Nokia was perhaps the big success of network equipment earlier this year. Now, they’re planning to cut 14,000 jobs to counter declining revenue and profit. Juniper announced modest job cuts earlier this month, and other vendors have been pulling back through the summer and fall. Oracle had a similar boom-bust cycle this year. What’s going on? Yes, there are economic challenges posed by inflation and higher interest rates, but is that really enough to cause this seemingly massive shift? I talked about what I think is the fundamental strength of tech, a strength we need to exploit better than we have, in THIS blog. Suppose we don’t, and what can we expect if we do, given that the measures I’ve described wouldn’t be likely to be effective for several years?
That last question is the big one, I think. We cannot expect to fix the problem of expanding tech business cases quickly, especially since we can’t really say anyone is actually trying to do it. So to decompose the question and answer it, we first have to fend of a near-term tech collapse, and second to get people working on the long-term answers. The specifics of doing both will depend on some additional details on the problem.
The near-term problem for vendors like Nokia and Oracle are simple; stock price. As I pointed out in my prior blog, today’s stock prices are more closely tied to quarterly earnings than they were before the Dot-Com bubble in the late 1990s. If your revenue goes down, then you either cut costs in a compensating way or your profits drop, which drops your share price. That’s why there’s a rush to cut jobs and take other steps to reduce costs. But obviously most companies’ staff cuts couldn’t possibly offset their revenue declines, so what we’re seeing is the Street accepting that if companies take measures to improve costs, they’ll give them some slack.
It’s also true that if companies can promise a pie in a not-too-distant sky, they’ll be given some latitude. 5G did that even after it was clear that the majority of actual budgeted investment in it had passed. What we’re seeing with Ericsson, Nokia, Juniper, and others in the equipment space is the result of the Street finally deciding that 5G was O..V..E..R in terms of positive impact. The cloud, which was a Street darling, has taken a similar hit as enterprises started to “repatriate” things that were run on the cloud and done wrong, or should never have been done at all. That’s a big part of Oracle’s story.
Cutting staff seems inevitable, unless there were some truly credible thing that could be said to increase network spending. The Street, having taken away, would then give back. That’s particularly true given that a lot of (perhaps most of) the movement in stocks is driven by hedge funds who follow “momentum” trading. Stocks go up because more people buy them than sell them, and down when the opposite is true. When things are going up, or seem to be credibly positive, people pile on and the assumption is self-fulfilling. When up-ness isn’t credible, hedge funds can use derivatives and short-selling to bet against the market, and these bets will drive things down. But nobody wins if everything goes to zero, so inevitably everyone looks for positive catalysts to move things up again. I think that at some point in 2024 we’ll hit that turnaround, barring further economic disorder.
Some think we already have, with AI, but I think AI is the last of the “pre-turnaround” phenomena. It’s being hyped and vilified, representing a kind of balance of forces pushing at markets in opposing directions. Could it be rehabilitated into the Next Big Positive? Maybe, but it’s harder to overcome bad press than to overcome no press, which is whatever comes after would face.
What might work? That’s as hard to answer as (apparently) picking a House speaker. You might think I’d name my favorite Metaverse of Things, but the fact is that MoT is really an application of edge computing, and that’s already faded in the world of hype. So has the Meta version of the metaverse, the social metaverse. You can’t ride a hype wave that’s already peaked. It may be that the hype machine had too much to handle with COVID and the inflationary spiral, and just used up all the obvious choices.
Or it may be that something could really be resurrected. If you look back at the cycle chart I offered in the blog I referenced above, you’d see that the waves in it were really what we could call “realization waves”. We had computers before mainframes, before the System/360, but they didn’t have the right software model. We had what came to be called “minicomputers” before the real-time distributed wave, but it took consolidation on UNIX to realize their potential, and we had PCs long before IBM launched its own, and made PCs a credible enterprise tool with open-model hardware and a highly credible backer.
What this means is that all of the “failed” hype waves I’ve mentioned are candidates for success. Edge computing isn’t dead as much as it is delayed, because bulls**t has less inertia than real markets do. The metaverse model suffered from Meta, and even its attempt to re-brand the concept into broader mission set didn’t solve the problem, but again we can see in Meta’s new efforts and things like the “industrial metaverse” and even my MoT, that there is real value to be reaped. And AI isn’t going to kill us, or save us, but none of the other tech phenomena did either, so that’s not a crippling problem. The right approach could still bring success, but it’s likely to be harder because these technologies aren’t fresh and won’t enjoy as much backing as they would if they were as highly publicized when their time came as they were when their hype wave peaked.
Part of that, a good part, is due to deficiencies in the venture capital space. I’ve been involved in startups and VC activities for decades, and over that period there’s been a gradual shift to an “easy money” mindset. It used to be that VCs wanted to find the “next Cisco” but that’s not the case these days. Funding equipment startups takes too much money and time, and it’s hard to promote. Social media startups are easier, and so in effect the VC community is funding demand at the expense of supply.
Startups, immune from the pressures of Wall Street, are probably where innovation in this area is going to have to develop. The good thing about the AI hype is that it’s launched a host of AI-related startups that are at least closer to addressing fundamental productivity issues and building a business case. The question is whether they’re close enough to get us something in 2024, when the natural forces of the Street will offer us a reprieve from the current challenges…for a while.
