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Industry Forecast: Partly Sunny or Partly Cloudy, Depending on Your Perspective
November 13, 2007 |Estimated reading time: 6 minutes
The IPC Executive Market and Technology Forum meeting, or as some of us still call it, the TMRC Meeting, took place a couple weeks ago in Las Vegas
As usual, the two day executive meeting was packed with inspirational talks about innovative ways to become and stay competitive. It also looked into the current and future market conditions of the industry.
Notably absent from this year's meeting was Walt Custer whose forecasts are one of the event highlights. IPC's Sharon Starr did a good job of laying out IPC statistics for the industry while Ed Henderson, Henderson Ventures, gave us a high altitude look at some of the engines driving our industry with forecasts for the US and Global economies and electronic equipment. Ed's forecast is for partly sunny skies in the US with growth for the economy in 2008 to stay about the same as 2007. 2009 looks a bit better. There is the possibility of severe weather, though.
Electronic Equipment
US Electronic equipment is predicted to grow 2.9% in 2007, 4.1% in 2008 and then 6% in 2009. For US fabricators and assemblers this is pretty good news as most of this equipment is made in the US with US components. So the worst may be over. Again, there is a Severe Weather "Watch" in place.
Exchange rates are in the US' favor
If you're headed out on vacation overseas, you're going to be in for sticker shock. The weak US dollar is making foreign travel quite expensive. The good news is that same weakness is making US equipment and other services and components manufactured here in the States quite a bit more attractive to foreign buyers. As a result, US OEMs are much more competitive. As they sell more equipment, they buy more PCBs and Assemblies. And, most of that will come from their ever-more competitive US suppliers. In fact, last week (Nov 9) the US Government announced a substantial improvement in the trade deficit due mostly to the weak dollar.
The China Factor
Henderson predicted that China would begin ratcheting down its economy after the Olympics. He thought they'd bring their growth rate down to around 10% instead of the 11.5% GDP growth they're experiencing in 2007 and the 10.9% forecast for 2008. I guess that's something. Those growth rates are still mind-boggling.
The Global PCB Markets
The industry should experience a 7% growth in 2008 (world-wide) about the same as 2007, then pop up to 10.7 in 2009. So, hang in there. It looks like things are on the mend in the US and Europe, and in Asia, the market will continue to sizzle.
The EMS/ODM Markets
IPC's Sharon Starr presented the forecast for the industry with sales to reach 442 billion dollars by 2011 up from 268 billion in 2007. Of course most of this growth will be in Asia with the US industry growing from 54 billion in 2007 to 72 billion in 2011.
A few dark clouds
Henderson doesn't believe there is a recession on the horizon, but he does warn of a collapse in the housing market and the effects that could have on the global economy. He points out that a lot of the loans from the housing boom here, in the US, were sold to foreign banks. A deepening problem in the US could cause lots of trouble overseas triggering a global recession. Of course, there are always the standard concerns like: weather, political unrest, terrorist attacks and more which could wipe out the best forecasts, but for now, all is well.
The Fed
In support of Henderson's comments, the US Federal Reserve Chairman Ben Bernanke, reporting to Congress November 8, said the US economy will struggle for the next 6-8 months as the home mortgage financial crises deepens but, by summer, the US should bounce back.
Inspirational vs Practical
On to the next subject. Although I love the inspirational speakers at these events, I wonder who really cares? Other than making us all feel good, what's the benefit?
As we were listening to Michael Tomcyzk from the Wharton School, University of Pennsylvania, talk about "Thinking About the Future: Emerging Technologies, Strategies and Opportunities," I realized that these presentations are interesting but they aren't going to inspire anyone or any company to change the way they do things. For an individual or company to be able to absorb these presentations and do something with them, they have to have the right culture and right mindset. Learning about all the innovative ways companies compete in the marketplace won't make you or your company innovative. So, they're of little value, which is too bad. What the Management meeting should focus on is helping companies become operationally and strategically excellent. Help them change their business culture. Now, that would be a meeting!
Opportunities for Expansion
Nick Pearne, BPA Consulting, was hired by the IPC to produce a report on the Geographic opportunities for expanding overseas. Nick down-played the opportunity India seems to offer. Politics, corruption and a horrible infrastructure will keep India low on the list of places to locate a new factory. The advantages just aren't there. They do have a billion people, so there is a market which is why we see cell phone manufacturers along with their EMS suppliers setting up shop there. Still, most of the PCBs and assemblies used in India are coming from China and other low cost regions.
China is for real, though, and will be a very long-term player in the industry. China has vast human resources and factories are moving west to lower cost regions with the help of government incentives. China has a long way to go before they'll run out of low cost labor and lower cost regions. They will be a force for some time to come. It helps that they have a centrally controlled government. They don't have a democracy to get in the way, slowing things down.
Other areas of interest were: East Europe and East Africa. No mention of South American, though, which surprised me.
On Nov 8, Brazil announced a major petroleum discovery which will catapult them into the top 10 list of Petroleum producers in the world. Not sure what this will mean, but my guess is that there will be renewed interest in this market in the coming years.
Patents
There was an interesting talk about patents. Jason Mirabito, a patent attorney talked about: Developing a Patent Strategy: Obtaining Strong Patents and Defending Your Turf.
After listening to all the different strategies and the costs involved, for most of us (small business people) it probably makes a lot more sense to just drive innovation in our companies than to patent an idea and try to defend it, of course, unless you've developed the next iphone or something like that. It became very apparent that patents and patent protection is not for the little guy. Patent filing is expensive. To file a patent globally, we're talking about hundreds of thousands of dollars. Then, you have to defend it. It was actually kind of discouraging.
Technology
Karen Carpenter, Senior Analyst, TechSearch International gave a very interesting talk on "Emerging Applications and Material Issues for Embedded Components." Following Karen, Martin Rausch of Intel talked about "The Inevitable Transition to HDI Boards." There was lots of interesting bits in both of these presentations, but, too much to share, here. To get access to all the presentations, join the IPC Executive Market and Technology Forum.
Conclusion
I'm still amazed how few execs in our industry take advantage of an event like this to help guide them through the maze of business opportunities and pitfalls. There are close to 2000 companies in the US which make PCBs, assemble them or supply to those who do. Out of that bunch about one hundred come to a meeting like this. That just blows me away. It's not the condition of the industry which keeps people away, it's their mindset.