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Market Madness & the Supply Chain

257 comments on “Market Madness & the Supply Chain

  1. Barbara Jorgensen
    August 23, 2011

    Good morning everyone! Before we begin, I'd like to direct everyone to the following

    disclosure statement:
    http://downloads.deusm.com/ebnonline/Matthew_Sheerin_Disclosure_Document.pdf

  2. Anna Young
    August 23, 2011

    I am looking forward to this discussion and would like Matthew Sheerin to explain how he sees the current fiscal situation in Europe affecting the electronics industry.

  3. AnalyzeThis
    August 23, 2011

    Good Afternoon! Also looking forward to this; should be much to discuss…

  4. mfbertozzi
    August 23, 2011

    Hello everyone.
    @Barbara: thanks for provided statement, it seems rating for several companies is “buy”, it will be interesting to discuss it today.

  5. Ariella
    August 23, 2011

    Hello, good afternoon, morning, or whatever it happens to be in your time zone.

  6. itguyphil
    August 23, 2011

    Hello World!

  7. bolaji ojo
    August 23, 2011

    Hi Everyone, Please wait for Barbara Jorgensen, EBN Community Editor to introduce Matthew Sheerin and set the parameter for our discussion today. Thank you.

  8. rwallace
    August 23, 2011

    Hello from The Next Silicon Valley

  9. hwong
    August 23, 2011

    Hi everyone

  10. prabhakar_deosthali
    August 23, 2011

    Hello everyone !

     

  11. Susan Fourtané
    August 23, 2011

    Hello, Earthlings! 

  12. bolaji ojo
    August 23, 2011

    In other words, hold your ammo 🙂

  13. jbond
    August 23, 2011

    Hello Everyone!

     

  14. JFord
    August 23, 2011

    Hi from Future Electronics

     

  15. eagbor
    August 23, 2011

    Please would like to join the event

     

  16. Ashu001
    August 23, 2011

    hi everyone!!!

    its good to be back!!!

    Ashish.

  17. Barbara Jorgensen
    August 23, 2011

    Hi folks, just checking in with Matt…stand by please

  18. msheerin
    August 23, 2011

    Hi Barb, Matt here

     

  19. Taimoor Zubar
    August 23, 2011

    Hi everyone 🙂

  20. Barbara Jorgensen
    August 23, 2011

    Away we go…Today's guest, Matt Sheerin, is Senior Equity Research Analyst and Managing Director with investment firm Stifel Nicolaus & Co. Prior to getting into equity research, Matt was a journalist and wasEditor-in-Chief of EBN, back when it was still in print and just starting to go online. Matt has a 30,000-foot-view of the supply chain as it is viewed by the stock market. So to start, I'd like to ask Matt to what extent have supply chain players been effected by the recent ups and down of the stock market?

  21. bolaji ojo
    August 23, 2011

    Hello Matt. This is Bolaji.

     

  22. Houngbo_Hospice
    August 23, 2011

    Hi, everyone!

  23. FLYINGSCOT
    August 23, 2011

    Hi, everyone!


  24. Susan Fourtané
    August 23, 2011

    @eagbor: You are in the event. The live chat with @Mathew is right here. There is no audio, is that is what you are wondering. The participation in the conversation is only written and here your questions to Mathew will be answered. 

  25. bolaji ojo
    August 23, 2011

    While Matt is responding, we'd like to limit questions in the first 10 minutes to EBN editors just to set the stage. Please hold your questions and comments for the first 10 minutes to allow Matt to give us his view of events in the industry. Thank you.

  26. Barbara Jorgensen
    August 23, 2011

    PS

    Matt’s coverage universe touches all aspects of the supply chain, including component and connector suppliers (such as Amphenol, TE Connectivity and Vishay, EMS (Flextronics, Jabil, Celestica), printed circuit boards, and technology distribution (including Arrow, Avnet, Ingram Micro and Tech Data).

  27. Ariella
    August 23, 2011

    @Bolaji, got, we'll be good.

  28. Houngbo_Hospice
    August 23, 2011

    OK!

  29. msheerin
    August 23, 2011

    Thanks Barb — good to be back and working with EBN. Perhaps best place to start is to review what we saw during the recent earnings season.

     

  30. screenwriter
    August 23, 2011

    Matt-Do the big players in the industry react to the ups and downs of a crazy week(like last week and the week before) or do they wait for a “trend” before they take drastic measures?

  31. msheerin
    August 23, 2011

    This was definitely a quite eventful reporting season: of roughly 15 of our covered companies that reported results over the last month, most came in line with June estimates, though component suppliers and distributors noted seeing a fall off in the month of June; but still, numbers were OK. However, of those same 15 companies, 11 gave outlooks for the September quarter that were below our expectations – and we had already lowered numbers to below Consensus in early July on signs of booking weakness. 

  32. Barbara Jorgensen
    August 23, 2011

    Please do, Matt–

    to what extent have supply chain players been

     

    effected by the recent ups and down of the stock market?

     

  33. msheerin
    August 23, 2011

    Interestingly, the further away from the end customer, the more bleak the outlook – every component and connector supplier guided below Street expectations, except for TE Connectivity. Book to bill ratios for the most part are below one, and the outlook for sales is at the low end of seasonality or below seasonal.  And suppliers with exposure to distribution are seeing a double hit – their direct customers are being more cautious due to uncertainty in end markets and to the fact there is basically no product that is in short suppliers; and the distributors clearly built up excess inventory in the June quarter and will be working it down. The distributor’s own customers are doing the same, so the suppliers are likely looking at a two-quarter order/inventory correction.   In retrospect, the concern that OEMs had about supply constraints due to the Japan earthquake and tsunami were clearly overdone and less to excess orders and inventory.

  34. Barbara Jorgensen
    August 23, 2011

    Thanks Matt– what did you see from companies aside from the suppliers?

  35. msheerin
    August 23, 2011

    That, coupled with macro concerns, have led OEMs to be much more cautious. We are modeling both the Sept and Dec quarters to be below seasonal for component/semi suppliers and distributors due to this correction, but demand will ultimate dictate how it plays out.

