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.
In my opinion, we have too much innovation happening too fast. The speed of innovation should match the speed of economy otherwise the electronic industry would face too much of a non moving products and unnecessary obsolete products leading to too much of the e-waste.
This has to be a concerted effort by all the biggies together so that no one feels left behind and the rat race is slowed down at least till the global economy recovers.
I have a honest belief 90% of all Innovation achieved today has very little(if any) benefit to mankind today.
@tech4people, I dont think you can term innovation as useless. We can always use these innovations in new places in new ways, we just need to be receptive for new ideas.
Its tough to say that every Innovation that has been achieved by Man has either been Useful or Useless.
But if you sit down and look at the list of patents which Companies(&Individuals) go to great lengths to set up;You realize not everyone of them is really-really useful.
At no point have I disputed the need for New ideas;but I feel the Biggest reason for the Current Financial Crisis which we are suffering from Globally is this so-called Innovation.
Sometimes simplicity and sticking to the old way of doing things works out much better(and more sustainable) in the Long-term.
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.
You are right on that but to attain balance between innovation and the economy is a hard tihing because sometimes innovation is even the major influence on the economy
You are right on that but to attain balance between innovation and the economy is a hard tihing because sometimes innovation is even the major influence on the economy
Disposable income for most folks these days is alarmingly low. Loans are difficult to get. Fear pervades the markets. It is only to be expected that companies will not be doing too well. The question is how pessimistic the markets are vs reality as that is what sets expectations.
I really know what you mean by your Statement here- "No Cash Man!!!"
I just wanted to change your Statement slightly-
"The question is how Optimistic the markets are vs reality as that is what sets expectations."
To get an idea of what Works and what Does'nt(& what is the realistic point of view for the markets) of how Market Perspective differs from Reality check this out.
http://www.hussmanfunds.com/wmc/wmc120924.html
John Hussman writes an excellent Newsletter every Fortnight.
Ashish, Andy Grove, the former chairman and CEO of Intel, said in a book:
"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."
Andy Grove is absolutely right and on the Ball here!Far too many CEOs talk all kinds of wishy-washy nonsense(in public) which has no practical relevance today.
But this is stuff which anyone and everyone can and should use.
The main reason the world economy is going through a prolonged rough patch is because since the late 1980s Wall St profiteers have quite heedlessly facilitated the inducton of vast & cheap Chinese labor into the world economy.
The first decade of Globalizatiion produced cheap products at Wal Mart Made in China but the next CENTURY would be tough for the developed world
Anyone with some familiarity with College Math / Control Theory could have predicted the scenario now unfolding.
Unless something is done to put the leash back on China and their patrons in Wall St., get ready to be eaten alive by the 300 million poor workers in China who too want to live like the Taiwanese or Singaporeans. This will come at the expense of not just the West, but also that of the other resource poor BRIC nation i,e. India.
You too will soon get a personal lesson in the limits of "Free Market".
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.
@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.
"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.
"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.
"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.
Normally companies want to clear their stock for next year so there's massive sale on Thanksgiving and Christmas each year.
@Taimoorz, has the sale season started. Are you seeing good discount this time around or companies are conservative about rebates because sales are already down ?
Taimoor: Ohh I see. Here its the opposite. They try to grab what ever they can since they know that during this time people are looking to buy things at any cost.
"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.
Challenging individuals to take ownership of their skills and the timing of moves. This is crucial in the ever changing employment market.
@Anna, I totally agree with you. This changing employment is very challenging. Only way to tackle this is continuously update the skill-set and keep in sync with current technology. If companies dont care about employees skill-set then employees themselves should plan to update their skill-set.
Anandvy that is exactly my point, employment market conditions and change reminds me of Karl Marx's conflict theory. I perceive this as a time for individuals to take stock of his or her individual 'conflict management skills' and possibly bring it in line with the employment market condition. I believe this the only way to keep abreast of the situation.
Perhaps it may be upcoming US election. Obama or Romney, after election things will move quicker and job market will improve considerably. Most organizations are very cash rich, but they are holding on to it.
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.
What the world needs today's is energy and water which is becoming more and more scarce . We need the world focus on increasing power generation, alternate energy sources, water harvesting and such things.
These gizmos where billions of dollars are being spent by the consumers just because every six months a new generation product is forced into the market declaring the previous product as obsolete although technically it could last for another decade may be.
Isn't it a madness? isn't it an unnecessary innovation?
"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.
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_deosthali, no doubt we need more research in power generation, alternate energy sources, water harvesting etc but that doesnt mean we should stop the innovation in consumer electronics. Let's not forget this sector creates lot jobs for the employees and drive the semiconductor industry.
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.
electronics manufacturers will find it harder to predict demand in the coming quarters and possibly the coming years.
@Bolaji, I totally agree with your opinion. Unfortunately the uncertianity is here to stay and I think not only the companies but the employees should also prepare themselves to face this uncertainity.
Managing the risks in the demand-supply chain is part of the challenges facing manufacturers. Uncertainty is now built into the system but winning companies still find a way to mitigate this risk and use it to their advantage. If we agree the global system is now inherently unpredictable, the next set of skills management need is knowing how to take advantage of even this uncertainty.
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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