The credit crunch has affected the technology and Internet markets in many ways. There have been some irreversible changes since 2008, with many popular services closing down forever. Here is our round up of the effects of the credit crunch so far.
Credit Crunch Hits Tech and IT Jobs
Oct 11, 2008
The credit crunch has so far been most prominent in the banking and finance industries. Many internet companies have spend the past months in a state of denial, falsely beleive that technology stocks are somehow immune to the pressures of the global economy. But all that appears to be changing rapidly.
News came out this week that eBay may be slashing thousands of jobs, with some reports saying that up to 10% of the company’s workforce will be made redundant. Many eCommerce analysts are still saying that the internet is a growing sector, with eCommerce set to grow by 20% over the next year. However, news from eBay seems to be contradicting the tech analysts predictions.
A few weeks ago Eric Schmidt, Google‘s chief executive, dismissed the idea that his company could be in for difficult times if a deep recession took told. Google is increasingly reliant on the advertising industry to make its income, and as eCommerce sales fall, so does advertising revenue.
But Google’s advertising revenue does not only benefit Google.com. Thousands of websites rely on Google’s Adsense advertising programs to make money. Many people are currently making a living by selling advertising space on their websites, in addition to, and sometimes instead of, selling tangible goods online. If the global recession hits eCommerce in a big way, then the knock on effect could be catastrophic for many small businesses on the web.
Even more confident of the relative immunity of tech stocks is Microsoft, who as recently as September, stated that the global economic downturn will not affect them. “Our industry is not immune to what goes on in the global economy,” he said. “And yet as I travel… given the current circumstances, people still see a certain buoyancy in the market.” Steve Ballmer, Microsoft.
And Yahoo is also in turmoil. Yahoo was one of the worlds leading internet companies for a while, but its market share has steadily fallen for many years. Yahoo turned down a $44bn takeover bid from Microsoft this year, on the grounds that it was in a strong position still. However, recently chief executive Jerry Yang informed all Yahoo staff that there could be mass layoffs coming. Yang’s message said that Yahoo needed to “get fit as an organisation” and said that he had hired management consultants Bain & Co. Redundancies on a large scale look likely.
Finally, computer manufacturer Hewlett Packard has announced that there will be 25,000 job cuts.
If anyone thinks that the global economic crisis is not going to affect all business sectors, then they probably have their heads stuck firmly in the proverbial sand.
Credit Crunch Hits Computer Chip Company in Scotland
Oct 15, 2008
The credit crunch is showing its first major signs in the UK technology sector with the loss of around 800 jobs in Scotland at Freescale Semiconductor, a US-owned computer chip company based in East Kilbride, near Glasgow.
Freescale has confirmed that it will stop making chips at its East Kilbride factory, which employs about 1,000 people. They hoped to find a buyer, to save the Scottish jobs, but as no buyer has been found it is forced to close down. The factory is likely to be closed by Spring 2009.
The credit crunch is only partially to blame for the closure, as a more competitive global market and advances in new technologies have also resulted in a loss of market share for Freescale.
Freescale’s factory was established in the town by Motorola in 1969 to design, manufacture, test and package embedded microchips for use in mobile phones and car engines.
The closure was described as being a huge blow to East Kilbride and the local economy by local MP Andy Kerr.
Credit Crunch Starts to Bite at the Heels of Google and Yahoo!
Oct 16, 2008
The credit crunch is finally affecting Google and Yahoo. Companies are starting to cut back on advertising, and this is causing a worrying reduction in revenue for both Google and Yahoo, but Google especially. Almost all of Google’s profits are generated through advertising placed on search results and also on publisher websites. As companies cut back on advertising budgets, the bid price of key words reduces, which quickly reduces revenues from advertising.
Google’s advertising mechanism is different to other traditional forms of advertising, in the sellers bid on the “keywords” that they wish to associate their adverts with. Therefore, in very competitive areas, people are will to place high bids on keywords, to ensure that their advert is shown at the top of the search results, and also more prominently on other website that generate their revenue using Google’s Adsense program. With the global economic downturn, sellers are cutting back on spending, resulting in publishers and Google alike seeing falling profits.
It is estimated that the credit crisis will cost the online-advertising industry $6.7 billion in lost sale over the next 2 years (Collins Stewart Plc). Customers of all sizes are scaling back ad spending, while some financial companies that have used Google and Yahoo advertising, such as Wachovia Corp. are no longer market players. These reductions will reduce growth in U.S. Internet advertising to less than 20% next year, the lowest growth since 2002. This is going to hit revenues hard at Google and also throw a spanner in the works of Yahoo’s attempts to regain some of the market share. Google and Yahoo! stocks have already lost about 50% their value this year.
Advertisers will spend $43.6 billion this year worldwide on online spots – the text links that run next to search results and the display banner and video promotions on Web pages – down from a previous estimate of $44.4 billion, he said. The credit crunch and falling consumer confidence would convince advertisers to hold back.