  36. msheerin
    August 23, 2011

    Looking further down the food chain, the EMS companies and printed circuit board had mixed results but still guided below expectations.  Consumer is still weak, mobility is very mixed – companies with exposure to RIM and Nokia saw lower orders, but Apple and some of the Andriod players are doing reasonably well.   The IT related markets also are all holding up reasonably well, especially in North America. The broader IT distributors, such as Ingram Micro and Tech Data are seeing mid-single digit growth in North America – there is still a slow and steady corporate upgrade of notebooks and servers, and enterprise customers are continuing to make investments around the data center and storage.  

  37. Anand
    August 23, 2011

    Hello everyone..

  38. msheerin
    August 23, 2011

    Arrow and Avnet also put up good numbers on the computing side, particularly in North America. The public sector is more mixed to weak. Europe is more of a mixed bad as well, with certain countries such as Germany, the Netherlands and UK holding up, and deterioration in others. What is concerning investors recently is signs that the stock market correction and major macro concerns are leading companies to take a more cautious approach to IT investments. NetApp is the best example, as they noted just last week weakness   in the financial sector in July, and continued weakness from the public sector.  So far we are still modeling IT spending up in the mid-single digits this year and slightly lower next year.

  39. Barbara Jorgensen
    August 23, 2011

    Whart macro factors are compnaies citing specifically?

  40. Ashu001
    August 23, 2011

    Matt,

    Do you also accept the fact that  the typical way most Analysts on the street function is Basically,Lower estimates after the worst has already happened and raise estimates after The Good times are over???

  41. mfbertozzi
    August 23, 2011

    Waiting for other Matt's review on earnings season, I would like to leave on the board a comment related to topics we are discussing: we are assisting to new events from Northern Africa which will bring potentially huge impact on several markets, including electronics, telcos, infrastructure and financial investments, as well. As consequence, we could expect up & down trend in stock market is happening once again.
    What do you think about? Are you feeling stock market won't be impacted by?

  42. bolaji ojo
    August 23, 2011

    @Tech4people, Could you please hold your questions for about 5 more minutes. Barbara is setting the stage with several questions. The audience should plan on joining at 12.15 p.m. Thank you.

  43. Barbara Jorgensen
    August 23, 2011

    Thanks Matt. ANother braod question–Where do you see EMS heading – many companies making push into the industrial and medical segments and some (like Flex) getting out of low-margin businesses such as PCs

     

  44. msheerin
    August 23, 2011

    Good question Tech4People – but just firts quickly on Barb's quesiton about macro — No. 1 consumer spending has been weak — particularly so in Europe, so concern is that it doesnt come back for a while. Second, slowing GDP could cause companies to take more cautious approach in IT upgrades and other cap ex investments. Bottomline is there is a ton of uncertainty out there and making everyone nervous – the stock market drop in last few weeks certaintly not helping

     

  45. msheerin
    August 23, 2011

    On Barb's EMS question — the big trend we are seeing here is that the major U.S.-based players are working hard to diversify, lessen exposure to certain customers and industries  and trying to expand margins

  46. Barbara Jorgensen
    August 23, 2011

    Befoer we open it up to the floor, the last question from me: Matt, can you briefly share how you expect the rest of he year to shape up based on your conversations with supply chian compnaies?

  47. Ashu001
    August 23, 2011

    @Bolaji-No issues;I will hold off on the questions.

    Thanks

    Ashish.

  48. mario8a
    August 23, 2011

    Good Morning

  49. msheerin
    August 23, 2011

    the biggest push in EMS right now is expansion into the industrial and “other” markets — clean-tech, medical, etc, where outsourcing is just beginning to pick up and where margins are clearly better than the more established EMS sectors. FLEX is a good example — they are throwing the towel in on their ODM computing business because it is very difficult to make money there

     

  50. UdaraW
    August 23, 2011

    Good afternoon, this is Udara.

     

  51. SunitaT
    August 23, 2011

    Goodmorning alll

  52. screenwriter
    August 23, 2011

    do you see the security market as a growth industry for hi tech?

  53. Barbara Jorgensen
    August 23, 2011

    Thanks Matt–that sets the picture. We have a backlog from our participants and Bolaji and I will help answer some of the questions we can. Fire away!

  54. Anna Young
    August 23, 2011

    @Matt, Would you say there will be or that there are major differences in how the various segments of the world will perform over the next year? Is electronics in Europe going to be greatly different in Europe vs. the Americas and Asia and how should the industry prepare?

  55. AnalyzeThis
    August 23, 2011

    Matt, lots of good insight, thanks! You briefly mentioned NetApp's notes from last week… what were your thoughts on that? Some of my colleagues really hated how they spun it: thought they were a little too “the sky is falling” and that it might incite panic within the sector, while I personally thought it was merely an honest assessment. What are your thoughts on that specifically?

  56. msheerin
    August 23, 2011

    on Tech4People's quesiton on analysts — i have been doing this 11 years now, and yes, you usually see numbers come down after the fact. but my experience is that when we see downturns or corrections, typically you need to see more than one number cut because typically conditions get worse before they get better  — one example now is that the companies reporting on JULY QUARTERS have been more negative in their short-term outlooks than companies that reported JUNE quarters

     

  57. prabhakar_deosthali
    August 23, 2011

    Will this uncertain situation in US & europe play to the advantage of China?

     

  58. UdaraW
    August 23, 2011

    Screen-writer asked question I too was thinking about. In what ways would the growth of stock markets influence the high-tech companies?

  59. SunitaT
    August 23, 2011

    @msheerin do you think double dip recession will happen or US will avert it ?

  60. Wale Bakare
    August 23, 2011

    With IT investiment driven down. How do you see cloud computing affecting supply chain?

  61. elctrnx_lyf
    August 23, 2011

    Does the study also covers sectors like Aerospace and Medical? DO the companies operating in this domain are seeing any down trend?

  62. mfbertozzi
    August 23, 2011

    Matt, do you think current political crisis from Lybia will bring strong impact on stock market? We have to consider several investments from there are also in Western banks for example.

  63. Barbara Jorgensen
    August 23, 2011

    ScreenWriter–security is a big market for the tech industry. There are two aspects to that: one in IT: companies are assembling systems targeted at helping businesses with their internal secuity concerns, such as enterprise secutoty. The second is software companies that continue to develop better packages to gaurd against hacking and other invasions for the Internet

  64. msheerin
    August 23, 2011

    ok — btw forgive the typos please! SO on NetApp — i dont cover that stock per se but clearly the sentiment we are hearing from the industry has gotten more cautious in the last two weeks — i mean, visibiilty is getting a lot tougher, so it it difficult to blame them

     

  65. FLYINGSCOT
    August 23, 2011

    What major consolodations do you see in the next 6 months

  66. itguyphil
    August 23, 2011

    @msheerin Do you think the uncertain tax decisions from the US government will affect supply chain and IT companies' decisions moving forward?

