETs).

Spot shortages may seem paradoxical when industry after industry has underutilized productive capacity, housing is in the dumpster and autos are down to under 12M a year in the US (imagine, they crested 8M in the early ’50s when we had fewer than half the population).

Yet this story of booming gadgets and busting everything else rhymes with one of the hit products during the Great Depression: radio! People wanted to stay in touch, and radio (plus telephone service) boomed in very bad times. So too today in the demand for connected devices. Android tablets are the next big thing, with knock-off Chinese units selling as cheaply as $99 already. The demand for smartphones, iPads and Android tablets appears to be overwhelming the supply chain and causing spot shortages.

This gadget mania probably explains an interesting anomaly in economic indicators: imports are up more than exports (all those gadgets coming in from China for Christmas), and intermodal containers shipped by rail are still increasing – in fact set a record for the year – but truck traffic is flat. Speculation: imports are driving rail traffic, but exports & general economic recovery are not picking up the slack in trucking.

There is no fundamental reason this will end until market demand is saturated, which leads me to speculate that we will see the Nasdaq begin to diverge against the Dow to the upside as the fruits of the current beneficiaries of Moore’s Law begin to explode into the new huge global markets for gadgets and the accompanying Cloud services. The question is when.

One spark could be a few high-profile IPOs. Apple went public in 1980 amidst the last double-dip, and Netscape sparked the dot-com boom in 1995 at a time when the market had been considered sluggish since 1987. Google failed to be that spark early in this decade, but then it came out amidst a boom in housing and private equity, right after a horrific tech bust. Poor timing for tech to rebound.

This time around we have a new revolution brewing, and any one of the current tech darlings – Facebook, Zynga, Twitter – could be the spark to the new tech boom. In the past, tech booms come on their own schedule, when the ongoing improvements in technology lead to sparkling new applications: PCs, Internet, now connected devices. Tech booms have tended to lead out of bad times. Case in point: the PC boom happened from 1978-83 before the Reagan Revolution and amidst terrible economic indicators.

Rumors circulate on when we will see those IPOs, with Facebook the biggee. Facebook was recently said to delay until 2012. Zynga is said to be at least 18 months from IPO, putting it also into 2012.

For other reasons that may be a good time to begin expecting the next tech boom. The timing between these booms appears to be about 12 years from end to start:

• the transistor boomlet from 1962-66 was followed 12 years later in 1978 with the PC craze
• the PC craze ended in 1983 and the dot-com mania began 12 years later in 1995
• the dot-com fever broke in 2000, and 12 years later is 2012 …

It probably takes something around that timing for (a) Moore’s Law to go far enough ahead to create new magical toys and (b) the fund managers who got hurt at the end of the prior bubble to retire and be replaced by green newbies.

I do not expect it in the near term. The SOX index of semiconductor activity has been rolling over, indicating perhaps a seasonal lag or maybe a longer cyclical drop. When the next tech boom comes, it will show up first in chips, then devices, then software/services, then IPOs!

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