Some analysts are still relatively optimistic. Geoff Ramsey, chief executive officer for research
firm EMarketer Inc. in New York thinks that online advertising will remain a growth industry, especially for search-linked ads. Customers find they can measure the effectiveness of such ads more precisely than with television or newspapers. For example, sales teams that use Adwords can analyse performance every day, and adjust advertising spending and key word bidding depending on current market conditions. Television and newspaper adverts are already facing declines, according to Barclays Capital. The firm lowered its forecast for broadcast TV networks to a 2.5% decrease in sales this year and dropped its outlook for newspapers to a 16.5% decline in 2008.
“There is not one category that I can think of that won’t be in some way impacted by this, and that’s just the pain we’re going to have to go through” Geoff Ramsey, EMarketer Inc.
Google, which is the most popular Internet search engine by far, may say today that third-quarter net income climbed 23 percent to $1.32 billion, or $4.12 a share, according to a Bloomberg survey of 24 analysts. That’s down from 35 percent growth in the previous quarter.
Google’s share price is down 51% in 2008, falling from $23.54 to $339.17 yesterday in Nasdaq Stock Market trading. Yahoo, which rejected an acquisition offer from Microsoft Corp. this year for as much as $33 a share, dropped 90 cents to just $11.75 and is down 49% overall.
In July, Google CEO Eric Schmidt said sales growth had “held up well despite uncertain economic conditions”, and Yahoo Chief Financial Officer Blake Jorgensen also predicted that there would be no significant change in growth. But since then, Wachovia and Washington Mutual Inc., two large online-ad buyers, have both dissolved, leaving a gaping hole in advertising revenues for Google and Yahoo.
In additional to loss of revenie from the banking sector, General Motors is reviewing its ad spending as car buyers are struggling to get loans.
“I don’t think that we’ll see another category that’s going to increase enough over the year to replace those budget cuts from the automotive and financial sectors,” said Jeff Lanctot, strategy chief at Seattle ad firm Avenue A/Razorfish, owned by Microsoft. “You have whole companies taken out of the mix and everyone’s cutting.”
At Reston, Virginia-based Simplexity, which handles online mobile-phone sales for companies such as RadioShack Corp., CEO Andy Zeinfeld cut ad spending more than 10 percent in recent months. He is now focusing on Web-search ads for specific deals, such as a new phone, instead of ads simply promoting the Web site. The ads he is buying are often cheaper, he said.
“This isn’t the time to be out bragging; this isn’t the time to be out building new brands,” Zeinfeld said. “This is a time to be hunkered down and making sure every decision you’re making is both with the customer in mind and with profitability in mind.”
Intel Battling to Defy the Credit Crunch
Oct 16, 2008
In recent months the forecasts for chip makers has been poor, with companies deciding not to update computer hardware until after the current economic turmoil is overcome. However it seems that Intel have somehow managed to resist the worse of the forecasts and are showing signs of a stronger than expected quarter. Intel say that so far 4th quarter sales have risen, with the retail sector driving sales with a higher demand for personal home computers.
Shares in Intel still fell 94 cents today, or 5.9 percent, to $14.99 at 4 p.m. New York time in Nasdaq Stock Market trading. Broader U.S. markets declined after retail sales fell the most in three years and a gauge of New York manufacturing dropped to a record low, increasing concern over the depth of the economic slump.
Revenue from laptop processors, which sell for more than desktop chips, jumped 20 percent last quarter. Third-quarter profit was also higher than expected because the company was able to run its plants more efficiently, Chief Financial Officer Stacy Smith said yesterday in an interview.
Technology companies often make most of their sales in the fourth quarter during the run up to the Christmas season, and also as businesses spend the year’s remaining equipment budgets. Accounting for that seasonal effect, the Intel forecast is actually worse than normal, thus the drop in share price today.
It seems that the credit crunch is affecting manufacturers of computer chips on both sides of the Atlantic.
eBay’s Profits Tumble, another Internet Business Suffering from the Credit Crunch
Oct 16, 2008
eBay Inc., the world’s biggest Internet auctioneer, has projected its first quarterly sales decline.
Today eBay’s stock price fell USD0.52, to $14.81. Fourth-quarter revenue will be $2.02 billion to $2.17 billion, the company forecast yesterday, compared with $2.18 billion a year earlier. The value of goods sold on eBay’s sites fell by 1% in the 3rd quarter, the first drop in eBay stock market history. eBay has been making acquisitions to improve its market share further, including buying PayPal, and reviewing its fees structure. eBay plans to increase marketing spending to fight for our sellers in what they expect to be a tough holiday season. Thanksgiving and Christmas are the busiest period in the retail sector, but the credit crunch is biting hard and could well reach its peak at the end of this year.
EBay reported net income of $492 million, or 38 cents a share, for the third quarter, compared with a loss of $935.6 million, or 69 cents, a year ago, when results were hit by a writedown in the value of its Skype
Internet telephone unit. The company projected fourth-quarter profit, excluding items, of 39 cents to 41 cents a share, compared with an average analyst estimate of 47 cents. Twenty-one analysts estimate sales of $2.42 billion in the quarter. Gross merchandise volume, or GMV, the value of all goods that users sold on EBay’s sites, fell 1 percent.
