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Industry Optimism Hangs on a Thread

As the electronics industry shakes off recessionary woes, moves beyond the damage done by the Japanese earthquake and tsunami, and digests monthly manufacturing well-being reports, supply chain professionals seem ready to find the silver lining.

Earlier this week, VentureOutsource released its latest Electronics Supply Chain Business Outlook Survey. Generally, among the 412 supply chain executives polled, optimism is running at a good clip.

“The outlook for the electronics supply chain has improved significantly in most areas. The survey of the electronics supply chain also points to even higher hopes for the second half of 2011,” the report said. “However, there is concern about current prices increasing and for profit levels in the second half of 2011.”

On average, respondents came in with a score of 5.8, on a scale of 1 to 10, with 10 being the most favorable. This is 9 percent higher than last year, according to VentureOutsource. The uptick is likely due to expected growth opportunities in mobile systems, cloud computing, and product launches planned for the back half of the year.

VentureOutsource is quick to note, too, that optimism levels vary, depending on where executives sit in the supply chain and how close they are to the decision-making process.

For instance, the most optimistic respondents hailed from PC, server, and automotive companies, electronics OEMs, electronics manufacturing services (EMS) firms, and original design manufacturers (ODM). The least optimistic were those from the networking and telecommunication sectors. And those with only a view into the decision-making process tended to have more optimistic scores, while those that participated in the decision-making process took a more conservative stance.

The survey, which was sponsored by distributor {complink 12799|Digi-Key Corp.}, also noted areas where confidence fell short. Evidently, fear, uncertainty, and doubt remain in regards to the supply chain aftershocks resulting from the March disaster in Japan. Fortunately, most do not appear to think the impact would last into the second half of 2011.

This coincides with the findings of a recent IHS iSuppli report, which expected the current financial quarter to see “a more muted effect from the Japan disaster than previously thought.” According to the report: “Many semiconductor manufacturing facilities initially damaged or affected by lack of steady electricity supply have returned to normal operations, narrowing the negative impact on semiconductor revenue during the second quarter.”

Optimism was also softened by the fact that no one really knows what kind of impact the anticipated tablet explosion will have on other PC-related segments and supply chain practices, the IHS iSuppli survey found. It's a big wild card for most electronics suppliers and OEMs who already made bets for the third and fourth quarters, the important back-to-school and holiday shopping periods.

And, then there's the news from the Purchasing Manager Indexes. As I mentioned in a recent post, signs of global manufacturing slowdown bubbled up in May, clouding over the outlook for the next few months. (See: A Manufacturing Slowdown or a Short-Term Correction?.) The PMI sentiments weren't factored into the VentureOutsource results; still, the idea is out there and may give supply chain managers pause.

Taken together, it certainly looks like we're at another inflection (reflection?) point. If history repeats itself, as it usually does, supply chain optimism is also going to be kept in check with speculative uncertainty. The trick is finding a healthy balance between what is expected with a fair amount of confidence and the usual uncertainties within the system.

8 comments on “Industry Optimism Hangs on a Thread

  1. Barbara Jorgensen
    June 8, 2011

    So it looks like OEMs are less concerned about supply constraints than originally thought. That's good. But higher prices–possibly brought on by speculation of shortages–will eat into profit margins. Not so good for OEMs, but possibly good for end-customers. If OEMs are worried about their profit margins, that means they are unwilling to increase prices and will absorb the difference. Based on that scenario, I'd say a near 6 out of 10 is about right.

  2. Daniel
    June 9, 2011

    Jennifer, it’s very happy to hear that electronic industry is booming once again. Last year almost all industries starts picking up after the recession, but again the recent happenings in Japan once again pulled it down. I had happened to read that electronic industry is going to create near about a million new jobs by the end of 2012 worldwide. I think the majority of openings may goes to appliance sector because of consumerism. It can be either appliances or PC or mobile.

  3. FLYINGSCOT
    June 9, 2011

    I am in the component design and manufactruing business and supply the large Asia OEMs for consumer goods like handsets, netbooks etc.  I do not share the optimism of these reports.  The second half of the year is not looking so rosy.  Hopefully I am wrong …….it would not be the first time 😉

  4. jbond
    June 9, 2011

    This was a very informative article. It is nice to see that a majority of the industry is optimistic about their current and future growth. Very similar to the stock market, much of the optimism and negativity being conveyed is dictated by emotion. That is why it is hard to take the results without a little grain of salt. Due to the recession, natural disasters and regional unrest, many companies feel there is potential out there but don't want to take too much risk. This attitude could be costly for some companies. Otherwise it's good to at least see more optimism than pessimism.

  5. Jennifer Baljko
    June 11, 2011

    Thanks for the comments. Like you all said, it's good to see some good news, but, right, how widespread the optimism is depends, very likely, on where you sit in the supply chain and in what industry you work in. Definitely seems like we'll be on a roller coaster ride for a while.

  6. SunitaT
    June 12, 2011

    The least optimistic were those from the networking and telecommunication sectors.

    Jennifer,

     Any particular reason for this lack of optimism in networking and telecommunication sector ?


  7. Clairvoyant
    June 12, 2011

    I agree. It will take time for things to even out. I think companies still need to remain optimistic in order to be successful.

  8. Jennifer Baljko
    June 13, 2011

    tirlapur: “Any particular reason for this lack of optimism in networking and telecommunication sector?”

    Not really sure. My best guess for networking is that the migration from old-school networking platforms to mobile and cloud apps may have soured the mood; for telecom, it makes little sense to me given how much investment is being made to move even more data and traffic through exisiting and new telecom infrastructures. Perhaps, there the end markets in both are less stable than other sectors. Just a gues.s..

    Also, from what I read, the survey doesn't offer many exacting details about why respondents in certain industries answered one way or another. Here's what the report says:

    “Telecommunications, and especially networking respondents, were consistently the least optimistic group of survey respondents. While the networking segment has not been performing as well as other industries, the telecommunications market is expected to grow rapidly on the back of mobile data infrastructure deployments. Over the next several years, a majority of Internet traffic will pass over mobile networks and should prove to be a shining star in the electronics supply chain. On average, telecommunications respondents averaged 5.7 and networking averaged 5.6 on the Overall Index.”

    Replies for the “Future Index” even seemed to stump the folks compiling the VentureOutsource report:

    “Telecommunications respondents also continued to be more pessimistic than the rest of the market, which is curious considering the expected build-out for mobile data infrastructure.”

    What's your guess? Any one else have thoughts on why networking and telecom may have a slightly less rosy outlook?


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