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CES Returns With a Bang. The Optimism? Not So Much. -- Barrons.com

Barron's · 01/06/2023 17:21
By Eric J. Savitz

The best news about the 2023 edition of CES, the world's largest tech trade show, is that the event happened at all. Hosted in Las Vegas every January by the Consumer Technology Association, this year's edition marked the first full CES since the onset of Covid-19. And after spending the week roaming the Las Vegas Convention Center, I can tell you that CES is alive and well.

Alas, the same cannot be said of the tech industry.

In January 2020, just as Covid was about to shut down the globe, 170,000 of the world's foremost nerds, geeks, goobers, hacks, and flacks descended on Las Vegas for the annual techfest. A year later, with the pandemic raging, CES went entirely virtual. In January 2022, the emergence of the Omicron Covid variant triggered a wave of exhibitor cancellations, and only 44,000 people showed up.

This year, organizers were targeting 100,000 attendees. It felt busier. The halls were bustling, taxi lines were long, and restaurants were packed. At last year's show, almost everyone was masked; this year, almost no one was. Abbott Labs was handing out free two-packs of Binax Now Covid test kits, but there was no testing requirement, and no one asked for my vax card. The show felt giddy, a throwback to the days before most people had heard of the coronavirus.

The talk from the stage was optimistic about the future, particularly around the power of artificial intelligence. But as I chatted with tech leaders, it became clear that the industry faces tough months ahead. In 2022, tech stocks cratered in the face of soaring interest rates, rising inflation, and a potential recession. In 2023, things seem likely to get worse before they get better. Here are a few takeaways from my week in Sin City.

The chips are down: With fourth-quarter earnings season approaching, chip industry leaders remain fretful about the 2023 outlook. Advanced Micro Devices (ticker: AMD) CEO Lisa Su said in an interview that she's optimistic that "there is secular demand for more technology" over time, but she conceded that weak PC sales will extend into this year. As Su notes, PC unit sales heading into the pandemic were flat to down -- the total jumped to about 350 million a year from 260 million as Covid forced everyone to stay home. Now, Su thinks, we could return to the 2019 level.

At a dinner with reporters, an exec at automotive and industrial chip maker Infineon Technologies (IFNNY) told me that the chip inventory glut that started with PCs and handsets is spreading into new areas. He said demand from industrial and automotive customers deteriorated in the last two weeks of 2022, with some orders pushed out by two or three quarters and others canceled.

Michael Hurlston, CEO of Synaptics (SYNA), said his company, which makes parts used in PCs, handsets, and other consumer products, has also been battered by soaring customer inventories, combined with weakening demand in key markets. He thinks that it will take at least until the middle of the year for customer inventories to reach more normal levels.

Budget crunching: George Kurtz, CEO of the security software company CrowdStrike Holdings (CRWD), said in an interview that while spending on security is resilient, it isn't impervious to macro factors. Kurtz says his company is seeing deal times extend, with multiple layers of approval required to close transactions.

Crime as a service: Meanwhile, Kurtz warns that history shows that "e-crime" tends to rise as the economy softens. He notes that there is a thriving underground market for "e-crime as a service," with sophisticated players adopting revenue-sharing business models. Yes, even criminals have shifted their operations to the cloud.

EV issues: As the electric-vehicle market grows, cracks are emerging in the sector's business model. Stellantis (STLA) CEO Carlos Tavares noted that it costs legacy car makers about 40% more, on average, to build an EV than a comparable gas-powered car. He says auto makers are in the untenable position of either passing along those costs, resulting in high-price vehicles that won't generate a mass market, or eating the additional outlays and hurting profitability. He says that companies must find ways to absorb the extra costs while protecting margins and not pricing at levels unaffordable to the middle-class car buyer. And they have to do that, he adds, while navigating through sharp swings in battery-related commodity prices.

The meh-taverse: Sure, there was new hardware for metaverse fans, including a next-gen virtual reality headset from Sony. But the most striking thing is that most applications I saw were for niches -- teaching math to middle schoolers or touring sports stadiums. While I saw a few haptic suits, it also seems increasingly clear that the Mark Zuckerberg/ Ready Player One version of the metaverse, with people spending huge chunks of their life in a virtual online world, isn't really happening now, and might not ever.

Speaking of meh: Sony (SONY) announced that the nameplate for its new automotive joint venture with Honda will be Afeela, as in, "Ah feel a headache coming on."

Best news of the week: Delta Air Lines (DAL) will offer free Wi-Fi on all of its planes, reaching all U.S. primary flights this year, with regional and international flights to follow in 2024. CEO Ed Bastian says the company spent $1 billion on the project, but he sees payback in customer loyalty. The Wi-Fi service will include a package of games from the New York Times, so travelers can play Wordle in the sky. Now that's technology I can believe in.

Write to Eric J. Savitz at eric.savitz@barrons.com

(END) Dow Jones Newswires

January 06, 2023 17:21 ET (22:21 GMT)

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