A sudden downturn in consumer gadget mania

The latest consumer spending survey from ChangeWave Research shows “a sudden, huge pullback in U.S. consumer retail spending on electronics — the largest decline since 2002.” The survey of 4,427 consumers, conducted February 18-25, looked at discretionary spending on a range of popular electronic devices, including video game consoles, digital cameras and iPods.

In an unprecedented sign of weakness, only 19% of survey respondents say they’ll spend more on electronics over the next 90 days, compared to 33% who will spend less.

“These results clearly show that the consumer electronics sector is getting whacked,” said Tobin Smith, founder of ChangeWave Research and editor of ChangeWave Investing.

Hardest-hit stores: Best Buy and Circuit City. (But Costco and Wal-Mart will be OK.)

Hardest-hit products: LCD TVs, digital cameras, cell phones and iPods.

Bright spots: The Nintendo Wii, Blu-ray HD DVD players and GPS devices.

And there was little evidence that consumers will be spending their “economic stimulus” tax rebate checks on consumer electronics.

“Rather, our findings point to an increasingly preoccupied American consumer who has fallen out of love with gadgets — at least temporarily,” Smith said. 

In praise of organic growth vs. financial engineering

Research shows that mergers & acquisitions don’t produce the expected financial bonanza. But “organic growth” does.

The Batten Institute, part of the University of Virginia’s Darden School of Business, has released the latest results of a decade-long study of corporate earnings, establishing a correlation between organic growth and outperforming stocks. Using an Organic Growth Index (OGI), Darden professor Ed Hess compiled a list of “Organic Growth All-Stars” for the period 2003-2006. The conclusions:

In addition to consistent growth in underlying earnings, as measured by the OGI, the all-star companies’ share prices have outperformed the S&P 500 by a factor of 10 over the past 10 years.

Actual 10-year returns (1996-2006) for the OGI All-Stars were over 1,368% vs. approximately 130% for the S&P 500 Index and 144% for the Dow Jones Industrial Average.

“These companies have shown that they can grow in good times and bad. It’s not about the economic cycle. It’s about the business model,” Hess says. “Organic growth is growth the old-fashioned way: more customers, more products, better operating efficiencies,” he says. Not financial engineering or manipulation.

Hess identifies four key attributes of strong organic-growth companies:

• Simple, focused business strategies, implemented by managers who are are “execution champions”;
• Top management is home-grown and made up of “humble, passionate operators”;
• A highly-engaged workforce characterized by a strong degree of loyalty and productivity; and
• A “seamless, self-reinforcing internal growth system”

The study — and the list of 27 All-Stars — is available at this link. For some reason, the all-star list includes a couple of “dollar stores,” a couple of casual restaurant chains, a couple of big-box retailers, and the maker of Spam.

Job ads can yield intelligence gold

We’ve all seen cases over the years where help-wanted ads revealed intriguing bits of competitive intelligence about business plans. Well, here’s a new example: Amazon.com recently posted a job opening for a Senior Wine Buyer to build relationships with wine vendors and add wine to the e-commerce company’s offerings. (Amazon doesn’t sell wine on its site now.) A partial screen-grab of the job posting is below.

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Source: The Wall Street Journal, 7 March 2008

Most companies fail at forecasting earnings

Two out of every three companies are unable to accurately forecast earnings for the next quarter, missing the mark by anywhere from 6% to over 30%, according to a study of 70 multinational companies by The Hackett Group.

We’ve all seen cases where missed earnings projections led to sharp stock declines, CFO firings, or worse. But often companies don’t take the steps necessary to get better at forecasting, Hackett analysts say.

China ascendant; U.S. tech prowess peaked in 1999

China is often seen as just a low-cost manufacturing outpost, but the new “High Tech Indicators” study by researchers at the Georgia Institute of Technology clearly shows that the Asian powerhouse has much bigger aspirations.

The study of worldwide technological competitiveness suggests China will soon pass the U.S. in the critical ability to develop basic science and technology — and then commercialize those developments.

“Since World War II, the United States has been the main driver of the global economy. Now we have a situation in which technology products are going to be appearing in the marketplace that were not developed or commercialized here [in the U.S.]. We won’t have had any involvement with them and may not even know they are coming,” said Nils Newman, co-author of the study.

Georgia Tech’s “High Tech Indicators” study ranks 33 nations relative to one another on “technological standing,” an output factor that indicates each nation’s recent success in exporting high technology products. Four major input factors help build future technological standing: national orientation toward technological competitiveness, socioeconomic infrastructure, technological infrastructure and productive capacity.

A chart showing change in the technological standing of the 33 nations is dominated by one feature – a long and continuous upward line that shows China moving from “in the weeds” to world technological leadership over the past 15 years.

The 2007 statistics show China with a technological standing of 82.8, compared to 76.1 for the U.S., 66.8 for Germany and 66.0 for Japan. Just 11 years ago, China’s score was only 22.5. The U.S. peaked in 1999 with a score of 95.4.