  67. Barbara Jorgensen
    August 23, 2011

    Good q FlyingScott–will there be more merger and acqusition activity?

  68. FLYINGSCOT
    August 23, 2011

    excuse my typo

     

  69. Ms. Daisy
    August 23, 2011

    With the problems in Europe and the global economic downtown, what is your take on the prospect of electronic supply in the near term and in the future?

  70. Anand
    August 23, 2011

    Which companies will emerge stronger during this period ?

  71. UdaraW
    August 23, 2011

    I am not referring to IPOs/capital/fund-raising aspects, rather, abouit business opportunities that the stock markets would open up for high-tech companies?

  72. Ashu001
    August 23, 2011

    @Matt-Thank you so much for your honest assessment on Analysts-

    “i have been doing this 11 years now, and yes, you usually see numbers come down after the fact. but my experience is that when we see downturns or corrections, typically you need to see more than one number cut because typically conditions get worse before they get better  — one example now is that the companies reporting on JULY QUARTERS have been more negative in their short-term outlooks than companies that reported JUNE quarters

    We need Analysts to get away from the typical herd mentality and think more outside the box.After all,is'nt that why we are paying them the big bucks???

  73. bolaji ojo
    August 23, 2011

    @Mfbertozzi, I don't believe Libya is a factor currently on global markets. Yes, the oil is a factor but only peripherally. I think the global economy has more immediate concerns than Libya.

  74. msheerin
    August 23, 2011

    on the MACRO questions i defer to our macro strategies here at Stifel and would be happy to pass along some macro reports — just email me at

     

  75. Houngbo_Hospice
    August 23, 2011

    @FLYING: Never mind!

  76. Jay_Bond
    August 23, 2011

    Given the volatility of today's worldwide markets and some below average projections for the next couple of quarters, are the 15 companies you follow  more susceptible to the overall market happenings or their individual performances?

  77. Ariella
    August 23, 2011

    @anadavy, if we knew that, we'd know which stocks to buy!

  78. Barbara Jorgensen
    August 23, 2011

    We all have the typo issue–no problem, all!

  79. msheerin
    August 23, 2011

    On qhat companies will come out of current climate in better shape (and dovetailing on Barb's M&A question) — one thing to remember here is that most companies across the supply chain are in MUCH better shape than they were when the bottom fell out in 2008-2009

     

  80. Wale Bakare
    August 23, 2011

    @Jay_Bond, good question!

  81. Anand
    August 23, 2011

    @Ariella ha ha you are right but still what analysts think about it ? Some companies are better prepared in facing this downturn than others…

  82. mfbertozzi
    August 23, 2011

    @Bolaji: thanks, I agree partly with you.

  83. bolaji ojo
    August 23, 2011

    @Tech4people, I am not defending Matt here but analysts think outside the box all the time. They do have to perform to the expectations of clients and there are numerous disclosures they have to make just to be in compliance with the law. It wouldn't make sense to be contrarian just because you want to separate yourself from the pack.

  84. Anand
    August 23, 2011

    For example TI acquired Qimondo fab during 2008 downturn for very less price…

  85. Ariella
    August 23, 2011

    @anadby that's true.

  86. AnalyzeThis
    August 23, 2011

    @Ariella, haha, good point… if only things were that easy…

  87. bolaji ojo
    August 23, 2011

    Matt, In terms of the market segmentation, you referred earlier to the top electronics component distributors. Traditionally, this section has always been the last to feel the impact of a recession and always the last too to emerge. Is this the case still or have the fundamentals changed enough to make things different?

  88. msheerin
    August 23, 2011

    First, balance sheets are quite strong — the distributors all generated a ton of free cash flow as revenue fell (they just worked down inventories and receivables) — and many companies lowered their fixed costs dramatically — so as revenue came back we saw a big jump up in profits

     

  89. Taimoor Zubar
    August 23, 2011

    On qhat companies will come out of current climate in better shape”

    Matt, how long do you think this period will last?

  90. Barbara Jorgensen
    August 23, 2011

    Matt–the Google-MM merger was a surprise to many–will we see more big mergers such as this?

  91. eagbor
    August 23, 2011

    To what extend are new sources of liquidity such as supply chain finance able to smooth out any seasonality or volatility in the health of the supply chain?

  92. Susan Fourtané
    August 23, 2011

    @Matt: In a European comparison, Germans are the most optimistic in the consumption of electronics at the moment, do you think this could level or help Europe as a whole? 

  93. itguyphil
    August 23, 2011

    @msheerin We all know that some of the best ideas and innovations come out of difficult times. Do you anticipate any groundbreaking announcements within the next few quarters?

  94. msheerin
    August 23, 2011

    We have seen many acquisitions in distribution — both IT and components — in the last two years and expect that to continue — we also expect to see consolidation in the component markets as well. In EMS we see some consolidation but mostly niche deals and no mega mergers

     

  95. Houngbo_Hospice
    August 23, 2011

    @msheerin: Falling share prices can hamper firms ability to raise finance on the stock market.  How much should we worry when share prices for a given hitech company fall? 

  96. mario8a
    August 23, 2011

    Italy /England / Libya / US Economy.  All the current issues might affect some areas in the supply chain, but wich countries will benefit from their truobles?  India?  China?

  97. elctrnx_lyf
    August 23, 2011

    If there is dip in recission, and if its worse than the before one what it may leave behind for the electronic industry? Will only the stronger and better companies will survive?

  98. SunitaT
    August 23, 2011

    Do you think fall of Cisco and HP will make things worse ?

  99. Anna Young
    August 23, 2011

    @Matt, I am looking forward to the consolidation of the Asian distribution market. It seems Arrow and Avnet are already active here as they try to compete against WPG. The market is growing rapidly and I believe it is ripe for consolidation.