“It’s a combination of the company’s natural business model slowing down, partly because of increased competition,” Douglas Anmuth, an analyst at Barclays Capital in New York, said in a telephone interview yesterday. “Then you have the macro environment. The numbers are certainly worse than I expected.”
EBay’s marketplaces revenue rose 4 percent to $1.38 billion in the third quarter. New marketplace listings climbed 26 percent from a year earlier, the fourth consecutive quarterly increase, EBay said. The average selling price on EBay’s Web sites fell 7 percent, as consumers globally were squeezed by higher fuel and food prices, job losses and the worst financial crisis since the Great Depression. They are buying “fewer large ticket items” Donahoe said yesterday. Revenue from Skype, which added 32 million users in the quarter, climbed 46 percent to $143 million.
Donahoe inherited about 15,500 employees when he took over from predecessor Meg Whitman in April, almost double the 8,100 at the start of 2005, after acquisitions including automobile trading sites in Europe, Skype, online ticket-reseller StubHub and Web recommendation site StumbleUpon. One thousand full-time employees and about 600 temporary and part-time workers will be fired by the end of this year, EBay said.
The job cuts will cost eBay $70 million to $80 million pretax, most of which will be recorded in the fourth quarter, and lead to annual savings of about $150 million.
The credit crunch really is starting to hit all areas of the internet. With falling advertising revenue, reduction in prices and falling retail sales, all leading to falling demand for hardware, servers, and fewer net start ups, the internet is really heading for a shake up in the forthcoming months / years. Like the banking sector, there could well be some fire sales and rapid mergers and acquisitions to help protect business interests and save jobs.
Web Advertising Increases During the Credit Crunch, Google Leads
Oct 17, 2008
Bloomberg has reported that while advertisers are cutting back on TV and print media spending, they are actually moving to adverts that run alongside search listings and on affiliate websites, namely Google’s Adwords program. The Internet will account for 8.7% of the $284 billion in U.S. ad spending this year, up from 7.2 percent in 2007, according to Barclays Capital.
Excluding revenue passed on to partner sites, Google’s sales expanded to $4.04 billion last quarter. Total revenue climbed 31 percent to $5.54 billion.
At least eight analysts had reduced their estimates for Google’s third quarter this month after the global credit crisis erupted. That made it easier for the company to beat the average profit estimates yesterday.
Google Profits Defy Credit Crunch, Adwords Saves the Day
Oct 17, 2008
Latest news from Bloomberg – Google’s stock price jumped as much as 10% in German trading after reporting profit that topped analysts’ estimates, saying customers are still buying Web ads even as the economy slows.
While advertisers of home and auto loans cut back, makers of apparel and appliances kept spending, Chief Financial Officer Patrick Pichette said. Consumers continue to shop online, he said, with clicks on ads climbing 18 percent, near the previous quarter’s 19 percent growth.
The results, combined with better than anticipated reports from International Business Machines Corp. and Advanced Micro Devices Inc., cheered investors after a decline in technology shares this month. Google showed resilience in a weakening economy, said Mark May, an analyst at Needham & Co. in New York.
Jobs to be Slashed at Yahoo, AOL Deal Looks More Attractive
Oct 20, 2008
Yahoo is planning to make the easiest and quickest cost cutting action by slashing hundreds of jobs globally. Yahoo is expected to announce full details of its job cuts tomorrow, however it is likely that over 1000 positions will be axed. As with the rest of the economy, Yahoo’s stock price has plummeted recently, falling 55% to just under $13. Only 10 months ago Microsoft offered Yahoo shareholders $31 a share in a takeover bid. The Yahoo board declined this offer, stating that Yahoo was expecting growth and improvements. However product development costs lead to an 18% drop in 2nd quarter profits this year. In an attempt to appease shareholders, Yahoo employed Bain & Co. to analyse its operating model to increase efficiency and reduce costs. Yahoo currently employs approximately 14,000 people, so is looking to reduce staff costs by around 10%.
Yahoo has already slowed its recruitment, allowing it to cut about 30 recruitment companies from its payroll, and managers have been asked to seek ways to reduce operating costs by 15% by looking at cost effectiveness and continuous improvements within their own sections of the company.
Yahoo has been in talks with the media giant Time Warner AOL, with a possible partnership whereby Time Warner would become a minor stakeholder in Yahoo. With the continuing economic crisis now affecting the technology and information industry, this deal must be looking more appealing now for Yahoo!
Top US Stocks Likely to Survive the Credit Crunch
Oct 20, 2008
During these times of economic uncertainty it is hard to know in which baskets you should be placing your eggs. If you are going to keep your investments in stocks and shares, then you need to chose the stocks most likely to weather the storm that is ravaging our global economy. Lucky for us, there are plenty of analysts and financial experts at hand to help us with our decisions. Here are the JPMorgan Top Picks 16 U.S. Stocks to Hold in a Recession:
JPMorgan’s stock tips include food giant McDonald’s Corp. and pharmaceutical company Merck & Co., that may outperform the U.S. stock market during the global recession it expects to unfold during
the next two years.
