Spillikins # 596. Preparing for the crisis – closing stores, services, production

Hey.

No matter how much you say “halva”, your mouth will not become sweeter. Corporations are brave and claim they are doing well and sales are recovering. American officials echo them and conjure the market that there is a violent recovery. All this is happening against the backdrop of an intensifying epidemic, and at the same time, most corporations are sharply cutting their costs, preparing for a protracted crisis. At Microsoft, projects are being closed in batches, some are rumored, something has passed by the general public. For example, the Mixer streaming platform will be closed from July 22nd. And these are just flowers, since almost everyone is taking similar actions. For the first time, Google will miss out on advertising revenue; by the end of the year, turnover may fall by 5%, before that it has always been growing! And there are not only many such signs of crisis, they are manifested in everything. Entire industries are dying, as well as individual areas in successful corporations. This is not a storm yet, we are only preparing to enter it. But the way corporate teams prepare for the future becomes uncomfortable, getting rid of everything that has not had time to show efficiency, which requires investment and effort. Corporations by all actions show that the markets will only fall and this will be a protracted fall. In this issue, we will only touch on part of the events of the past week, which perfectly illustrates this preparation for the crisis. Everyone gets rid of ballast, fixes losses. Go!

Content

  1. Microsoft divested of stores, share of online smartphone sales in the US
  2. Smart home and Russian data storage law – a dilemma for manufacturers
  3. War for 5G – America wants to compete with Huawei
  4. Photography pioneer fell victim to crisis – goodbye Olympus
  5. Boycotts, language changes and other signs of turbulent times
  6. Where the pioneers are going – Segway will disappear from the market

Microsoft divested of stores, share of online smartphone sales in the US

At the end of 2009, Microsoft opens the first several stores of the company, the prototype was the store at the headquarters in Redmond, where they showed the latest devices and how they work. Microsoft’s entry into the retail segment both in 2009 and today is perceived as a response to Apple’s retail program; parallels cannot be avoided. Very often Microsoft stores are located near the Apple Store, this is a deliberate decision, a kind of undeclared war. But all comparisons are always not in favor of Microsoft, their stores are empty and there are almost no visitors. It becomes the subject of jokes that Microsoft decided to show that they were not that popular, as many Americans and Europeans did not believe in it. The picture of empty stores and attempts to create lines at product launches, when the first customers are presented with serious gifts, for example, XBox, only add to the picture of the debacle. The company itself owns 80 stores, mainly in the United States. Other stores are owned by partners but built under the auspices of the Redmond retail team. With the development of the Surface line, such stores acquire special importance, it is an opportunity to show their computers, give them a touch to customers. Microsoft’s flagship opens on Fifth Avenue in New York, near Apple’s glass cube. The feeling that they want to compete on an equal footing, to be wherever Apple is.

Spillikins # 596. Preparing for the crisis - closing stores, services, production

Over the past ten years, I have come across a lot of materials in which the authors tried to feel and calculate how much money Microsoft is losing in its branded stores, and we were not talking about the flagship on Fifth Avenue, its losses were self-evident due to the situation. The calculations directly depended on the attitude towards Microsoft, someone drew a bottomless pit of money that devours profits from software, someone was more careful in their estimates. What brought these materials together was the assessment that Microsoft retail was unprofitable. Something had to be done about it, but Microsoft’s radical approach is striking. Without any sentimentality, the company announced that it was closing all stores, except for four flagships in different parts of the world. All employees will be hired for another job, and the company is now focused on online sales.

In a crisis, what Microsoft is doing is justified, the company is reducing losses that drag it to the bottom, this is not the time when you can afford expensive experiments. The simultaneous loss from store closings will amount to $ 450 million, this money will be written off in the current quarter. And Microsoft’s example is interesting because many companies can go exactly the same way. Apple comes to mind; today the company has 510 stores in 25 countries of the world, of which 271 are in the United States. This is clearly an overkill that the company could afford in other times, but not today. There is no doubt that Apple will begin to revise the number of stores, since the company lives in exactly the same market as Microsoft and others.

Comparing Microsoft and Apple in iron sales in the US is ridiculous and stupid, since the former sell iron, the latter not only sell it, but also a certain way of life. Perhaps it is worth picking up another example that touches on the intangible component, namely the very same way of life, whatever that means. Let’s take a look at Nike, this sneaker and sportswear maker is a kind of icon in the US, sales are always high. We are also interested in this company because it reported on the quarter that ends on May 31 (it does not coincide with the calendar quarter, it also happens). Nike’s sales fell 38% year-on-year, with revenues of $ 6.3 billion. The main reason for the fall is called the pandemic, the closure of stores in the United States, this is the main market – as well as for Apple.

