Planning for the year ahead is going to require a very strong stomach for all players in the US economy, including the high-tech sector, which has become very tightly woven into the larger consumer, manufacturing, and services markets over the last 10 years.
The equity market continued to stomp upward, with the major indices steadily increasing through the last month of 2010 and continuing in the first week of this year on a steady diet of positive reports indicating the global economy remains resilient. In the US, stronger signs are emerging that the economy is rebounding steadily, and even the dollar has managed to firm up against all other international currencies despite rising debt obligations.
In the high-tech industry, forecasts generally call for single- to double-digit sales increases for all segments, including semiconductor, manufacturing, and overall electronic equipment sales. The annual Consumer Electronics Show is chock-full this week with numerous forward-looking gadgets from major manufacturers jostling with each other for the bragging rights to the coolest electronic products. One would be forgiven for thinking the industry is in the middle of its strongest sales expansion ever.
Yet ominous signs keep popping up each time a celebratory cry gurgles up from a corner of the industry. Energy costs are going up: Crude oil prices have soared in the last three months and continue to push closer to $100 per barrel -- a certain sign the market sees demand growth continuing in the near future but also a nasty price hike that could hurt shipping and transportation and crimp consumer spending.
Technology companies must contend also with the sharp rise in other commodity prices in recent months. Copper and gold prices have shot up to new levels although the increases have been tempered in the last week as investors embarked upon a profit-taking stampede on concerns the strengthening US dollar could hurt commodities.
Higher commodity costs are worrisome for electronic companies, but this is a longer-term problem as most manufacturers have learned to hedge prices for shorter-term deliveries. Yet, China's planned curb on the export of rare earth metals is another worrying supply chain concern the industry must address with alternate procurement strategies.
Perhaps the more serious problem facing the electronics industry, as well as the larger economy in the US, is the uncertainty surrounding the country's high unemployment rate. On Friday, January 7, the US Department of Labor announced the latest monthly employment data showing employers added 103,000 non-farm positions in December, much lower than the 150,000 to 190,000 many economists were expecting. Yet, the unemployment rate dropped to 9.4 percent from 9.7 percent, with much of the decline a result of adjustment of data from the prior months.
The small payroll increase disappointed many, but the lower unemployment figure thrilled the market, leaving stocks wobbly, unsure which direction to head. Economists believe a minimum of 150,000 jobs would have to be added each month to make a more serious dent on unemployment. And even the Labor Dept. concurs.
"While we have seen steady job growth in the past year, faster job growth is needed in 2011 to help bring down the unemployment rate and put those Americans who lost jobs during the recession back to work," said Hilda Solis, Secretary of Labor, in a statement.
That's an understatement. Consumers gave the economy a much needed lift during the last recession, proving resilient even as corporations, though stuffed with cash, further slashed payroll and tamped down on expenses, including high-tech equipment purchases. Many people were expecting corporations to both boost technology equipment spending and increase payroll in the last months of 2010. That didn't happen.
Wrapping up 2010 with less-than-expected hiring will deliver a rude shock to the economy, and high-tech companies will feel the jolt. How do you plan for the future with so much uncertainty still clouding up the outlook?
Tom, you have a great point. "Playing the card safe" is a buzzword now. Companies might still be cautious and take steady approach for growing, and that's why the jobless rate is still lingering around.
I slightly disagree with your statement that "Chinese peasant who gets a job in the new iPhone factory isn't ging to turn around".But there is another angle to look at it
1) Recall the recent visit of Obama to India. President Barack Obama's India visit has been successful in creating thousands of jobs for Americans. Reality is India and China are seen as big market by US .
2) Samsung,Nokia phones are sold like hot cakes. I agree no body buys IPHONE here but for every iphone sold in US, 10 smart phones are sold in India and China. what I am stressing here is Volume is the key and not the price.
Sideways, it's headed sideways. And I think that's a good thing, for now, so we don't artificially inflate our markets and set ourselves up for another huge crash.
The larger question is WHY? Why is there still high unemployment? WHy do the corporations not invest their hoarded cash? Why are we not seeing greater job growth, commensurate with the expansion of GDP?
The simple answer is, over the last 20 years, consumer confidence has shriveled to a raisin from a once plump and juicy grape. And this is not confidence in the "economy". It is confidence in the US Government, whose fiscal, military and social policies have damaged our ability to continue growth. Excessive debt is the biggest factor. Think about it in micro terms: If a household is severely in debt, not only are they going to stop expanding, but they will contract, and be unable to maintain current levels of services (Entitlements) unless they iuncur even greater debt. And eventually they are going to ask more from members of the household in the way of contributions, either by no longer getting allowance or having a smaller Christmas (TAXES). Or askking a relative to takre care of a kid or two for a "while". (Outsourcing Jobs)
That's why the stimulus packages were such utter failures. You can't spend your way out of debt. You eventually have to start cutting somewhere. Didn't make Clinton popular, but he was the only President to balance a budget since the '50's.
Until we as a people take back our government and overhaul the Tax Code, Entitlements, and the sheer SIZE of our government, we will never again be able to generate the positive expectations necessary to fuel long-term sustained growth.
I couldn't have said it better. People who keep talking about how and why outsourcing is good for consumers generally don't seem to get it that you need to make money to spend money. The government does not have the means to support a large unemployed labor force. Local jobs are needed and in my opnion, these should include manufacturing jobs too. Our goal should be to find ways to make ourselves competitive in manufacturing and not just believe it's impossible and simply keep shifting jobs overseas. An economy of unemployed is an economy in distress.