JPMorgan’s “Franchise 16” list is a collaboration by JPMorgans’ finest stock analysts, and uses a top-down view that the banking crisis threatens global growth, according to Thomas J. Lee, chief U.S. equity strategist at the New York-based bank.
“There is growing demand from clients for core holdings that outperform in a global recession. Every week that passes that credit markets remain challenged, there’s incremental damage to the macro economy.” Thomas J. Lee, JP Morgan.
The stock prices of the group of shares increased by 1.2% today, compared with a 0.6% fall in the S&P 500 Index. The 16 companies, including Dow Jones Industrial Average components 3M Co., Hewlett-Packard Co., McDonald’s and Merck score high in three criteria, JPMorgan said.
“The requirements are low debt levels, return of cash to investors in the form of dividends or buybacks, and profitability. In addition, they’re viewed by the bank’s analysts as having the ability to prosper in a global slowdown. JPMorgan, the largest U.S. bank by market value, this week said the world economy is already in a recession and cut its global growth forecast for 2009 to 0.9% from 2.1%. Lee said the decision to compile the list was made two weeks ago, after the moved to fresh lows for the year that extended its year-to-date loss to 25 percent on Oct. 3. Since then, the main benchmark for U.S. equities has fallen a further 14 percent, deepening the loss to 36 percent.” Bloomberg.com
The Franchise 16 list is distinct from JPMorgan’s U.S. Analyst Focus List of researchers’ favourite companies among the 1,200 they cover. The new list includes 16 companies because cirrently these are the only ones that meet the criteria set out by JPMorgan to be able to be part of the credit crunch saver group. However, more stocks could be added if they show signs that they could also survive the crunch.
“We did it to provide something for clients to focus on beyond the distractions of current market conditions. Fundamental analysis of stocks in the past two weeks has been overwhelmed by de-leveraging, the seizure in the credit markets, and the fact that there’s almost no risk appetite.” Thomas J. Lee, JP Morgan.
The Likely Credit Crunch and Global Economic Downturn Survivors are:
- 3M Co. – a diversified technology company
- Baxter International Inc. – medical devices, pharmaceuticals and biotechnology
- Colgate-Palmolive Co. – Oral Care products and pharmaceutical products for health professionals
- CA Inc. – provider of information technology (IT) management software
- Devon Energy Corp. – oil and gas exploration, development and production
- General Mills Inc. – a manufacturer and marketer of branded consumer foods
- Gilead Sciences Inc. – a biopharmaceutical company
- Google Inc. – Internet search and web advertising
- Hewlett-Packard Co. – a provider of products, technologies, software, solutions and services
- McDonald’s Corp. – food service industry
- Merck & Co. – pharmaceutical company
- Monsanto Co. – provider of agricultural products for farmers
- Nucor Corp. – steel and steel products
- Philip Morris International Inc. – international tobacco company
- Union Pacific Corp. – transportation business
- Visa Inc – retail electronic payments network
What is striking about this list is that out of 16 companies, 4 are pure internet / IT companies (25% of companies), and the remaining are well spread in across all markets – e.g. fuels, pharmaceuticals, tobacco, transport, credit cards and industrial resources and health and beauty products.
Could it be that the dotcom companies that epitomised the 1990’s boom and bust period could actually save us during the current economic crisis?
Google Adopts New Strategies During Credit Crunch
Oct 21, 2008
Google is planning to make less acquisitions and reduce hiring, to help to withstand the global economic downturn. Yesterday Google’s Chief Executive Officer Eric Schmidt announced that the recession means more advertising budgets are being reviewed and often pulled, and Google is having to be sensible with its expansion plans.
Google’s profit growth has slowed as some advertisers, including home and auto lenders, have reduced advertising budgets. However, shrinking ad budgets have damaged newspapers the most, Schmidt said.
“All of us are vulnerable, – tt’s a race between a contraction in advertising, which would affect everybody, and a very positive shift from offline to online.” This would be good news for both Google and all of its Adsense publishers – key word bidding will increase, Adsense income will increase, and Google profits wil increase. However, established eCommerce sites that strongly rely on Adwords may find that they become priced out of some of the more popular keywords in their niche as more larger players start to bid for the number one spot.
Google is used for approximately 66% of all U.S. Internet searches, and up to 80% of UK searches, has spent more than $3.38 billion in the last year on new projects such as the purchase of DoubleClick Inc. which has helped to increase its lead over Yahoo! Inc. and Microsoft Corp. Google’s growing dominance lead to Microsoft making an unsolicited offer for Yahoo in January, a bid that fell though in May. Yahoo may be reconsidering this deal now. Overall the global credit crunch may cost the online-ad business $6.7 billion in lost sales through to 2010, according to Collins Stewart Plc.