  100. AnalyzeThis
    August 23, 2011

    “one thing to remember here is that most companies across the supply chain are in MUCH better shape than they were when the bottom fell out in 2008-2009” I think that's a very valid point. Sometimes we lose perspective, especially given current market conditions. If we step back a little bit, we'll see that things really aren't as dire as some may claim. If you haven't already, scroll down to the bottom of this chat and read the disclosure statement.

  101. Ariella
    August 23, 2011

    @Anna it's nice to hear some optimistic views here.

  102. Houngbo_Hospice
    August 23, 2011

    @tirapur: I would add:  how is the fall of Cisco and HP affecting consumers?

  103. Barbara Jorgensen
    August 23, 2011

    All–I can help with the strength of supply chain companies. On all sides–suppliers, customers and distrbutors–companies have vastly improved their data-sharing. The lag in the supply chain is not as long as it used to be, so instead of 6 months, it takes less time–2 or 3 months max–for compnaies to adjust. Also, many companies have been very conservative on cash, so balance shhets are very strong.

  104. mfbertozzi
    August 23, 2011

    @Matt (Barbara/Bolaji): document provided before starting live chat, reports “buy” as rate rank for several companies. Do you think current situation could potentially change internal trade-offs for some one of them, in case for instance, new stockholders will come as consequence of aggressive stocks's acquisition?

  105. msheerin
    August 23, 2011

    @hosipce: to the extent that small emerging OEMs need to raise capital to expand, that could be an issue for sure if markets remain weak. But in my universe cash positions are quite strong so i dont see that as an issue. In fact it should work in their favor as smaller players may suffer from lack or credit or ability to expand — and this could also spur more M&A activity

     

  106. Taimoor Zubar
    August 23, 2011

    @tirlapur: You mean fall in share prices of Cisco and HP?

  107. eJabber
    August 23, 2011

    Matt, if you were the CEO at TI would you be reconsidering you acquisition of National given the market turmoil and the high price they paid?

  108. Barbara Jorgensen
    August 23, 2011

    MFB and all–Matt can't speak to specific stocks

  109. bolaji ojo
    August 23, 2011

    @elctrnx_lyf, As Matt noted, many of the companies in the electronics supply chain are in excellent fiscal condition. They are financially fit and have the means to withstand the current turmoil. The industry has less leverage and the inventory situation is not a source of concern.

  110. AnalyzeThis
    August 23, 2011

    Neither HP or Cisco went out of business… they aren't dead yet!

  111. SunitaT
    August 23, 2011

    @TaimoorZ yes fall in share prices and fall in company confidence..

  112. Wale Bakare
    August 23, 2011

    I dont think HP has fallen in the market, but the concern should be how will it perform well in software technology with acquistion of Autonomy?

  113. Jay_Bond
    August 23, 2011

    @DennisQ, I agree with you. After reading the disclosure before the chat it would appear things aren't as grim as peole are making them out to be. It will be interesting to see how those are affected after a few more months of earnings are reported.

  114. bolaji ojo
    August 23, 2011

    @eJabber, I think Matt wouldn't like to speculate on the TI/National deal but he has posted his email address here and you can contact him directly on this.

  115. mfbertozzi
    August 23, 2011

    @Barbara: thanks, question aim was, of course, in general, but plz apologize in case I made some mistakes.

  116. Barbara Jorgensen
    August 23, 2011

    Matt–I think we touched on inventory earlier, but specifically, there are concerns that inventory is building, at least in the distrbution channel. What are you hearing from suppliers on their inventory levels?

  117. Barbara Jorgensen
    August 23, 2011

    mfb–no problems–i should have emphasized that earlier

  118. hwong
    August 23, 2011

    What is the number 1 thing that companies can do at this time to prepare for the future and capture market share?

  119. Wale Bakare
    August 23, 2011

    @Bolaji, HP and Autonomy merger, what effect will this be in supply chain?

  120. bolaji ojo
    August 23, 2011

    @Dennis@ & Jay_Bond, Matt will be better able to address why he is keeping a “buy” rating on the companies in his portfolio but don't forget that people who make money in the stock market don't cut and run when things are going sour. A market downturn creates buying opportunities especially when the fundamentals of the companies in question are solid.

  121. AnalyzeThis
    August 23, 2011

    @Jay_Bond, yes, agreed on the importance of the next couple months.

  122. prabhakar_deosthali
    August 23, 2011

    Does the increased inventory level means component availability at cheaper rates in the coming quarters?

     

  123. msheerin
    August 23, 2011

    @bolaji: ON INVENTORIES, i will say that we have not seen any big concerns there YET — our recent INVENTORY TRACKER (which i will be happy to share with your readers) showed inventory days at normal levels (in line with 5- and 10-year averages). HOWEVER, semiconductor supplier inventories on a days' basis were still up 22% y/y and above average, and we think, given the order correction taking place, they are likely to hit record high levels, which we saw in early 2009

     

  124. Anand
    August 23, 2011

    Has the electronics industry fully recovered from the Japan earthquake aftermath ?

  125. Houngbo_Hospice
    August 23, 2011

    @DennisQ: You are right, but still their trouble may have an impact on the economy

  126. itguyphil
    August 23, 2011

    @hwong Plan properly and execute

  127. msheerin
    August 23, 2011

    @barb — on disty inventories — yes all the disties got ahead of themselves but they are pretty quick to work them down, hence the pain the suppliers are enduring right now

     

  128. Susan Fourtané
    August 23, 2011

    @Bolaji: Do we wait until our questions are answered to keep the order or we go on?

  129. Ms. Daisy
    August 23, 2011

    @Bolaji: Your reference to Matt's comment “Matt noted, many of the companies in the electronics supply chain are in excellent fiscal condition. They are financially fit and have the means to withstand the current turmoil.” suggests that the electronic supply chain is in good shape at least in the near future, but what do you feel is the longterm forecast considering the economic and political uncertainty globally?.

  130. mfbertozzi
    August 23, 2011

    @mario8: it is a good question; personally, I believe countries you have mentioned as “beneficiary” will play exactly that role, but it takes a few years to allow them to understand better how their production in terms of process and quality could fit those they are replacing from Italy/England/US.

  131. bolaji ojo
    August 23, 2011

    Matt, If semiconductor inventory shoot that high, I assume this will impact ratings depending upon how long a decline lasts. We would appreciate your sharing the inventory tracker with EBN readers. We can publish this as a downloadable pdf file. Thank you.

