I remember it well. Almost thirty years ago, in my second year in the computer business I was sitting in my car with a colleague who ran the PC division of the company that we both worked for (I looked after peripherals – mainly printers and monitors). We were bemoaning how poor the demand was and wondering how we were going to deal with our shared boss. Then we realised that we had had exactly the same conversation a year before in, if I remember correctly, May.
The reality was that May, and we later realised, Q2 in general, has been weak in every year I have been in the PC business since then. Apart from one year. I can’t remember which it was, but it was five or six years ago and business for all our clients was great. I kept asking people why business was so good, but I never did find a reason for that strange year. So, apart from that year, business is always down in Q2.
Part of the dip is because of the seasonality of budget years which tend to end around the end of the calendar year, or the end of March. Either old budgets are spent in November to March, or new budget orders are released in January and April. By the mid to end of May, this pattern has slowed and budget holders try to avoid spending too much in case they need it later in the year. Then comes the summer break. Everybody would say “business will be quiet because of the holidays”. In the UK market, that rarely happened, and we often did good business in July and August and every year it seemed to be a surprise.
Because of my industrial background in the Lancashire region of the UK, the historic home of the textiles industry (particularly cotton which was imported from the US and elsewhere through the port of Liverpool), there was a long tradition of ‘Wakes weeks’. A whole town would basically shut down for a week as the cloth-making mills were closed for maintenance. The workers would have a break and as living standards rose, they started to go away for the week – to Blackpool on the North West coast of the UK and from the 1970s, to Spain and elsewhere in Southern Europe. For those left behind, it was a busy period – as it was for me, as the company I worked for supplied steel tubes for gas, water and heating. We would keep a calendar so that we knew in which week each town would be busy to plan our deliveries.
In the same way, in the computer business, I imagined bosses jetting off for their holidays saying ‘And when I get back, I want to see that network installed/server upgraded/new version of Windows’ – the IT equivalent of the Wakes Week. So the UK was busy. The French have a great tradition of buying educational products for ‘la rentrée’ – the return to school on 1st September – and that always stimulated some business. Of course, other countries ‘closed up’. Only a couple of years ago, I tried to call Acer’s office in Milan during August only to get a recorded message to say that the office was closed and unless I had a warranty problem, I should wait until September. (I suspect this might not happen this year, now that the Italian dominance at the top of Acer has been sharply reduced, but we’ll see!)
Southern European countries, that depend on tourism, also enjoy a significant boost to their cash flow during Q3 that can help set up the business. And then, of course, we are back into Christmas sales. As a distributor said to me this week, “After they’ve cleared the excessive Q2 inventory in Q3, the brands will over-order for Q4 and we’ll help them clear the excess stock in Q1!”.
Perhaps the stockbrokers in London were right when they said ‘Sell in May and go away’ – a traditional view based on the idea that because of relatively low trading volumes, there could be some large swings in stock and share prices that distorted the market. So, it was time to go to Henley to watch the rowing, Lords to watch the cricket, Ascot to watch the horse racing with the Queen or Wimbledon to watch the tennis. This was followed by more racing at Goodwood and then Cowes week to watch sailing. A busy summer before returning to the real business in September.
This year, Q2 has been a tough one for the PC and display businesses, as well as for TV (with no Olympics or World Cup to excite the retailers and pull sales from Q3 into Q2). It’s too late for most of these events now, but enjoy the good weather for now (if you have some) as business will get going again before long!