IT Companies Become The New Lenders
Oct 27, 2008
An interesting development in the IT industry, as a result of the credit crunch and global economic downturn, is that the leading technology companies are stepping in to the lending market, which many banks and speciality lenders have withdrawn from. The credit crunch is the result of cash declining liquidity, which is caused when the banks stop lending money to each other, and other institutions. The withdrawal of many banks has meant that smaller technology companies are finding it hard to find willing lenders.
Companies such as IBM, Oracle Corp and Cisco Systems Inc. are starting to lend their own cash reserves to customers and are taking on investment risks. Essentially, they are becoming the new lending banks for the IT sector.
However, this market is certainly a risky one, as defaults on technology financings, i.e. loans specifically to allow companies develop and purchase computer hardware, software and other products, have increased dramatically this year. No doubt some of these new tech-banks will fare better than others while trying to win the successful partnerships of the future.
Computer Chips are Down, Credit Crunch Affecting Communications Hardware Sector
Oct 29, 2008
Europe’s biggest computer chip maker, STMicroelectronics, has forecast a drop in final quarter profits, citing the economic slowdown and reduction of demand for mobile phones. It is expected that sales will be down 8% from the third quarter’s $2.7 billion.
The economic decline and credit crunch is making consumers more cautious, and many are simply not upgrading mobile phones or personal computers. This is reducing demand for microchips asnd semiconductors from mobile and computer manfucturers. Although globally the mobile phone market is still growing, rate of growth is declining.
STMicroelectronics shares hade fallen by 37% this year, compared with a 43% drop in the 18-member The Philadelphia Semiconductor Index. This news follows our reports two weeks ago of job losses in Scotland at Freescale Semiconductor, a US-owned computer chip company. It seems that no company in the communication hardware sector is immune to the economic downturn. Texas Instruments Inc., the second-largest U.S. chipmaker, has also seens its share price drop to it lowest level in years.
Europe’s third biggest player in the semiconductor sector, NXP BV, has predicted that sales would fall by 14% in the final quarter of 2008. NXP has reported a “rapid deterioration of demand” toward the end of the third quarter, particularly among businesses that sell chips to the car industry and consumer-electronics makers.
Nokia Oyj, the world’s biggest maker of mobile phones and STMicroelectronics‘ largest customer, reported a 30 percent slide in third-quarter profit this month as prices fell and it lost market share in high-end devices.
In July, Carlos Bozotti cut his forecast for industry growth this year to between 4 percent and 5 percent, from a May prediction of 5 percent to 6 percent. He forecast “a little deceleration” in global chip sales in the second half.
“STMicroelectronics’ end-product exposure means that, despite the company’s recent share gains and positive customer momentum, it is vulnerable to weakening consumer demand across its portfolio” Jonathan Crossfield, Merrill Lynch & Co.
In June, the Semiconductor Industry Association cut its forecast for global semiconductor sales growth this year to 4.3 percent, from 7.7 percent.
“In the fourth quarter, STMicroelectronics expects its gross margin, the percentage of revenue left after subtracting manufacturing costs, to be 38.8 percent, plus or minus 1 percentage point. That forecast is based on an exchange rate of $1.40 to the euro. ” Bloomberg.com
President and CEO Carlo Bozotti commented, “The third quarter reflected continued focus on both our operating and strategic initiatives. From a financial perspective, our third quarter performance demonstrated further progress in strengthening our market position, building on the results of the first half of this year. Before including the additional revenue from the recently created ST-NXP Wireless joint venture, net revenues increased 12.4% year-to-date.
“We are gaining share overall, in particular in our areas of focus: multimedia convergence applications and power solutions. Indeed, we continued to harvest the benefits of our sales expansion initiatives and we increased our sales to new target key accounts by 16.0% on a sequential basis.
“We continue to build scale in the critical area of wireless applications with our joint announcement in August with Ericsson to form a joint venture composed of Ericsson Mobile Platforms and ST-NXP Wireless. We believe this new leader will have the industry’s strongest product offering in semiconductors and platforms for mobile applications and will be well positioned to continue and extend customer relationships with the most innovative players in the wireless industry.” ST.com
UK Online Sales in Recession – Credit Crunch Alert!
Nov 2, 2008
For the first time since records began, eCommerce profits are in recession in the UK. Up until October online sales had been in constant growth. Experian division Hitwise said UK internet traffic to online retailers fell 0.5 per cent in October compared with the same month in 2007, suggesting the consumer spending downturn has begun to affect the previously fast-growing online sector.
However, there have been some gains. The budget travel and holiday sector has seen an increase in sales, as has the second hand market. Although eBay has issued warnings for profits and growth, there does appear to be an overall increase in demand for places to advertise and sell used items.
UK Internet visits to budget travel providers, such as EasyJet, Ryanair and Travelodge, increased by 5.3% between September 2007 and September 2008, while the websites of Cruise companies experienced an 8.2% increase in traffic over the same period. Hitwise reports
Searches for second hand items increased 22% this year
UK Internet searches containing the words ‘second hand’ increased by 22% between the weeks ending 13 October 2007 and 11 October 2008. During the 12 weeks ending 11 October 2008, UK Internet users searched for over 22,000 distinct terms containing the phrase ‘second hand’ with searches for ‘second hand cars’ proving to be the most popular.