The spread of the virus in the United States began in a new way, with many states affected. Last week, the United States set a record for the number of cases in one day – almost 50 thousand people. This leads to repeated closings of stores in different regions, for example, in Houston, Apple closed all seven of its stores. The cost of such a closure? Millions of dollars of direct losses, tens of millions of losses in turnover. Prior to that, stores were closed for almost two months without any exceptions, and the impact of this factor was not taken into account in the first quarter report. And here we can expect that the second quarter for Apple will show these losses, a drop in revenue. If this does not happen, then it can be argued that the company’s financiers are simply engaged in transforming reality in reports, since the entire market is falling and there are no exceptions in retail, there are no sales for anyone. And Apple cannot live separately from the market, as if they are the same as the US stock market, which is completely divorced from reality.

Often, when discussing sales channels, I come across the opinion that retail does not play any role, since everyone sells online today, especially in America, a country where Amazon is so strong. Each time I answer that Amazon’s share of the smartphone and electronics market is negligible, it is a small channel (the word “small” is conditional, since the site sells a lot in money, but little in quantity as a percentage of each market segment). And a discussion about Apple and how well they sell their products online, that no one buys them in retail, and 80%, 90% or even almost 100% are sales of the company’s online store. Let’s take a look at Counterpoint’s research that debunks this myth for the US.

The company believes that online sales in the United States increased due to the pandemic, they amounted to 17% in the first quarter of 2020 (up from 13% a year earlier!). And here, of course, we can assume that Apple is still huge in this segment, since it is an innovative company and its consumers buy exclusively online. Let’s take a look at the graph.

Spillikins # 596. Preparing for the crisis - closing stores, services, production

Apple’s share of sales is only one percent higher than Samsung, no miracle happened. Apple’s main sales in the US are retail channels, both in-store and those from operators. In Russia, online sales are up to a maximum of 20% of the market during peak weeks, on average 16-17%, there are no differences from the United States. Amazing? Not at all, since the Russian market is not worse developed, and in many respects better than the American one. But the belief that somewhere rivers are filled with jelly is ineradicable, hence the obvious superiority in assessments of what is happening on other banks.

We live in a time of crisis that has no analogues in scale, and what is happening in retail only proves this. This is the very beginning of the process, when the closure of certain stores, segments will be perceived as routine and will not cause any reaction. This will become the norm.

Smart home and Russian data storage law – a dilemma for manufacturers

Every time I wanted to write about what the law on the storage of personal data of Russian residents means inside the country, something prevented me from doing it. But then the stars converged on one point, from a conversation with one of the officials I heard that in September there will be a campaign aimed at solving this issue, and at the same time we got a review of a humidifier from Dyson. How are these two events related? Yes, in the most direct way.

Spillikins # 596. Preparing for the crisis - closing stores, services, production

It is difficult to imagine modern household appliances without the ability to control from a smartphone, some even equip kettles with the ability to access the Internet and collect statistics, which I personally consider a tribute to fashion, but not a real necessity. But in the same humidifier, I am interested in the ability to control it remotely, view statistics, and configure the device on a smartphone. For this, there is the Dyson Link application, it is blocked for work in Russia.

Spillikins # 596. Preparing for the crisis - closing stores, services, production

Why? The answer lies in the fact that, according to the law, the manufacturer is obliged to store data on the territory of Russia, and if he does not do this, then he will face fines. Starting from December 2, 2019, the size of administrative fines has been established; for legal entities for the first violation, it ranges from 1 to 6 million rubles! The amount is impressive for any company, and this is clearly not the money that is included in the budgets of manufacturers. Repeated violation of the law will result in heavy fines. For those who want to read the law, I will give you what you need to watch: Part 5 of Art. 18 of the Federal Law of July 27, 2006 No. 152-FZ.

Usually the reaction of people to such things is purely negative, they say, again officials have come up with something, and we suffer from this. Or even more trenchant – no one will follow stupid laws, everyone will score on them. And when you look at the same smart home from Xiaomi or other companies, you get exactly the impression that they have been hammered and sold as they are. The servers are located in China, collecting data, and no one really cares about it. This will be so for the time being, since no one has yet been engaged in bringing the market to comply with this law.

The semantic component of the law can be discussed in two ways. The first is that it’s just right, the data of Russian citizens should be stored inside the country. It’s just a law, and I don’t see it as bad and violating the rights of manufacturers. It is clear that they will be able to copy any digital data from Russia to anywhere in the world, and no one can forbid them to do so. And there are simply no effective means to control such data transfer.

