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Slower electronics growth threatening Asia

Posted: 26 Sep 2006 ?? ?Print Version ?Bookmark and Share

Keywords:IMF? Asia? economy? Yoshiko Hara? Mike Clendenin?

Red flags signaling slower electronics growth are popping up in Asia as the U.S. economy taps the brakes. But the outlook for 2007 remains reasonably strong, as long as the United States doesn't pitch into full-blown recession.

Last week, the International Monetary Fund (IMF) cited a handful of data points that could be the harbinger of things to come. China's component inventories are building, dampening imports. Taiwan's exports of key components are slowing. And pricing on PCs and mobile phones continues to drop, chipping away at already marginal profits for Asian manufacturers.

But some analysts disagree with the IMF data. "Since 2001, IC manufacturers have been very cautious about adding capacity, in spite of a four-year continuous recovery," said Moshe Handelsman, president of Advanced Forecasting Corp. "We believe the memories of 2001 had more influence on decision makers than the U.S. economy and their ability to predict it."

"The impact of increasing energy costs has been delayed," noted iSuppli Corp. analyst Gary Grandbois, "but it has been long anticipated and has made vendors more conservative in their planning."

VLSI Research Inc. supported this view in a report last week that predicts chip production will increase 12 percent in 2006, far surpassing last year's 2.8 percent and nearly matching the 14 percent burst in growth in 2004. Yet it expects capacity to increase only 6 percent over 2005. "With capacity growth lagging that of production, utilization rates have hovered above 90 percent for most of the year. We expect to see rates climb up to 95 percent for the remainder of 2006," the report states.

Japan's Cabinet Office last week downwardly revised its preliminary economic indicators for the remainder of 2006, from 40 to 27.3. An index lower than 50 indicates economic contraction. The office's forecast hangs a cloud over the Japanese economy, which has been showing steady growth since February 2002.

But Yoshihisa Toyosaki, president and CEO of research company J-Star Global Inc., said the outlook is bleak for the rest of 2006 and next year's first half. One major factor is that Docomo's inventory of mobile phones has piled up to 10 million units, he said.

Flat-panel TVs are rapidly shifting to larger screens, stagnating sales of the midsize TVs already in the pipeline. NAND flash memory demand will be weaker than expected because of a saturated audio player market. Toyosaki thus pegs Japan's semiconductor growth this year at 6.3 percent, several points below the 10.1 percent growth estimated by World Semiconductor Trade Statistics.

China has heavy exposure to the U.S. export market. But strong government spending and foreign direct investment should continue to fuel rising consumption of consumer electronics and PCs. Meanwhile, South Korea's production of IT and mobile devices is expected to rise 4.8 percent next year over the tally for 2006, according to the Samsung Economic Research Institute. Semiconductor production will see a rise in value of 11.5 percent.

- Yoshiko Hara and Mike Clendenin
EE Times

K.C. Krishnadas and Sean Shim contributed to this report

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