Top five UK Internet searches containing ‘second hand’:
- second hand cars
- second hand books
- second hand car prices
- second hand furniture
- second hand bikes
Another area that has seen an increase in demand during the last year are searches for “sales” and “vouchers”m which indicates that a growing number of people are looking for bargain and discounts online. Some established websites, such as LatestDiscountVouchers.co.uk, have seen rises in traffic from customers as well as more offers being made by retailers that are striving to keep cash flowing during the economic downturn.
Although the online retail market is becoming more competitive, there have been no major upheavals so far. Here are the current top 20 online retailers in the UK:
Gumtree.com is a growing second hand retailer, which is getting close to rivalling the giant eBay. However gumtree’s approach is different, in that it offers free classified adverts. It started as a London free ads website, but has grown to cover 6 countries. Main focus is on flat / room sharing, and provides an invaluable resource to students.
Amazon continues to diversify and innovate to increase traffic to its store. In the last year there has been a huge increase in the use of its aStore technology to increase trade. aStores allow websites to build mini shops on their sites, to advertise Amazon products directly, and range from specific stores such as health and fitness aStores, to general stores such as the GBPShop.co.uk.
Like with the banking sector, it is possible that online retailing will see some major upheavals if the credit crunch deepens and consumers are forced to tighten their belts further.
Google’s Deal With Yahoo is Ditched
Nov 6, 2008
Google has decided to cancel its plans to enter an advertising partnership with Yahoo. Google stated the reason being to avoid having a “protracted legal battle” with regulators. The partnership was going to see Google providing some of the advertising around Yahoo’s search results. This would have been an interesting area for both Google and Yahoo to enter, as they are essentially competitors. Google is way ahead in the contextual adversing game though.
It is a major setback for Yahoo, which is trying and failing to please shareholders after it rejected a takeover offer from Microsoft which valued Yahoo at $33 a share, or $47.5bn (£29.4bn) in total. Yahoo shares were
trading at $14 each on Wednesday, and shareholders are less than happy.
Google said it would not allow the prospect of a legal battle to distract it from its core mission. “That would be like trying to drive down the road of innovation with the parking brake on,” Google said in a blog.
“After four months of review, including discussions of various possible changes to the agreement, it’s clear that government regulators and some advertisers continue to have concerns about the agreement,” Drummond wrote. “Pressing ahead risked not only a protracted legal battle but also damage to relationships with valued partners. That wouldn’t have been in the long term interests of Google or our users, so we have decided to end the agreement.” Associated Press
The concept didn’t pan out because Google and Yahoo combined control more than 80 percent of the U.S. search advertising market. Microsoft and the Association of National Advertisers, among others, argued the arrangement would enable Google to gradually increase advertising prices and exert more control over the flow of e-commerce.
The Chips are Down – Intel Drops After Sales Target Chopped by $1 Billion
Nov 13, 2008
Intel Corp. is the latest computer chip manufacturer to see a drop in sales and profits. Share price fell by over 7% in European trading after Intel slashed its final quarter sales forecast, confirming that the credit crunch is affecting global technology spending.
Intel’s computer chips run more than three-quarters of the world’s computers. It has reduced its revenue estimate by about $1 billion, stating that “significantly weaker” demand for all of it products is to blame.
Its profit margin is also predicted to fall short of previous forecasts.
This is further evidence that global orders for computers and gadgets are not as resistant to the economic slowdown as originally thought. Applied Materials Inc., the top maker of semiconductor equipment, and National Semiconductor Corp., the supplier of chips for the biggest mobile-phone companies, are cutting jobs as they cope with their worst slump since the dot-com bubble burst in 2000. In addition to this, BT, Britain’s largest telecommunications company, announced that 10,000 jobs will have to go over the next year to reduce costs.
“It’s shockingly bad. I and most of us have been wrong on how bad this could get. The holiday season is a bust. Scratch 2008 out and maybe some kind of recovery will come, but this is a disaster.” Hans Mosesmann, Raymond James & Associates Inc. in New York.
Intel’s stock value has plummeted this year as the company has seen its value halve over the last year. The MSCI Asia Pacific Information Technology Index dropped as much as 6.5 percent.
According to research firm IDC.com technology spending in 2009 will grow far less than previously predicted. Spending will rise 2.6%, down from an earlier estimate of 5.9%, the Framingham, Massachusetts-based company said. Growth in the U.S. will probably slow to 0.9%, less than a quarter the pace IDC forecast in August.
Intel’s report came minutes after National Semiconductor reduced its revenue forecast and announced plans to cut about 5 percent of workers. Applied Materials reported a 45 percent drop in fourth-quarter profit and said it will cut 1,800 jobs.
“It’s just starting now — it’s not just going to be a few months. There are going to be job losses going into the first half of the year. That’s going to drive down the economy more.” Applied CEO Mike Splinter, a former Intel executive.
Technology companies generally make more sales in the final quarter, as many of their products are popular in the holiday shopping season.