  132. Ariella
    August 23, 2011

    @prabhakar_deosthalione would think so due to the law of supply and demand.

     
  133. Barbara Jorgensen
    August 23, 2011

    @prabhakar: I can take that one–possibly, on components that fluctaute a lot in price such as DRAM. But I would not expect a widespread price drop: component makers have not brought capacity all the way up since the recession and remain very cautious about production

  134. Houngbo_Hospice
    August 23, 2011

    @SF: I think that the floor is OPEN…

  135. bolaji ojo
    August 23, 2011

    @Susan, Please contribute as you see fit. Matt is probably not going to be able to answer all the questions asked here. Barbara and I are pitching in but he is the star of the show and has to select the questions he wants to answer but your insight is also appreciated.

  136. msheerin
    August 23, 2011

    @prabhakar: good question on ASP pressure given mounting inventories. IN FACT WE HAVE SEEN the best pricing environment in the last two years — rising ASPs or at least firm ASPs, for a few reasons: 1) tight supply gave suppliers leverage; 2) rising materials costs — copper, gold, oil-based resins — and labor — basically prompted suppliers to try and pass along these costs; we are now beginning to see just slightly pricing pressure (capacitors, for instance, where pricing was up significantly)

     

  137. Susan Fourtané
    August 23, 2011

    @Bolaji: Okay, thanks. / Good idea about the downloadable pdf file. 

  138. prabhakar_deosthali
    August 23, 2011

    Thanks Msheerin. That is a valuable input

  139. Susan Fourtané
    August 23, 2011

    @HH: Thanks. I was excited about having an order. 🙂 

  140. Anand
    August 23, 2011

    What are you thoughts on HP latest decision to sell its PC business. What effect it will have on electronics industry ?

  141. Taimoor Zubar
    August 23, 2011

    @Bolaji: I think inventory levels are critical here. What do you think the tracker is likely to depict?

  142. screenwriter
    August 23, 2011

    This is great!

    There isnt any other site I know of who has the vision to do this. I want to thank the EBN editors and Matt for this!

  143. bolaji ojo
    August 23, 2011

    @Ms. Daisy, I am concerned about the long-term fiscal outlook. The second half of the year is traditionally stronger for most companies but there is so much uncertainty in the market today and the outlook provided so far hasn't been encouraging. If Matt is right and semiconductor inventory shoots to a record high, that would be a major problem because this may not be exhausted until after the first quarter.

  144. mario8a
    August 23, 2011

    about all the recent changes in the markjet and the stability on the supply chain we currently have, have any of you heard about CVMI (Consigment Vendor manage inventory) ?

     

  145. FLYINGSCOT
    August 23, 2011

    @bolaji  another boom and bust with inventory !

     

  146. Ashu001
    August 23, 2011

    @Bolaji-Regarding your statement here-


    I am not defending Matt here but analysts think outside the box all the time. They do have to perform to the expectations of clients and there are numerous disclosures they have to make just to be in compliance with the law. It wouldn't make sense to be contrarian just because you want to separate yourself from the pack .”

    Is'nt that the main reason why most people lose money most of the money(in a Downturn)???

    regards

    Ashish.

    Regards

    Ashish.

    Regards

    Ashish.


  147. Jay_Bond
    August 23, 2011

    @Bolaji, If the semiconductor inventory shoots up drastically compounded with weak holiday forecasts, it could easily be 1st quarter before the situation straightens out, possibly longer.

  148. bolaji ojo
    August 23, 2011

    @TaimoorZ, I'll wait to see Matt's file. However, based on what he has observed and noted here, I think inventories will shoot higher in the third quarter. Matt's documents will show not just the second quarter inventory situation but also historical comparisons. That would help.

  149. mfbertozzi
    August 23, 2011

    @mario8a: Yes, I have, I am preparing a short post to report the experience.

  150. Ashu001
    August 23, 2011

    @Bolaji- we need more Analysts who are contrarian.

  151. msheerin
    August 23, 2011

    @anandvy: on your question on HP: i dont cover that stock per se but cleary making money in the PC business is getting increasingly difficult. I follow all the major computer distributors and they have big exposure to HP but they also basically said they expect other big players to step up and fill the void – Lenovo, Acer, etc

     

  152. Barbara Jorgensen
    August 23, 2011

    @Mario8: I can take that. VMI (vendor managed inventory) has been around awhile and is a service suppliers and distributors both offer customers. It requires very tight communication between parties, however, and many customer do not or cannot provide the information required for this to run smoothly. Consignment, in general, required suppliers and distrbutor to take more risk on the level of inventory they carry

  153. mario8a
    August 23, 2011

    mfbertozzi: that system works great CVMI / VMI  — it allows the supplier and the consumer to improve their communication and their response on recovery plans.

     

  154. prabhakar_deosthali
    August 23, 2011

    What are the component manufacturere supposed to do  ? Declare the Christmas holiday right from the Labor Day?

  155. Ashu001
    August 23, 2011

    @screen writer-I agree entirely with your viewpoint!! EBN rocks!!!

  156. itguyphil
    August 23, 2011

    @msheerin Is that due to cheaper models compared to HP?

  157. msheerin
    August 23, 2011

    on the MACRO questions i defer to our macro strategies here at Stifel and would be happy to pass along some macro reports — just email me at

     

  158. msheerin
    August 23, 2011

    That, coupled with macro concerns, have led OEMs to be much more cautious. We are modeling both the Sept and Dec quarters to be below seasonal for component/semi suppliers and distributors due to this correction, but demand will ultimate dictate how it plays out.

  159. msheerin
    August 23, 2011

    Arrow and Avnet also put up good numbers on the computing side, particularly in North America. The public sector is more mixed to weak. Europe is more of a mixed bad as well, with certain countries such as Germany, the Netherlands and UK holding up, and deterioration in others. What is concerning investors recently is signs that the stock market correction and major macro concerns are leading companies to take a more cautious approach to IT investments. NetApp is the best example, as they noted just last week weakness   in the financial sector in July, and continued weakness from the public sector.  So far we are still modeling IT spending up in the mid-single digits this year and slightly lower next year.

  160. msheerin
    August 23, 2011

    Thanks Barb — good to be back and working with EBN. Perhaps best place to start is to review what we saw during the recent earnings season.

