The two heralds of the deep tech winter

Declining tech innovation and the threat of China invading Taiwan could drive the digital industry into a deep, deep winter.

After two decades of continuous tech growth, it can be startling to see headlines like this: Microsoft plans to lay off as many as 11,000 people Wednesday. Microsoft is far from alone: Amazon and Meta have been laying off people, too. The tech winter is upon us.

We’ve already explored the financial underpinnings of this phenomenon. But there are two looming threats on the horizon that could transform a brief downturn into a years-long tech nuclear winter.

What are these heralds of the deep tech winter?

The first is the possibility that the big wave of tech innovation is over. The mobile-centric digital paradigm is established, and we’re into efficiency innovations, rather than market-creating ones. The innovation cycle is brutal, and the current tech industry is on the wrong side of it.

And the other? It’s so serious that the World Economic Forum has made it part of its third-biggest global risk over the next two years: a geopolitical confrontation between China and the West over Taiwan.

Let’s look at both of these heralds of the tech apocalypse.

Tech saturation

Admit it: you’re not as excited by your phone as you once were. A new laptop is nice, but not that exciting. Tech was once something we queued to get on release day, but no more.

Tech has got… boring. And that’s starting to play out in the economy. The first sign of this becoming a structural issue would be declining phone sales. Let’s check in on how they’re going:

Worldwide smartphone shipments fell 17% year-on-year in Q4 2022. Full-year 2022 shipments declined by 11% to fewer than 1.2 billion, reflecting an extremely challenging year for all vendors.

That’s not good. And with inflation high, people aren’t going to be rushing for that upgrade.

Is the tech revolution done?

Arguably, there have been three inflection points in tech that have driven the digital industry over the past 25 years:

  • The invention of the personal computer
  • The arrival of the consumer internet (and the web, in particular)
  • The arrival of the modern smartphone.

The last of those happened in 2007 — that’s over 15 years ago at this point. While there have been successful digital products since, including tablets and smartwatches, none have them have been on the scale of the smartphone. In fact, it seems that consumer digital tech is largely in a “refine and extend” stage. Phone sales are dropping because people’s phones are… fine. They work, and they do what they want. Why upgrade?

In particular, during a cost of living crisis, people are strongly incentivised to get another year or so out of their existing devices. And once they lose the habit of biannual upgrades, they’re not going to rush back into it.

The Meh-taverse

So, what’s next? Blockchain? That’s going through its own crypto winter, without actually hitting wide-scale adoption first. The big new bet on tech seems to be some form of AR/VR fusion. Zuckerberg has made it the future of Meta. Apple has been long rumoured to be releasing something in this space. But ask yourself this: are you excited by the idea? Is it likely to prove as transformative in your life as the phone or the internet?

The chances are that it probably won’t. Our devices are beginning to settle into a pattern of being a stable platform, undergoing incremental upgrades. That’s great — but it means the super-charged growth of the past is never coming back. And it seems that even tech leaders know that. Their model is now increasingly extracting more revenue from existing customers via enhanced service offerings, or luxury dreams.

As Shannon Vallor put it for the MIT Technology Review:

The fact is, the visible focus of tech culture is no longer on expanding the frontiers of humane innovation—innovation that serves us all. Even space travel has lost its humanistic vision; today’s frontier is luxury space tourism and billionaires selling credulous investors on fantasies of escape to Mars. With 8 billion people teetering on the precipice of global environmental destruction, we can’t afford a world where the core mission of new tech appears to be “Take the money and run.”

China invades Taiwan, triggering a deep tech winter

This time last year, Russia was starting to build upon its forces on the Ukrainian border. People started discussing the — unlikely, they assumed — possibility that Putin would invade. And invade he did. We all know the results of that decision on the world economy.

China has been casting longing eyes on its neighbour Taiwan for years. Could it follow Russia into an extended conflict? In November 2022, Xi Jinping told China’s army to prepare for war. Does that make it likely? Well, perhaps. It’s a tactically challenging operation:

Invading Taiwan is much more difficult than invading Ukraine. Separated from the mainland by a 160-kilometer strait where rough weather makes invasion nearly impossible for all but a few months a year, Taiwan is defended on most sides by forbidding coastal cliffs. The most feasible approach is via heavily fortified low-lying lands on the west, where treacherous mudflats would make amphibious crossing under fire a nightmare for attackers.

But the world is taking the possibility seriously enough that the description above comes from an article about the wargaming already in progress to plan for different attack strategies that China might use.

A China/Taiwan standoff would destroy the tech industry

A conflict between China and Taiwan is a terrifying threat to the existing tech industry. Why?

  • Taiwan is home to 92% of the manufacturing capacity for chips. We’ve already seen the impact chip shortages can have on the tech sector – and Taiwan Semiconductor ending up isolated from the world during an extended conflict would hobble the tech industry.
  • China is the world’s leading manufacturer of technology. Whatever device you’re reading this on, it was almost certainly manufactured in China. Your phone, your camera, your laptop. All assembled in China. Now imagine Russia-style sanctions on China. Imagine that flow of devices being cut off. The global economy would be forever altered.

Escaping the tech winter

Perhaps stung by the combination of the pandemic and the Russian energy crisis, the big tech companies are already starting to reduce their reliance on China. Apple is already exporting $3 bn of iPhones from India — but wants to get at least half of the manufacturing of its most important product out of China by 2027. Dell is trying to get Chinese chips out of its products over the next couple of years.

These are the first steps in de-coupling the tech world from China. But if an invasion happens sooner than that, we might no longer have the choice to upgrade our products. We might be forced to hang onto our tech for as long as possible because supplies will be so scarce.

It’s no exaggeration to say that a Chinese invasion of Taiwan will be the end of the tech world as we know it. That’s a tech deep winter it might take a decade to escape.

Photo by Fabio on Unsplash