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Communications Equipment Warning Signs From USA
February 9, 2004 |Estimated reading time: 1 minute
Communications Equipment Warning Signs From USA By Walt Custer February 9, 2004
Global communications equipment (datacom and telecom) production totaled just short of $220 billion in 2003 (Chart 1), with Europe the largest producer (final assembly). However, as we know, an increasing share of the electronic content is now made in Southeast Asia.
Chart 2 shows the $-denominated 2000-2003 global sales of the seven largest communications companies. Only Nokia has grown since the 2000 "bubble." More recently (comparing 2003 to 2002), Nokia, Cisco Systems, and Motorola were all up. Still, Chart 2 is very sobering, considering that the world's seven largest telecom/datacom companies were still down 36% from their 2000 peak. For those companies focused more on the wired telecom and base-station sectors, revenues were especially hard-hit.
On a positive note, global communications equipment revenue (Chart 3) picked up noticeably in the last quarter of 2003. Comparing 4Q'03 to 4Q'02, aggregate sales were up 12% (partially aided by the strong euro and Swedish krona vs. the weak US$), as the European companies' revenues have been converted to US dollars in the chart. Robust holiday mobile-phone sales helped to push up year-end 2003 performance.
Now for the disturbing part. Although 4Q'03 "top 7" revenues were up 12%, U.S. communications orders (Chart 4) plunged substantially in November and then continued their downturn in December, suggesting that 1Q'04 revenues may be disappointing. U.S. communications orders were off 71% from their peak in mid-2000 and have "given back" all of the "recovery" that began in late 2002.
From the euphoria of surging communications equipment orders in September and October, we then were faced with the grim reality of a massive November/December "correction." It would appear that after a burst of inventory replenishment, the communications food chain then cut back orders in late 2003.
Entering 2004, we must be watchful. Will orders rebound in January? My guess is somewhat-but not nearly enough to offset the late 2003 plunge.
Volatility seems to be a fact of life. Although the world economy is improving, communications equipment is still riding a roller coaster!
More in early March when we have another month's data.
Walt Custer www.custerconsulting.comwalt@custerconsulting.com