     

  161. msheerin
    August 23, 2011

    @prabhakar: good question on ASP pressure given mounting inventories. IN FACT WE HAVE SEEN the best pricing environment in the last two years — rising ASPs or at least firm ASPs, for a few reasons: 1) tight supply gave suppliers leverage; 2) rising materials costs — copper, gold, oil-based resins — and labor — basically prompted suppliers to try and pass along these costs; we are now beginning to see just slightly pricing pressure (capacitors, for instance, where pricing was up significantly)

     

  162. msheerin
    August 23, 2011

    On Barb's EMS question — the big trend we are seeing here is that the major U.S.-based players are working hard to diversify, lessen exposure to certain customers and industries  and trying to expand margins

  163. msheerin
    August 23, 2011

    @hosipce: to the extent that small emerging OEMs need to raise capital to expand, that could be an issue for sure if markets remain weak. But in my universe cash positions are quite strong so i dont see that as an issue. In fact it should work in their favor as smaller players may suffer from lack or credit or ability to expand — and this could also spur more M&A activity

     

  164. msheerin
    August 23, 2011

    @bolaji: ON INVENTORIES, i will say that we have not seen any big concerns there YET — our recent INVENTORY TRACKER (which i will be happy to share with your readers) showed inventory days at normal levels (in line with 5- and 10-year averages). HOWEVER, semiconductor supplier inventories on a days' basis were still up 22% y/y and above average, and we think, given the order correction taking place, they are likely to hit record high levels, which we saw in early 2009

     

  165. msheerin
    August 23, 2011

    Good question Tech4People – but just firts quickly on Barb's quesiton about macro — No. 1 consumer spending has been weak — particularly so in Europe, so concern is that it doesnt come back for a while. Second, slowing GDP could cause companies to take more cautious approach in IT upgrades and other cap ex investments. Bottomline is there is a ton of uncertainty out there and making everyone nervous – the stock market drop in last few weeks certaintly not helping

     

  166. msheerin
    August 23, 2011

    ok — btw forgive the typos please! SO on NetApp — i dont cover that stock per se but clearly the sentiment we are hearing from the industry has gotten more cautious in the last two weeks — i mean, visibiilty is getting a lot tougher, so it it difficult to blame them

     

  167. msheerin
    August 23, 2011

    On qhat companies will come out of current climate in better shape (and dovetailing on Barb's M&A question) — one thing to remember here is that most companies across the supply chain are in MUCH better shape than they were when the bottom fell out in 2008-2009

     

  168. mario8a
    August 23, 2011

    Thanks Barbara. we used in our company and it give us the vissibility we need to react on contingencies.

     

  169. Barbara Jorgensen
    August 23, 2011

    Matt: Since EMS is such a big part of the supply chain, how much does their health impact upsteam compnaies?

  170. Houngbo_Hospice
    August 23, 2011

    @msheerin:How do you see the impact of the Google Motorola alliance on the economy?  

  171. Barbara Jorgensen
    August 23, 2011

    Whoops–we might have had some technical difficulties.

    Matt, I'm curious on how much impact EMS has on upstream compnaies?

  172. msheerin
    August 23, 2011

    on this question: about all the recent changes in the markjet and the stability on the supply chain we currently have, have any of you heard about CVMI (Consigment Vendor manage inventory):   we starting to see that trend with certain suppliers (like TI) but havent see a big increase recently and still not that prevalent. We have seen OEMs write checks to EMS companies in recent quarters to hold excess inventory, but that was when supply was tight so not likely to see that in next few quarters

     

  173. mfbertozzi
    August 23, 2011

    @mario8a: exactly, it is a dual communication to keep updated stocks and inventory; personally I believe is a process to improve supply chain in general; a few sw platforms on the market, especially from major vendors.

  174. SunitaT
    August 23, 2011

    @msheerin, Atter gogoles acquisation of motorola patent war is again heating up…who is in most favourable position right now ?

  175. msheerin
    August 23, 2011

    @hospice: question on Google-MOT — i dont cover the smartphone space (but i used to). But i will say that we are seeing a two-horse race in the smartphone space between Apple and the Android camp, with RIM in third

     

  176. eJabber
    August 23, 2011

    With the (hopefully) imminent fall of the Gaddafi regime will the release of $37bn in frozen US assets help or hinder the US economy or is 37bn to small an amount in the scheme of things?

  177. mfbertozzi
    August 23, 2011

    @mario8a: big companies working on supply chain have adopted both process and IT platform for implmenting, the concern is how it could help medium-small electronic suppliers, as general feeling it is quite complicated to achieve full-operation status.

  178. Houngbo_Hospice
    August 23, 2011

    @msheerin: I see, thanks!

  179. msheerin
    August 23, 2011

    eJabber — sorry but that is better question for the macro experts at Stifel Nicolaus (again will be happy to pass along some macro reports)

     

  180. Taimoor Zubar
    August 23, 2011

    @Matt: Is Microsoft-Nokia deal going to add as another horse in the race? Or you think that would be insignificant?

  181. Barbara Jorgensen
    August 23, 2011

    In our last 10 minutes, I'd like to give Matt the opportunity to share some observations. Matt, since you have experience with EBN, is there a topic we didn't specifically cover here that you'd like to comment on?

  182. Anna Young
    August 23, 2011

    @eJabber, I don't see how Libya's $37 billion will impact an economy the size of the United States'. Just another drop in the bucket, I believe.

  183. msheerin
    August 23, 2011

    @Taimoor: Certainly hard to count out Microsoft, but as we saw from HP pulling plug on the WebOS platform last week, it's all about the apps the ecosystem for developers

  184. Susan Fourtané
    August 23, 2011

    @Taimoor: Just rememeber Nokia is not likely to be sold. 😉

  185. msheerin
    August 23, 2011

    Arrow and Avnet also put up good numbers on the computing side, particularly in North America. The public sector is more mixed to weak. Europe is more of a mixed bad as well, with certain countries such as Germany, the Netherlands and UK holding up, and deterioration in others. What is concerning investors recently is signs that the stock market correction and major macro concerns are leading companies to take a more cautious approach to IT investments. NetApp is the best example, as they noted just last week weakness   in the financial sector in July, and continued weakness from the public sector.  So far we are still modeling IT spending up in the mid-single digits this year and slightly lower next year.