Microsoft, the world’s largest software maker, also fell yesterday. Applied Materials decreased 4.3% to $9.52, while National Semiconductor dropped 7.8% to $10.45. Micron Technology Inc., the largest U.S. producer of computer memory, declined 20 cents, or 6.5%, to $2.90.
Semiconductors take as long as three months to go through production lines. The sudden drop in orders may reflect the eagerness of computer makers to avoid being stranded with expensive stockpiles of unused parts. Lean inventory may help chip makers’ earnings improve more quickly after demand rebounds.
It seems that all consumers are cutting back. Companies are reducing their IT and hardware budgets, making do with older computers and older technology, and the general public are also deciding not to buy the latest gadgets and computers at the moment. Maybe most people are planning to hold off until Christmas, and then treat themselves to the latest gadgets, phones, consoles and computers. However, one problem is that at the moment it seems that hardware is developing faster than software changes. Although there is a lot of new web and offline software technology available, uptake seems to have slowed. People are mostly happy with the current functionality of their mobile phones and personal computers, and see no great benefit in buying the latest models. If you are just surfing the net, chatting to mates on Skype or GMail, or being sociable on Facebook, then older chips work just fine.
Sun Microsystems Latest Victim of the Credit Crunch
Nov 15, 2008
Today the might Sun Microsystems announced that it will be cutting up to 6000 jobs to reduce costs to help counter falling sales. It has been hit hardest with a reduction in sales of servers to the financial sector, and has lost market share to other big computer chip players.
6000 job losses represents 18% of Sun Microsystems workforce, and will see annual costs reduce by about $800 million. The cost of the cut backs will cost about $600 million in the first year.
Sun’s CEO Jon Schwartz cited “global economic realities” as being the key reason for the job cuts. This simple means that people are not spending money on updating their hardware, as the global recession means that everyone is looking to reduce costs to the minimum in an attempt to ride out the storm.
Today several large players in the financial sector announced more job cuts, with Citigroup, RBS and HSBC all shedding staff. Also, BT, the UK’s largest telecoms company is also losing 10000 staff to reduce costs.
Sun’s CEO Jon Schwartz says that they are looking to build on their open source solutions, to provide customers with a cheaper alternative to their traditional servers. Sun’s MySQL open-source database applications and Java programming language, are both free, and Sun are hoping to get more companies set up with these products. To take advantage of the opportunity, Sun said today it will reorganize its software business. Rich Green, executive vice president for software, will resign.
Sun Microsystems is the third Silicon Valley company to announce job cuts this week. They follow Applied Materials Inc, which supplies the chip making infrastructure to silicon valley firms, and also National Semiconductor Corp, the cell phone chip maker.
Sun makes over 50% of its revenue from supplying servers to corporations. It has also made some costly acquisitions in the last five years which have resulted in a reduction of its share value.
It seems that the whole telecommunications industry will soon be brought down to its knees by the global credit crunch. Europe is now officially in recession, which marks a period of even greater uncertainty than before, when we merely had a credit crunch to worry about.
But what will come of this? There could well be a new world order as a result of the credit crunch. Many of the technological innovations that led to the development of the IT industry sprang up during the last depression. With the focus on open source systems, computing and the internet could well see a new world order. Maybe Google’s strong position, with revenue from advertising driving its innovations, will rise to be the new champion in all things technological and internet related?
Europe’s Largest Computer Chip Maker Suffering the Crunch
Nov 29, 2008
More problems in the computer chip markets as ST Microelectronics NV, Europe’s largest semiconductor maker, said fourth-quarter revenue and gross margin will miss forecasts after a slowdown in demand from the wireless, automotive and computer peripherals industries. The credit crunch is continuing to affect technology stocks and IT hardware manufacturers. It is likely the way things are going that by the end of the recession there will be some mergers and acquisitions in this market as the larger players attempt to strengthen market share to avoid longer term failure.
Full news story on Bloomberg.
Online Newspaper Advertising Revenue Falls
Nov 29, 2008
At first it seemed that there was going to be a shift from advertising on traditional paper media to more online advertising, leading to a more competitive market, and rising advertising revenues of web publishers. However, according to recent reports on Bloomberg, US online newspapers publishers saw a 3% decline in ad revenues over the last quarter. Paper based advertising has fallen by 19%.
Online advertising had been growing constantly quarter on quarter since 2004, when advertising revenues were first monitored by Arlington. It was thought that the credit crunch and global recession would lead to an increase in online advertising revenues as companies move from print ads to cheaper online ads. But it seems that advertising budgets are being cut back further than expected.
However, there is still no doubt that the printed media is suffering far worse than the online versions, with reports of job cuts from the major news houses and some publishers defaulting on debt payments and reducing circulation of their papers.
One of the first victims to fall was the 100 year old Christian Science Monitor (CSM), which is planning to reduce its daily paper to a Sunday print, and focus on its online version. John Yemma, editor of the CSM said the new model would allow the publication to retain its eight international bureaux and still save money. CSM predicts that this is a “leap that most newspapers will have to make in the next five years”. The CSM previously relied on annual subscriptions to make up a large share of its revenue, now it is turning to online advertising revenues.
