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Sobering Stats From the Supply Chain

Year-end surveys tend to be pretty optimistic, or at least they find one silver lining amongst the clouds. Nobody wants to set a tone of pessimism for the upcoming year.

Then there's reality. In spite of reports that the unemployment rate is decreasing (temporarily); the EU is close to an agreement on debt management (we've heard that before); and the tablet computer market is skyrocketing (mostly Apple), companies in the electronics supply chain believe the next few quarters will be tough.

A survey released this week by VentureOutsource, an EMS/ODM consultancy, comes much closer to reality — at least as the supply chain sees it.

On a scale of 1 to 10 (with 10 being the most optimistic), VentureOutsource respondents rate their current outlook at an average of 5.34. That's down 10 percent from a survey the company conducted six months ago. “The survey results show that the outlook for the electronics supply chain has become very pessimistic and does not see much improvement over the next two quarters,” the report says.

The demographics of the report show that the great majority of respondents — 87 percent — are responsible for participating in purchasing, sales, and operational decision making. Nearly one in five works in the PC industry.

One of the report's more interesting analyses comes from the semiconductor manufacturing industry. VentureOutsource notes recent results from companies such as Intel are very positive, but smaller firms are reporting mixed results. Overall:

  • The semiconductor segment is seeing revenue growth slowing and layoffs are starting to take place. In certain areas growth prospects are better, but overall the next several quarters will be challenging for semiconductor firms.
  • Semiconductor end-user demand is not expected to see any sharp uptakes and prices for most areas are expected to decline. There are few reasons for semiconductor decision-makers to be optimistic, except that inventories have already tightened, which means any uptick in demand may prove beneficial to their organizations being upstream in the supply chain.
  • EMS/ODMs, on the other hand, are likely scared of the order volatility they have seen and the worsening end-user demand climate. With the exception of a few areas, most product segments are expected to see weak demand through 2012 and this likely concerns most EMS/ODM executives.

The report adds that developing markets, which so far have been a bright spot for electronics, are now starting to feel the economic pain. China’s growth is slowing as both domestic and export markets show weaker demand. As to how the industry can meet these challenges, VentureOutsource notes that EMS/ODM companies have already taken steps through the last recession to right-size their operations and take costs out. Any slowdown will only cause further damage.

14 comments on “Sobering Stats From the Supply Chain

  1. AnalyzeThis
    December 8, 2011

    With the average being 5.34, it's nearly a perfect glass half-full/glass half-empty situation.

    When times are tough, I always try to think: “Well, it could be worse…”

  2. Barbara Jorgensen
    December 8, 2011

    Good point, DQ. Sometimes it depends on the day, or the headlines. Today is a downer…hope tomorrow's better

  3. Jay_Bond
    December 9, 2011

    While this most recent round of stats is on the pesimistic side, it could be worse. I do feel that these stats are a little more realistic than some of the more optimistic ones.

  4. Ariella
    December 9, 2011

    Well you know that optomists do sometimes call themselves by that name, but pessimists tend to call themselves realists.

  5. Ariella
    December 9, 2011

    @DennisQ here's the book forhttp://www.amazon.com/Could-Be-Worse-James-Stevenson/dp/0688070353  In this children's book, that is what the grandfather keeps saying.

  6. mfbertozzi
    December 9, 2011

    I am wondering if people are undestimating the possibility of Internet and telecom technology for improving supply chain, cutting costs and make profit better, even in a critical financial condition we are experiencing right now. I could agree with the up/down trend, but I am not 100% convinced corporations are implementing innovation for their internal processes, for example. And it is a matter not stricly related to crisis, it is the way to manage and lead the industry. Maybe positive or negative perspective could be overtaken just by adopting the innovation attitude.

  7. Barbara Jorgensen
    December 9, 2011

    mfb: the report does talk a bit about the supply chain's ability to invest in technology to drive better efficiencies. That spending is limited, although there are low-cost alternatives out there such as the cloud. There will be spending in Japan and Thailand as companies rebuild after the disasters.

  8. t.alex
    December 9, 2011

    True, these stats are more practical and realistic. Companies are getting more conservative in there forecasts.

  9. Jay_Bond
    December 9, 2011

    @Ariella, it's funny you put it that way, I tend to be a realist, though I am rather optimistic when it comes to somethings.

  10. Barbara Jorgensen
    December 9, 2011

    a couple of new stats to add: TI and Altera both lowered their Q4 expectations–TI in a big way. Here's the link: http://www.prnewswire.com/news-releases/ti-updates-fourth-quarter-2011-business-outlook-135273503.html

  11. Barbara Jorgensen
    December 12, 2011

    Another update–Intel has lowered its Q4 expectations, citing the flooding in Thailand as a direct cause.

  12. t.alex
    December 13, 2011

    The flooding also causes Intel to lose 1 billion on harddisk shortage.

  13. Anand
    December 26, 2011

    @Barbara, Last week heavy flooding caused chaos in Philippines. Will it also have an impact on the semiconductor industry ?

  14. Anand
    December 26, 2011

    No doubt this is clearly bad news for Intel in the short run, but this news is blessing in disguise for Intel because it has been trying to build a business in the emerging category of ultrabook computers or ultrathins, which do not use hard drives.

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