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Here We Go Again: Be Prudent in the Upturn
December 22, 2003 |Estimated reading time: 2 minutes
Here We Go Again: Be Prudent in the Upturn By Walt CusterDecember 22, 2003
As we close 2003, we are “enjoying” a number of recent industry changes:
- Global “electronic food chain” capacity utilization is rising and we are shifting from a buyer’s to a seller’s market
- Forecasts are continually being revised upwards
- Lead times are growing rapidly
- Extended order placements are more common (to ensure adequate supply)
- Prices are firming and in some cases increasing
- “Good” companies are returning to profitability
At the same time:
-
Component shortages and stock outages are increasingly common
- Over-ordering is a worry
- Panic buying patterns could return
- The Asian capacity buildup continues
The year 2003 is closing with positive global growth for all sectors (Chart 1), and 2004 looks even more encouraging (Chart 2). Although the largest expansions are (and will continue to be) in Southeast Asia, in this time of expansion all areas of the world will enjoy growth.
Table 1 shows semiconductor shipment growth by geographical area for 2000 through 2003. 2003 growth rates were extrapolated from January to October data.
For 2003, all geographic areas will consume more chips (assemble more electronic equipment) vs. 2003. North America (hurt the most by the Asia shift and communications equipment downturn) shows the slowest recovery but all areas are now in “growth mode.”
Table 1 - Semiconductor $ Shipments to an Area (annual % growth)
2000
2001
2002
2003
N. America
+34.9
-44.2
-12.6
+4.0
Europe
+32.7
-28.6
-8.0
+18.9
Japan
+42.4
-29.1
-8.0
+26.9
ROW
+37.9
-22.3
+28.5
+23.5
World
+36.8
-32.0
+1.3
+19.0
As we move into this growth phase, it is interesting to compare the historical 12/12 rate of change (annualized growth rates at any point in time) for electronic equipment orders vs. shipments.
In Chart 3, notice the periods of over-ordering and inventory building in the upturns of the business cycle. This must, of course, be “paid for” in the downturns as orders drop more than shipments while excess inventories are consumed.
Also note that in the 2000 “bubble,” the excess orders were massive. As the USA moved into the 2001-2003 downturn, the combination of the shift to Asian manufacturing, the telecom crash and the huge inventory overhangs all frustrated attempts at “recovery.”
Tables 2 and 3 show the annual growth of U.S. electronic equipment shipments and orders by year, by end-market.
Tables 2 and 3 show the annual growth of U.S. electronic equipment shipments and orders by year, by end-market.
Table 2 -U.S. $ Electronic Equipment Shipments (annual % growth)
2000
2001
2002
2003
Computer & Related
-3.5
-18.5
-8.7
+11.3
Communications
+20.9
-13.2
-22.2
-3.6
Electromedical, Measuring & Control Instruments
+8.3
-3.2
+5.8
+8.2
Military
+3.2
+14.5
+4.2
+13.2
Total
+7.2
-10.9
-9.1
+5.5
Table 3 - U.S. $ Electronic Equipment Orders (annual % growth)
2000
2001
2002
2003
Computer & Related
-7.0
-16.7
-7.4
+13.2
Communications
+15.2
-19.4
-26.8
+19.5
Electromedical, Measuring & Control Instruments
+12.3
-7.3
+7.6
+8.8
Military
+7.2
+11.4
-9.6
+40.0
Total
+5.8
-13.5
-11.1
+17.7
Walt Custer http://www.custerconsulting.com/walt@custerconsulting.com