Google Cuts Back on Sales and Marketing Staff, Citing Global Recession
Mar 29, 2009
Even the mighty Google is feeling that economic pinch that well call the Global Recession. The credit crunch is biting deep still and now now Google has decided that it no longer needs many of its sales and marketing staff. I guess, why would they?
Much of sales and marketing is about being top of search these days, and Goole *is* search, so they have no problems there! But it goes to show, no-one, or no company, is immune to the economic pressures that we are going through.What is good, is that Google are providing every effort for staff to be redeployed in the organisation. Many companies cannot offer this support for its staff during these problematic economic times.
Google has grown very quickly in a very short period of time. When companies grow that quickly it’s almost impossible to get everything right—and we certainly didn’t. In some areas we’ve created overlapping organizations which not only duplicate effort but also complicate the decision-making process. That makes our teams less effective and efficient than they should be. In addition, we over-invested in some areas in preparation for the growth trends we were experiencing at the time.
So today we have informed Googlers that we plan to reduce the number of roles within our sales and marketing organizations by just under 200 globally. Making changes of this kind is never easy—and we recognize that the recession makes the timing even more difficult for the Googlers concerned. We did look at a number of different options but ultimately concluded that we had to restructure our organizations in order to improve our effectiveness and efficiency as a business. We will give each person time to try and find another position at Google, as well as outplacement support, and provide severance packages for those who leave the company. Finally, I would like to take this opportunity to thank everyone affected for all they have contributed to Google.
Posted by Omid Kordestani, Senior VP, Global Sales and Business Development
The Internet is Coming Home – Local Newspapers Are Fading Out
Mar 30, 2009
Local portals set to grow online due to failure of traditional local press.
The continuing economic downturn has caused many local newspapers to consider merger opportunities with their rivals, to help cut operating costs and improve economies of scale. This can only lead to dilution of the local brands, which paves the way for more efficient web based news and business portals to step in. The current belief amongst many SEO professionals is that local geographic based web portals are the future of the internet. Large global directories are in decline, due to the mighty Google swallowing up the demand for web directories with its ever increasing search engine. Social networking sites are allowing people to find services and products in new ways, and the big news websites are offering more in the way of local news.
All this means that demand for local weekly papers is declining, circulation is falling. As this trend continues, advertisers will find falling returns on investment in paper based advertising. So where will they look? Web portals. County and town based web portals provide many opportunities for local businesses. They also provide full webpage listings, which is especially useful to companies and traders that have not invested in a website yet. It also has a growing community with news and local information. This trend is being replicated across the country as more people opt to build local websites. Some cover whole counties, and some just individual villages – GreatBaddowOnline.co.uk is a good example of a small scale portal offering news and services to local residents.
The advantage of web portals over traditional printed media is that they can operate at much lower costs. Whereas newspapers have to predict sales and print accordingly, websites can focus on updating content alone. Newspapers are restricted to weekly publications, whereas websites and portals can be updated continuously, 7 days a week, 24 hours a day. If an advertiser want to list a business online, the advert often appears on the dame day. With newspapers advertisers have to wait over a week to be seen.
It seems that the internet is coming full circle in its development, although now with many new bells and whistles. After a decade of portals and directories becoming larger and larger, people are now looking for more personal, closer partnerships. You could almost say that the internet is coming home.
Google’s Starts to Suffer as Online Retail Declines
Dec 4, 2008
Bank of America has slashed Google’s target price by 23% due to a large reduction in online shopping searches. The credit crunch crisis, and resulting recession, has meant that people are restricting their online spending. Brian Pitz, and analyst for Bank of America in New York advised clients that he was down valuing Google due to a reduction in predicted earnings for this quarter and all of next year.
Google’s CEO Eric Schmidt, has made the decision to cut back on hiring, and is no longer recruiting contractors, to help cut staffing costs.
“We see consumers still searching online, but for news and political commentary rather than HDTVs, Blu-Ray players and PCs,” Brian Pitz, Bank of America.
Profits are estimated to be $3.97 a share this quarter, rather than the $4.47 originally forecast. Next year profits have been estimated at $18.21 a share, down from $19.57.
Google’s stock price fell $5.80 (2.1%), to $269.31 at 9:43 a.m. New York time in Nasdaq Stock Market trading. Its share price has crashed by 62% this year.
A New Dot Com Crash? Yahoo Sacks 650 to 700 Staff
Dec 14, 2010
News just in that Yahoo is having to lay off up to 700 staff with immediate effect to help them whether the storm.
Apparently most staff losses will be from Yahoo’s product division in the USA. Staff will be sent on gardening leave with immediate effect, with the last staff leaving by the afternoon (14th December 2010).
Yahoo is finding it harder to compete with the mighty Google. After the merger of the Bing and Yahoo search engines and the closure of the UK Directory, Yahoo does not really have a great deal to offer now.
Could be the beginning of the end for Yahoo unless they can pull a surprise out of the hat, but with the demise of the product division, how are any innovations going to make it into production?