The second hypostasis is more interesting and not so obvious. The requirement of the law will lead to an increase in the use of Russian data centers, storing this data inside Russia means that we will receive capacity utilization. And this is a good help for the data center business, and the economy as a whole. The money that flowed into someone else’s infrastructure (Chinese, European, American – it doesn’t matter) will remain within Russia. And to me it looks like a justified decision, so right.

It has long been known that the severity of Russian laws is compensated by the non-binding nature of their implementation. But this is clearly not the case, since the example of the same smart home can see how easy it is to block its work when servers are located outside Russia. Operators will be happy to get involved in this “game”, as they create their own competing solutions. And now software localization at the level of Russian data centers will become a necessity. I don’t think they will start blocking and aggressively punishing producers in the fall, rather they will gently make it clear that it’s time to change. But in 2021, control over how they have changed will begin.

For buyers, this means that you need to think about how the solutions that you buy are implemented – where the data is stored, where your device knocks. There is a chance that the manufacturer is too small to comply with Russian law, and then it will simply be blocked, and you will start dancing with a tambourine to make the device work. You obviously don’t need this.

If something like this happened 10-15 years ago, and I would say that the law would not work, manufacturers would simply spit on it. But today everything has changed, international corporations no longer play games with the state, the same Apple completely and unconditionally agreed to the pre-installation of Russian applications, from January 1, 2021, they will appear on all devices of the company. Amazing? Not. The market is too big to afford to leave or not follow the laws when all the other players do. Somehow it happened imperceptibly, there was more order.

To me, the law on pre-installation of Russian applications itself seems crude, there are many shortcomings, and I have repeatedly criticized it, since it is in many ways harmful to manufacturers. Nevertheless, it is impossible to deny that the entire market agreed with him and is playing by these rules. This has already happened. This means that there will be something similar with data storage.

War for 5G – America wants to compete with Huawei

A couple of months ago, we discussed with you that Nokia is trying to fend off an attempt at an unfriendly takeover from the outside. And the company managed to remain independent. The reason Nokia is under attack is well described by the number of 5G patents the company has.

Spillikins # 596. Preparing for the crisis - closing stores, services, production

For America, which is fighting against Huawei, in which it seeks not to weaken, but to completely destroy the company, this is a matter of the future. The emergence of 5G is a question of domination in the near future, a question of how it will be possible to develop, wage wars, trade. The same drones that are used by America to strike at the territory of other countries, with the advent of 5G networks, will receive fundamentally new opportunities, and only a dozen states that have a sufficient level of technological development will be able to defend themselves against them, Russia is one of them. The US trade war against China is part of a struggle for the future that no one wants to lose.

An interesting article appeared in the WSJ, where, with reference to officials from Washington, it is argued that America is ready to create all conditions for American corporations, for example, Cisco, to absorb players such as Nokia and / or Ericsson, and create a counterweight to Huawei. And this will quickly and effectively resolve the issue of 5G, create the very counterbalance that the United States needs so badly.

There is only one moment that confuses me in this story – no one asks Nokia or Ericsson for their opinion. However, in big politics, the opinion of companies should not bother officials. Another point that made me smile broadly is that allegedly Cisco is fighting off this proposal and calling these manufacturers weak. And if for Nokia these words are quite applicable, for Ericsson they sound at least insulting, since the company is in no way inferior to the same Huawei and has comparable developments.

The outer layer and what is hidden inside are always different. Cisco’s words, even if they were spoken, are intended for officials, it is an attempt to explain the reluctance at their level. In reality, even if these companies are taken over by Cisco or Broadcom, problems will begin to pour in from a cornucopia. The sales of both Nokia and Ericsson today are largely determined not only by technology, but also by politics, they are chosen as alternative solutions. Get US control over a company, and in many countries, including Russia, it will become not very popular, it will lose the market. The industry understands this, but officials often think differently.

The hardships of America regarding the need to create a giant to match Huawei are understandable, they cannot kill the company, and every month it becomes even stronger, less and less dependent on the United States. And this will lead us to an unequivocal exacerbation of the trade war, it is inevitable. It will not bring anything good for the world, it can be considered that this has already happened.

Photography pioneer fell victim to crisis – goodbye Olympus

Digital cameras today have become far from being an essential commodity; rather, it is a hobby, a hobby for those who love and want to photograph. Like any hobby, it cannot be considered massive enough to generate consistent mass market sales. The days when a digital camera was the only way to capture the beauty of the world around are gone. Smartphones do a great job with this today, and most people think their quality level is sufficient.

Let’s take a look at the total digital camera sales, this is the CIPA data.