  186. msheerin
    August 23, 2011

    Looking further down the food chain, the EMS companies and printed circuit board had mixed results but still guided below expectations.  Consumer is still weak, mobility is very mixed – companies with exposure to RIM and Nokia saw lower orders, but Apple and some of the Andriod players are doing reasonably well.   The IT related markets also are all holding up reasonably well, especially in North America. The broader IT distributors, such as Ingram Micro and Tech Data are seeing mid-single digit growth in North America – there is still a slow and steady corporate upgrade of notebooks and servers, and enterprise customers are continuing to make investments around the data center and storage.  

  187. msheerin
    August 23, 2011

    Interestingly, the further away from the end customer, the more bleak the outlook – every component and connector supplier guided below Street expectations, except for TE Connectivity. Book to bill ratios for the most part are below one, and the outlook for sales is at the low end of seasonality or below seasonal.  And suppliers with exposure to distribution are seeing a double hit – their direct customers are being more cautious due to uncertainty in end markets and to the fact there is basically no product that is in short suppliers; and the distributors clearly built up excess inventory in the June quarter and will be working it down. The distributor’s own customers are doing the same, so the suppliers are likely looking at a two-quarter order/inventory correction.   In retrospect, the concern that OEMs had about supply constraints due to the Japan earthquake and tsunami were clearly overdone and less to excess orders and inventory.

  188. msheerin
    August 23, 2011

    Thanks Barb — good to be back and working with EBN. Perhaps best place to start is to review what we saw during the recent earnings season.

     

  189. msheerin
    August 23, 2011

    Hi Barb, Matt here

     

  190. msheerin
    August 23, 2011

    @hosipce: to the extent that small emerging OEMs need to raise capital to expand, that could be an issue for sure if markets remain weak. But in my universe cash positions are quite strong so i dont see that as an issue. In fact it should work in their favor as smaller players may suffer from lack or credit or ability to expand — and this could also spur more M&A activity

     

  191. msheerin
    August 23, 2011

    We have seen many acquisitions in distribution — both IT and components — in the last two years and expect that to continue — we also expect to see consolidation in the component markets as well. In EMS we see some consolidation but mostly niche deals and no mega mergers

     

  192. msheerin
    August 23, 2011

    First, balance sheets are quite strong — the distributors all generated a ton of free cash flow as revenue fell (they just worked down inventories and receivables) — and many companies lowered their fixed costs dramatically — so as revenue came back we saw a big jump up in profits

     

  193. msheerin
    August 23, 2011

    on the MACRO questions i defer to our macro strategies here at Stifel and would be happy to pass along some macro reports — just email me at

     

  194. msheerin
    August 23, 2011

    the biggest push in EMS right now is expansion into the industrial and “other” markets — clean-tech, medical, etc, where outsourcing is just beginning to pick up and where margins are clearly better than the more established EMS sectors. FLEX is a good example — they are throwing the towel in on their ODM computing business because it is very difficult to make money there

     

  195. msheerin
    August 23, 2011

    ok — btw forgive the typos please! SO on NetApp — i dont cover that stock per se but clearly the sentiment we are hearing from the industry has gotten more cautious in the last two weeks — i mean, visibiilty is getting a lot tougher, so it it difficult to blame them

     

  196. msheerin
    August 23, 2011

    On Barb's EMS question — the big trend we are seeing here is that the major U.S.-based players are working hard to diversify, lessen exposure to certain customers and industries  and trying to expand margins

  197. msheerin
    August 23, 2011

    Good question Tech4People – but just firts quickly on Barb's quesiton about macro — No. 1 consumer spending has been weak — particularly so in Europe, so concern is that it doesnt come back for a while. Second, slowing GDP could cause companies to take more cautious approach in IT upgrades and other cap ex investments. Bottomline is there is a ton of uncertainty out there and making everyone nervous – the stock market drop in last few weeks certaintly not helping

     

  198. msheerin
    August 23, 2011

    @Taimoor: Certainly hard to count out Microsoft, but as we saw from HP pulling plug on the WebOS platform last week, it's all about the apps the ecosystem for developers

  199. msheerin
    August 23, 2011

    @hospice: question on Google-MOT — i dont cover the smartphone space (but i used to). But i will say that we are seeing a two-horse race in the smartphone space between Apple and the Android camp, with RIM in third

     

  200. msheerin
    August 23, 2011

    eJabber — sorry but that is better question for the macro experts at Stifel Nicolaus (again will be happy to pass along some macro reports)

     

  201. msheerin
    August 23, 2011

    on this question: about all the recent changes in the markjet and the stability on the supply chain we currently have, have any of you heard about CVMI (Consigment Vendor manage inventory):   we starting to see that trend with certain suppliers (like TI) but havent see a big increase recently and still not that prevalent. We have seen OEMs write checks to EMS companies in recent quarters to hold excess inventory, but that was when supply was tight so not likely to see that in next few quarters

     

  202. msheerin
    August 23, 2011

    @prabhakar: good question on ASP pressure given mounting inventories. IN FACT WE HAVE SEEN the best pricing environment in the last two years — rising ASPs or at least firm ASPs, for a few reasons: 1) tight supply gave suppliers leverage; 2) rising materials costs — copper, gold, oil-based resins — and labor — basically prompted suppliers to try and pass along these costs; we are now beginning to see just slightly pricing pressure (capacitors, for instance, where pricing was up significantly)

     

  203. msheerin
    August 23, 2011

    @barb — on disty inventories — yes all the disties got ahead of themselves but they are pretty quick to work them down, hence the pain the suppliers are enduring right now

     

  204. elctrnx_lyf
    August 23, 2011

    In general all the electronic industry is massively driven by computing and telecommunication. So the suppliers with the regular orders can maintain the consistent inventory only if the things are going well with these two domains.

     

  205. mario8a
    August 23, 2011

    are the comments being repetitive?

  206. Susan Fourtané
    August 23, 2011

    Are the answers/posts coming repeated to everybody? 

  207. AnalyzeThis
    August 23, 2011

    @mario8a, yes, I am seeing repeat messages as well

  208. FLYINGSCOT
    August 23, 2011

    yes…I can hardly keep up

  209. mario8a
    August 23, 2011

    Yes.

     

  210. Jay_Bond
    August 23, 2011

    @mario8, technical difficulties.

