There's a direct line between the global economic doldrums and the lackluster results announced by many of the biggest technology companies. The inevitable conclusion reached from reviewing the third-quarter results and fourth-quarter outlooks from companies such as Amazon, Apple, Google, Intel, IBM, Texas Instruments, and STMicroelectronics is that the entire industry is being impacted by slowing demand by consumers, businesses, and government institutions for electronics and IT equipment.
Not even Apple Inc. (Nasdaq: AAPL) has escaped the shellacking. The wonder boy of the consumer electronics world typically beats not just its own forecast, but also the supercharged Street forecast. But on Thursday, the world's biggest consumer electronics company by sales and market capitalization reported results that missed estimates. CEO Tim Cook told investors that rumors about new products especially hurt iPad sales.
I disagree. As I have pointed out in the past, Apple isn't immune to what's happening in the general economy. Alex Gauna, an analyst at JMP Securities, told the Los Angeles Times that Apple "missed expectations for the third time in the last year and a half; that's uncharacteristic of Apple and it's something we're going to have to get used to."
Events outside the industry's control are impacting electronics companies more today than in the past. The industry is still trying to get used to that or even accept it. Belt tightening by companies, consumers, and governments is hurting sales. Here are a few examples drawn from headlines about the general economy, retailers, OEMs, and component suppliers.
Some industry observers see the generally weak third-quarter results as an anomaly that should pass soon. I believe they point to a longer trend for manufacturers. The global economy isn't monolithic, and many places will continue to lag others in demand and growth, pressuring sales and impacting decisions about the allocation of resources.
My position is that those pressure points are here to stay, at least for the next several years. Europe and the US (the presidential election notwithstanding) will continue to struggle for many more years with economic pressures related to debts, fiscal restructuring, and the growing belief that public spending should be drastically scaled back to reduce borrowing and interest payments on government obligations.
In a few months, politicians in China have gone from worrying about an economic overheating to near panic about the possibility of sluggish demand (primarily in foreign markets) crimping employment and wage growth. Many China watchers say the country is hurting as demand for its products declines in Europe, which is battling a crippling fiscal crisis.
Taking all these things into consideration, it's obvious electronics manufacturers will find it harder to predict demand in the coming quarters and possibly the coming years. Thankfully, many companies are already taking steps to counter the dragging impact on their operations. They are monitoring demand more closely and have tamped down on inventory, using a just-in-time program that reinforces the need to have only components required for confirmed sales in stock. These actions have boosted margins and sent profits to record heights, despite flagging sales.
Many companies are watching their own expenses and have been swift to cut costs in anticipation of slowing demand. They've also instituted a more flexible, smarter, and smaller workforce system; employees can be replenished or downsized swiftly in response to changing market conditions. With the economic crystal ball fogging up at unexpected times, more actions like these will be needed in the coming quarters.
"Is it ? Normally its the season where the prices go up."
@hash.era: Normally companies want to clear their stock for next year so there's massive sale on Thanksgiving and Christmas each year. A lot of people wait for this time to make their purchases.
"End of the year purchases do impact positively the economy, but chances are that many companies will have to revise down their revenues forecast."
@Hospice: Normally companies make their forecasts for each quarter based on the sales in the same quarter over the previous several years. Yes, the third-quarter slum should have some impact on fourth-quarter estimates, but largely the fourth-quarter predictions rely on the past several years' behavior.
"The sad news is, nobody owes you a career. Your career is literally your business. You own it as a sole proprietor. You have one employee: yourself. You need to accept ownership of your career, your skills and the timing of your moves."
Good qutotations Bolaji. This is what changing times dictates. Challenging individuals to take ownership of their skills and the timing of moves. This is crucial in the ever changing employment market.
Bolaji good analysis on the ongoing economic situation and the impact it's created on the electronic manufacturing industry based on the companies third and Fourth quarter report outlooks. I agree, events outside the electronics manfacturing industry is bound to impact the industry like many other busnesses have been too. It's not surprising to note that electronics manufacturing industry are taking steps to adjust to changing times and demand . You're absolutely right, even the major players in the industry i.e Apple too now realises its not entirely immune. I think these steps are essential.
"they want to save the money to make their purchases towards the end of the year"
Does that suppose that the fourth-quarter revenues will the better than the third-quarter of the year. End of the year purchases do impact positively the economy, but chances are that many companies will have to revise down their revenues forecast.
I don't agree with you. If without innovation, then there will be more and more investment in the same industry and no company being wiped out, and the whole economy will face constant maliganant competition, will the economic situation be worse?
Besides, innovation also creat new job opportunity and energy-saving products.
@Bolaji: Isn't the third quarter normally the slowest each year? How does this year's third quarter compare to previous years. I suppose this is directly linked with conusmers expectations: they want to save the money to make their purchases towards the end of the year on Thanksgiving or Christmas where the prices will be significantly lower.
"With all the comments below, I still is of opinion that too much innovation in consumer electronics is wasting a lot of natural resources, money and people's time in unproductive areas."
@Prabhakar: I'm not sure if I'd agree with this. Innovation leads to better products at lower prices and this makes more and more people be able to afford these products. In a way, that increases the demand for the products. In the context of low demand, I don't see how innovation is the culprit here.
But most Chinese do the work despised by the developed countries' people, scuh as the US, German; besides, they also expand consumer market. I think the reason resulting in the economic crisis is the mess production and trade. In fact, next year is still a hopeful year, after all, Chinese market is gradully recover, and the US economic growth rise to 2% from 1.5% in the second quarter. 2012 will complete political change.
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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