If there isn't more investment in the U.S. and jobs continue to go off shore, there will a smaller base of "customers" for all the goods that are being made. I can guarantee a Chinese peasant who gets a job in the new iPhone factory isn't ging to turn around and use his new-found wealth to buy some high-tech gizmo that American companies are selling. American workers are the ones who primarily buy their products, and if they aren't working, they aren't buying!
That's quite a question, Bolaji. The answer may depend on one's view of utility vs. ethical considerations. As for legality, the companies usually know how to skirt the law, or at least get the lawyers to make sure they are technical compliance. I've heard that many companies have taken money that was supposed to keep them in business in order to maintain US jobs, but then they shift operations overseas without any compunctions. Even on a local level, companies sometimes don't give back to the places that offer them tax breaks specifically to keep up employment in the area.
Several years ago, for example, New York extended major tax breaks to Goldman Sachs to try to keep the offices in New York. see http://www.highbeam.com/doc/1G1-135190551.html While it accepted those tax breaks, it set up offices in Jersey City, even moving employees who live in New York to work over there. As a result, New York lost out on some of the income tax from those employees. The losses increased even more to both states when large numbers of employees were let go and had to collect unemployment insurance from the state where they were officially employed.
Hi Ariella, Eemom, Great and valid points. I want to throw in some additional stuff though and I would appreciate your opinion. If we say that companies have obligations to their society, which segment of the entire society are we referring to, the local or the international?
By transferring jobs overseas, companies are gutting jobs in headquarter countries. Should they be held accountable for the rise in unemployment in home countries or better still, do they have obligations to make sure people in headquarter countries are also gainfully employed?
I ask because many of the companies that are retrenching or refusing to hire in North America are still hiring or have open positions in other parts of the globe. Do they have an obligation to move these jobs to other parts of the globe as part of their efforts to renew their societies?
I agree with Ariella and Anna. Let's not forget that if companies invest in their society, they will most likely reap the benefit of their investments. If they want sales to go up, who is going to buy their products if consumers continue to be gun shy about spending and about the "recovering economy?"
I agree with Anna. I understand the principles of capitalism. However, the profit motive does not necessarily mean that one completely ignores the rest of society. Certainly, highly successful companies regularly donate to philanthropic causes to try to demonstrate that they are not ruthless robber barons and do care about those around them. That may all be lip service for the sake of public relations, but it still shows that a company does not function in a vacuum.
Hawk, It may seem unnecessary for companies to watch out for the "common good" and focus instead on creating shareholder value alone but there may also be a ton of folly in ignoring the larger needs of a society. Companies do not exist in a vacuum; they exist because other segments of the society jointly create the environment in which they can pursue their corporate goals. A company can do good (for its business) by doing good in its society.
Companies should, naturally, be cautious about hiring but oftentimes, an investment in a business is also an investment in a society. Higher employment raises consumer confidence, boosts consumption, which in turn lead to stronger employment. The cycle is good for businesses and the community. Is that message going out?
By moving to the core of the industry and offerings services that keep the system humming, a group within the electronics market has rendered irrelevant the question of ownership and control of the supply chain.
EBN Dialogue enables and encourages you to participate in live chats with notable leaders and luminaries. Not only editors and journalists, but the entire EBN community is able to comment and ask questions. Listed below are upcoming and archived chats.
Archived Dialogues
Thailand Stages a Comeback Join EBN contributor Jennifer Baljko on Thursday August 23, 2012, at 11:00 a.m. EST for a live chat on how electronic manufacturers in Thailand have shored up their supply chain to reduce the impact of future natural disasters.
Euro-Crisis: What It Means for High-Tech Firms Join EBN Editor in Chief Bolaji Ojo and Contributing Editor Jennifer Baljko on Thursday, July 12, at 10:00 a.m. EDT for a Live Chat on high-tech and Europe's economic difficulties.
Microsoft Surface: Potential Winners & Losers What are the implications for the electronics industry supply chain of Microsoft Corp.'s decision to launch its own tablet PC? Join industry veteran and EE Times' systems and OEM expert Rick Merritt on Tuesday, July 3, at 12:00 pm EDT for a Live Chat on this subject.
Join EBN contributor Jennifer Baljko on Thursday August 23, 2012, at 11:00 a.m. EST for a live chat on how electronic manufacturers in Thailand have shored up their supply chain to reduce the impact of future natural disasters.
Peter Drucker famously said "Trying to predict the future is like trying to drive down a country road at night with no lights while looking out the back window." Yet in the razor's-edge world of electronics—with a lean supply chain and just-in-time demands—the need to know the future is vital.
While no one really can accurately predict the future, we can take guidance from another Drucker saying which is the best way to predict the future is to create it.
You've heard the saying "the No. 1 supply chain risk is your people." That hasn't always been the case. But today's complex global supply chain requires a new type of multitalented employee. It's one who understands, finance, marketing, economics, is savvy with technology, graceful with relationships and can think analytically.
Where are these people? Are universities properly preparing the next generation supply chain professionals? How do train your existing workforce for these new, demanding positions?
Brian Fuller, editor-in-chief of EBN, will lead a 60-minute Avnet Velocity panel discussion that will ask and answer these and other questions swirling around today's supply-chain talent challenges.
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