Nasdaq blights season's PC sales
The wealth effect from Wall Street has gone into reverse and is threatening the electronics industry's great white hope - Christmas.
The embattled industry, which has traditionally enjoyed its best sales in the fourth quarter from the 'Santa Claus effect', could instead find itself in a vicious cycle.
The downward spiral by technology bellwether the Nasdaq Composite Index would hurt personal computer sales this year, said Bhavin Shah, head of Asian technology research at Credit Suisse First Boston.
'Intuitively it is very obvious that a US consumer, who in general already has a computer, is not in the mood to upgrade his PC today,' Mr Shah said.
'We are probably looking at disappointing Christmas sales.'
He spoke after the Nasdaq fell a further 4.04 per cent on Wednesday on renewed worries about technology companies' earnings. The index is down 32.28 per cent since the start of the year and is on course to post its worst full-year performance since it lost 35.11 per cent in 1974.
'Every day that Nasdaq falls or stays flat is another day taken out from your typical Christmas PC season,' Mr Shah said.
'The typical US consumer has been used to see his stocks go up, and go up very strongly, for the last four years.
'What is happening right now he is not used to and he is not feeling particularly good about it.'
There is an end in sight for the blood-letting among Asian electronics companies which are captive to US and global demand.
'I think if you compare the valuation to the last five years I think we are almost there, maybe 15 to 20 per cent more downside,' Mr Shah said.
That was assuming the US economy was able to bring off a soft landing early next year. If the economy went into recession for the first time since 1990, global personal computer sales growth could fall from a projected 14 to 16 per cent to 9 to 10 per cent, he said.
'If we get into a 1990 scenario, the downside [for Asian technology stocks] is as much as 50 per cent,' he said.
A poor Christmas would add to an inventory overhang next year, just when more production capacity will be coming on stream resulting from the bullish mood in the industry last year and early this year.
Global capital spending by the semiconductor industry will jump 84 per cent to US$58.3 billion this year, CSFB estimates. In Asia Pacific and other emerging markets, it is forecast to soar 111 per cent to $21.1 billion.
'Even though we haven't been affected by that yet, that is something that is looming large against a period of slowing demand,' Mr Shah said.
'We are still facing a bit of uncertainty on demand and more importantly an inventory overhang as we enter the first quarter next year. Eventually things will clear up but we will probably have to wait for the second quarter in the middle of next year.'
Nasdaq is used as a global benchmark for technology stocks and its dive has taken Asian stocks with it. Central to the sell-off were pre-announcements of poor third-quarter earnings which began in September.
The third-quarter US reporting season has stretched into this week, serving investors a steady diet of bad news.
However, the respite before fourth-quarter earnings warnings began might be only a matter of days, Mr Shah said.
'Some companies may figure out early in December they just can't make it and they may just announce it,' he said.
'If it is clear to you, based on your October and November business, that you are not going to make your guidance for the quarter, you might as well get that out.'
While Asian technology stocks were cheap, there was no need to rush in and buy as they could well get cheaper in the fallout from Wall Street.
'Waiting a couple of months is not going to hurt,' he said.
'[I'm] short-term pessimistic, long-term very optimistic. Short term meaning, let's say, three to four months, long term meaning more than 12 months.'