The Lesson of Crazy Bob

In many ways, analysts say now, this is a typical “inventory” recession.

Companies like Cisco and Intel suddenly found they had made too many routers and chips for the market, so they’ve cut production until the inventory is worked off.

How, these analysts ask, can Cisco keep making new stuff when their old stuff is going for pennies on the dollar on eBay?

The answer to that is found in two words: Moore’s Law.

Moore’s Law means the chips Intel makes next year will be twice as powerful or cost half as much as those it made this year. The same goes for the equipment they go into, like Cisco routers.

This means an “inventory” recession will be much shorter and milder in this industry than in a business like autos, where, after all, cars are cars. A new car depreciates while it’s on the lot, but not completely. A router left on a shelf turns to dust.

I first learned this in the mid-’80s. I call it “The Lesson of Crazy Bob.”

Crazy Bob’s was a small store in North Atlanta that sold computer parts and software. You could get some great prices at Crazy Bob’s. His prices were really crazy.

But they didn’t stay crazy. A computer that sold for $2,000 at Crazy Bob’s in April would go for $1,000 in May, and I’d see it in stores at $750 by Christmas. Crazy Bob couldn’t keep up with Moore’s Law. Other merchants who could turn their inventory around more quickly replaced him.

That wasn’t the end of the story, of course. The Lesson of Crazy Bob was that money turned into silicon quickly turns to sand, unless the silicon is quickly put to work.

A few years after Crazy Bob’s closed, I decided to upgrade my computer. A friend had a friend in Tennessee who made pottery. I traded in my machine for a set of cereal bowls. (I still have two of them.) This, I learned, was a good deal.

My friend later inherited a bunch of PS/2 boards. This was the product of an IBM attempt to take over hardware standards. The attempt failed. But my friend (wrongly) figured that people would need these boards as their old boards wore out.

My friend had forgotten the Lesson of Crazy Bob. The boards sat in his house for a few years, still in their shrink-wrap. When he remembered they were there and went back to look at them, he read their specifications from the back of the box and quickly threw them out. They were obsolete.

Computer equipment, in other words, has a lot in common with luncheon meat. Even if you refrigerate it, you’d better eat it soon, or it’s not even going to be fit for dogs.

This is good news for all of us. Cisco’s inventory is spoiling, wherever it is. Pretty soon, it will be worthless of its own account. Cisco will have to make new stuff even if the old stuff doesn’t sell. Cisco will also have to sell the new stuff. It will have to buy ads to do this. So will other hardware makers.

Moore’s Law is the Lesson of Crazy Bob. It’s going to be the salvation of this business. It’s going to end this recession, and soon.

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