  211. Barbara Jorgensen
    August 23, 2011

    Sometimes the repeats happen–please ignore them

  212. prabhakar_deosthali
    August 23, 2011

    Yes they got repeated three times

     

  213. Susan Fourtané
    August 23, 2011

    @mario: so it seems. 

  214. Houngbo_Hospice
    August 23, 2011

    @SF: Yes, here. 

  215. Ashu001
    August 23, 2011

    @Taimoor-As things stand today-Nokia and Microsoft together are not going very far;unless of course we see a major change in offerings from the pair.

  216. msheerin
    August 23, 2011

    In our last 10 minutes, I'd like to give Matt the opportunity to share some observations. Matt, since you have experience with EBN, is there a topic we didn't specifically cover here that you'd like to comment on? BARB — first off this has been fun — great questions and osrry i couldnt keep up with them all – i think we touched on the key issues. But i would say that visibility into demand outlook seems to be as low as it has been in three years, so this will automatically prompt companies to be more cautious for a while. I also will point out that valuations of companies across the supply chain – public companies are quite low now, even on number cuts, and again this reflect quite negative sentiment from invesrtors.

  217. Susan Fourtané
    August 23, 2011

    @HH: thanks

  218. bolaji ojo
    August 23, 2011

    It seems we are having a technical glitch that is re-posting the answers. Please ignore them for now. We are trying to resolve this. Thank you.

  219. Taimoor Zubar
    August 23, 2011

    Yeah they are being repeated..seems like some errors with the chat window

  220. mario8a
    August 23, 2011

    I have an important meeting with my boss,,,,  Talk to EveryBody later.

    have to run….

     

    Thanks for all the valuable information as always is great to have this kind of conversations.

     

  221. Susan Fourtané
    August 23, 2011

    Thanks, @Bolaji.

  222. Ariella
    August 23, 2011

    @TaimoorZ it happens sometimes, particularly when there's a lot of activity in chat.

  223. msheerin
    August 23, 2011

    If any one would like to communicate directly or be put on my distribution list please contact me at

  224. Barbara Jorgensen
    August 23, 2011

    Matt–the valuation point is a good one, and I know companies don't like this, but does it really impact their ability to raise capital?

  225. Susan Fourtané
    August 23, 2011

    @Matt: Yes, Thanks. 

  226. msheerin
    August 23, 2011

    valuation should not impact ability to raise capital for the public companies, no

  227. Houngbo_Hospice
    August 23, 2011

    “Bard: Good question. 

  228. Houngbo_Hospice
    August 23, 2011

    Sorry, I meant Barb.

  229. Barbara Jorgensen
    August 23, 2011

    Before we end, I'd like to reiterate the disclosure statement that is at

    http://downloads.deusm.com/ebnonline/Matthew_Sheerin_Disclosure_Document.pdf

    and to thank Matt for joining our free for all.

  230. Ariella
    August 23, 2011

    @HH I was about to ask you if I somehow missed a comment. 

  231. mark.taylor@igt.com
    August 23, 2011

    Outstanding work!  Thanks, all!

  232. msheerin
    August 23, 2011

    Thanks again Barb and Bolaji for the opportunity

  233. itguyphil
    August 23, 2011

    Thanks Matt for the documentation!

  234. bolaji ojo
    August 23, 2011

    Mat, This has been great. Thank you for your time and the valuable insight.

  235. screenwriter
    August 23, 2011

    Thanks to all

  236. Ariella
    August 23, 2011

    Thanks, Matt, Bolaji, and Barbara.

  237. FLYINGSCOT
    August 23, 2011

    thanks Matt and all.  Sorry for the techy difficulties

  238. Taimoor Zubar
    August 23, 2011

    Thanks Matt for your time and thanks to the organizers for arranging this..had a good time!

  239. Jay_Bond
    August 23, 2011

    Thanks Matt for your time and input.

  240. prabhakar_deosthali
    August 23, 2011

    Thank you Matt, Bolaji and Barb!

     

  241. AnalyzeThis
    August 23, 2011

    Thanks Matt, certainly learned a few things and it was interesting to hear your unique perspective! I appreciate you taking the time, and thanks to EBN for organizing!

  242. Houngbo_Hospice
    August 23, 2011

    @Ariella: That was a bad typo

  243. Houngbo_Hospice
    August 23, 2011

    Thanks Matt!

  244. Barbara Jorgensen
    August 23, 2011

    Thanks all participants and again to Matt. The craziness is fairly typical, and our readers are good sports regarding questions. We've had the repetitive issue before and we will handle that before our next chat. Thanks again Matt and all our EBN users.

  245. mfbertozzi
    August 23, 2011

    Thanks to all, very interesting live chat. Thanks to Matt for attending.

  246. Ashu001
    August 23, 2011

    @Matt-valuation should not impact ability to raise capital for the public companies, no”

    I am not so sure.After all,a good number of companies raise funds by pledging their shares.In that sceanrio I would think it would really difficult to raise capital.

    Regards

    Ashish.

  247. Ariella
    August 23, 2011

    @HH It's forgivable. I just was confused b/c I couldn't see the name you referred to.

  248. Susan Fourtané
    August 23, 2011

    @Barbara: Thanks for the pdf.

  249. Ariella
    August 23, 2011

    @Barbara, well, if you're going to have technical difficulties in chat, it's better to have repetition than a total freeze up. I've had the latter, and people who experience it get so frustrated that they leave.

  250. Susan Fourtané
    August 23, 2011

    @Matt: Thanks for today's insight. 

  251. Anand
    August 23, 2011

    Thanks all…

  252. Barbara Jorgensen
    August 23, 2011

    Thanks Ariella–never thought of that. I can imagine…

  253. Susan Fourtané
    August 23, 2011

    @Matt: I just had a sneak pick at the pdf, it looks great! Thanks a lot for sharing this with us. 

  254. Barbara Jorgensen
    August 23, 2011

    Susan–no problem!

  255. Susan Fourtané
    August 23, 2011

    @Barbara: I just had a quick look at it, it's great!

  256. Ashu001
    August 23, 2011

    @Matt-The low interest sceanario for sure would makes things easier for the large caps but rest of them,I am not so sure.

  257. FLYINGSCOT
    August 23, 2011

    Read the disclosure and it looks OK.

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