Spillikins # 596. Preparing for the crisis - closing stores, services, productionSpillikins # 596. Preparing for the crisis - closing stores, services, production

You can find more data here.

The drop in shipments year-on-year is beyond doubt (sales are even less, they are falling faster), it all started much earlier, but today we see the trend gaining momentum. In April, we can assume that the market reacted to the pandemic and contracted sharply. In the absence of tourism, digital camera sales are in even more trouble than usual. There are practically no prospects for this direction, so companies are starting to get rid of assets. Olympus became the first swallow, it began producing photographic equipment in 1934 and in the era of film cameras became one of the most popular brands in the world.

Spillikins # 596. Preparing for the crisis - closing stores, services, production

In the digital age, the company failed to become a significant player, although many solutions without any discounts anticipated the development of the market. But it didn’t work out. There are three main players in the digital camera market today – Canon, Sony and Nikon. The most aggressive player is Sony, they are increasing sales, squeezing out other players and imposing a frantic pace of new product launches. But this is still a falling market for all players.

And so Olympus decides to quit the photo business, the corresponding division is sold to JIP (Japan Industrial Partners). She is known for restructuring businesses, for example, they took the Vaio brand from Sony and tried to revive it, there are a lot of such examples. This does not always work out, therefore JIP can be called to some extent undertakers, they squeeze everything that is possible from the purchased businesses, disassemble them to a screw, and then sell individual things. I wouldn’t be surprised if Olympus cameras start to be produced by some Chinese looking for a well-known brand, and their products are not very popular. We can safely say that this is death for Olympus as a manufacturer of photographic equipment, nothing else awaits this brand in terms of cameras.

But this raises another important question – who is next? For no particular reason, it seems to me that it will be Nikon, just such a feeling. Not everything is perfect at Canon either, the announcements of new products look at least surprising. For example, Canon R5 is a video camera, which means that the direction of development is such that the company is going more in video than in photography. At the same time, computational photography remains a weak point for all traditional manufacturers of cameras and equipment, while smartphone manufacturers, on the contrary, pay the most attention to this area. Ultimately, smartphones will shoot even better, and conventional cameras will remain the lot of those who are professionally engaged in photography or consider it their hobby. Alas, before our eyes an era is ending, the world is evolving. I have no particular regrets, the new always replaces the old, and everything depends only on our perception of this moment.

Boycotts, language changes and other signs of turbulent times

Reading the news about what is happening in America, I involuntarily wonder how adequate I am and how I understand this world. Sometimes it seems that at some point I fell asleep, but while I was sleeping, something was tweaked in this world and it changed irreversibly. Overthrowing statues of heroes of past times is a rather meaningless thing, and disrespect and ignorance of one’s own history leads to very big problems in the future. But I was sincerely surprised that even in such an apolitical sphere as technology, there were those who sought out racial insults and demanded to correct them. In technology, the designations for Master / Slave connectors have taken root from the very first days and have no connotation, you need to be sick to your head to consider this racial prejudice. But now there are people who consider it necessary to rename these designations, to find new, neutral names. After that, can you really believe that something wrong is not happening to the world?

Further – more, in the United States and around the world, a serious struggle of bees against honey is unfolding, that is, international corporations against social networks. Corporations shoot ads from Facebook / Instagram for the fact that users on these networks allow themselves to hate someone, express their point of view, including racism. A campaign called “Stop hate for profit” is gaining momentum. For example, from July 1, for a whole month, Coca-Cola will stop posting its ads on all social networks. Prior to that, Verizon and Unilever refused to advertise on Facebook.

Such public demarches are flirting with the crowd, which has the right thoughts underneath, they can even, in theory, be supported, but the consequences of this story look very strange. The “Stop hate for profit” campaign itself is directed exclusively against Facebook, since the latter does not take any side in the unrest in the United States, and allows one or the other point of view to be expressed. The protesters want to punish Facebook for this, as it is necessary to support, apparently, only their point of view (I do not presume to assess who is right here, the question is precisely that one protesting group considers itself the most right in the world). Formally, Facebook should stay out of the fray and provide its platform for all people, in fact, it is involved as a party to the conflict. And they will try to punish him with advertising money so that he chooses the “right” side. And I don’t like it at all, because we are witnessing an ugly tool, an advanced version of censorship.

