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Questions to help sort out the industry

Posted: 16 Aug 2010 ?? ?Print Version ?Bookmark and Share

Keywords:electronics? manufacturing? market analysis?

Electronics makers are making more money again as rising electronics sales and tight demand conditions increase their profits, enabling a few companies to affirm their healthy cash positions.

But industry executives still worry about the future. A lot of companies are keeping their cash on their balance sheets instead of hiring more employees or funding capital improvement projects. While some leading chip companies such as Intel Corp. and Samsung Inc. have increased their capex recently, others have been reluctant to invest in acquisitions and manufacturing expansions.

There are several reasons for this: the world economy is still in flux, led by the United States, where economists and federal regulators believe growth remains tepid; in Europe, fears about the debt positions of Greece, Portugal, Spain and other countries have kept consumer spending low.

Plus, the electronics supply chain itself is problematic. Demand is generally acknowledged to be strong and vibrant, but executives still wonder if the double-digit sales growth is coming from a real strong demand, or if the fear of insufficient supplies is responsible for it.

Here are 15 questions that will help electronics executives sort out the industry.

About the industry in general

How long will this upturn last? The industry ran into a brick wall in 2008 and rebounded smartly sometime in the middle of 2009. Demand has been swinging higher since but as 2010 pulls into the second quarter, opinions are still divided as to whether this will be a V- or W-shaped recovery. Apple Inc., is one of the few companies that does not appear to see a slowdown in its market but the computer and consumer electronics vendor is clearly in a class by itself anyway. What lies ahead for everyone else?

How much visibility do OEMs, component vendors and other third-party suppliers have into the supply chain?
This is the $500 million question everyone in the electronics supply chain would love to have answered right now. Nobody who has followed the industry for anything more than five years would hazard a guess, however. This industry has always tripped up over its demand and supply imbalances and the current expansion is shaping up like previous ones despite efforts to reshape the supply chain.

Will businesses worldwide increase or continue to raise capital expenditure, purchase computers and other IT equipment?
It is generally acknowledged that consumers have helped prop up the current expansion by buying consumer electronic products. Even PC sales have been on the rise in a testimony to consumers' upbeat view of their general financial prospects despite tighter lending conditions. Consumers cannot alone keep boosting electronic sales, however. Businesses are slowly easing back on their tight grip on the corporate wallet but not fast enough for some. Furthermore, employment growth remains subdued, a sign companies are still way about the future.

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