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Seasonality keeps sales flat

Posted: 09 Aug 2005 ?? ?Print Version ?Bookmark and Share


The electronics industry-and indeed the entire U.S. manufacturing sector -appears to be stuck in a slow-growth rut.

With the seasonally tepid summer months upon us, electronics executives aren't holding out much hope for faster growth in the immediate future. Instead, they are looking forward to the traditionally strong back-to-school and end-of-year demand for a sales lift, according to economists and respondents to the monthly Electronics Supply & Manufacturing Business Index survey.

"We are coasting," said one respondent to the ESM survey, who echoed the sentiment of many. "The economy is flatlined, [but] we expect things to pick up later this year."

Perhaps those looking for a sharp increase in electronics sales are suffering from misplaced expectations. The sector isn't exactly weak, and various segments and individual companies operating in certain parts of it continue to post steadily rising sales and earnings, according to analysts. In fact, Steven Milunovich, technology equipment analyst at Merrill Lynch & Co. Inc. (New York), believes that the second quarter "should represent the bottom in year-over-year tech revenue and earnings growth," adding that "acceleration should continue through the first half of 2006, followed by a slowdown."

There is some support for this view from the economy. June U.S. consumer confidence-as measured by the Conference Board, a business group-jumped to 105.8, its highest level this year, from 103.1 in May. "With consumers in better spirits and job concerns remaining relatively steady, there is little reason to expect a dramatic shift in consumers' spending," said Lynn Franco, director of the Conference Board's Consumer Research Center, in a statement.

The electronics industry can benefit from consumers' splurging on technology equipment. In June, the ESM Business Index continued its flatline trend, dropping to 43.2 from 43.6 in May. But the Leading Index, which foretells business direction six to eight weeks out, climbed strongly in June, to 52.6, its strongest level in exactly one year, from 51 in the prior month.

Also in June, electronics orders stalled at 45.2, compared with 45.4 in May, while export orders declined to 39.6 from 40.6. Inventory was unchanged at 43.9; employment rose barely to 40.5 from 40, and vendor deliveries tumbled to 35.9 from 39.5. Production rose strongly, however, to 46.7 from 44.5, and the quantity of purchased electronics materials jumped to 48 from 45.2. Prices also swung higher, to 44.4 from 41.4, indicating manufacturers are successfully transferring higher costs to their customers.

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- Bolaji Ojo

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