To make it less emotional, let’s imagine that there are two opposing factions. The first thinks that the Inuit do not like the word “popsicle”, while the second thinks that it is a decent word and it makes no difference how to use it. The former, for some reason, attract attention, become strong, and their point of view is publicly supported. And then a person comes to the store who wrote on a social network that sometimes an popsicle is just an popsicle, he wants to buy a bottle of Coca-Cola. But they don’t sell him this bottle, because he thinks that popsicle is good. And you can’t support racists and let them enjoy soda. Seems crazy? But this is exactly what America is going to today, when it mixes up business, the views of people on this or that issue and is trying to financially punish those who did not take sides. Fighting for the rights of people is honorable and correct, but this fight must and can be meaningful, not what it looks like in America today. It is fashionable to support everyone indiscriminately, to justify robbery as a form of protest. What is happening before our eyes has far-reaching consequences for our entire world and how we will live in it. In my opinion, the separation from reality, the number of delusions and their advertising, promotion in all channels – all this is only growing. Do I need to do something about it? Certainly. It is necessary to take a sober view of the world. Unfortunately, technology is becoming one of the tools in how they want to change our world, reformat it for politics. And every day the number of changes will only increase, now more and more often it appears in licensing agreements that the “User” can be of any gender (he, she, average, or who the person considers himself to be), why this decryption remains unclear to me. And after all, such things appear gradually, reflect changes in one society, and not in all countries on our planet. We smile and make fun of it, but for some it is a lifelong task, a struggle for the rights of those who consider themselves to be middle-born. And now, it seems, I’m not a prude, but sometimes it makes me cringe, because I don’t see any point in this. Fight against windmills, in which history and monuments are still losing. Look, we’ll get to the books soon, and Ray Bradbury will turn out to be a prophet.

Suggest “correct” names for Master / Slave so that they don’t offend people’s feelings. At the same time, you will probably remember other names in technologies that are capable of offending someone, a dozen familiar terms came to mind.

Where the pioneers are going – Segway will disappear from the market

The advent of the Segway opened up Pandora’s box, and the popularity of personal electric vehicles began to grow before our eyes. The first Segway was not just a pioneer product, it became proof that a completely different means of transportation can be created for the city, different from the usual motorcycles or bicycles.

Spillikins # 596. Preparing for the crisis - closing stores, services, production

The Segway was first shown to the general public in December 2001 and made a splash. But the $ 5 price tag made the device instantly available to units. By 000, 2020 thousand Segways were sold, although the company originally expected to sell 140 thousand units in the first 100 months, this did not happen.

The high cost of the Segway is due to the fact that the device was created indestructible, it has a maximum service life. Engineers made the Segway so that it worked and drove even in the event of breakdowns of individual elements, and they succeeded. There are many Segways in the world that have a mileage of 100 kilometers, are quite shabby in appearance, but continue to work properly, only the batteries are changed in them.

For ordinary buyers, the Segway turned out to be too expensive, too expensive, bulky for a city apartment, and outside the city the roads are often not the ones to cut on such a two-wheeled vehicle. And various variations began to appear on the market: electric unicycle, skateboards with a motor, which they just did not come up with. The Segway breathed life into this direction, but now the company has decided to discontinue its production. In everyday life, the main demand for the Segway was from law enforcement agencies in the United States (you can often see police on them in shopping malls), as well as tour bureaus used around the world. Walking around the city in an unusual vehicle.

The company changed owners twice, so there is nothing surprising in the closure of the first product, it is simply not in demand. Chinese Ninebot, which owns the brand and rights to the Segway, today manufactures many other mobility devices, usually the name begins with the Segway name, and then the model’s own name follows. Dozens of different models have come out over the years, and there are even more companies making such devices. In Moscow, it is customary to see a courier delivering food on an electric unicycle, he briskly drives along the street. The fact that the courier has such a wheel indicates its availability, as well as its applicability in the city for the quick delivery of something (couriers buy such equipment themselves, no one gives them wheels).

And the fact that the original Segway will disappear from the market is not so bad. This device fulfilled its task, it opened a new page in the history of personal vehicles, changed the urban landscape. At the same time, there is no nostalgia, since few people have used the Segway and have truly warm feelings for it.

The time when the company decided to close production is also no coincidence, the crisis forces us to prepare for the fact that everything will be different in the future, we need all the resources that can be freed up.

PS Events in the market go on as usual, but the closer the reporting period for the second quarter, the more optimizations we will see. Companies anticipate bad results, do whatever they can to show that they are ready for the crisis and are doing what is necessary. It is possible to believe that everything is over and the crisis is over, only for those who are supposed to instill confidence in the world around them according to their position. We are on the verge of the next stage of the crisis, which will begin this fall, and it will be much stronger than in the spring. Therefore, you need to stand in places and do your job.

Good luck with your deeds and a good working week! I hope you will succeed. And good health plus opportunities to relax.

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