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From the Editor:
Valuable Insights
December 31, 1969 |
Estimated reading time: 5 minutes
As editors focus on the industry at-large, we often rely heavily on analysts, filtering their information down to the specifics relating to how our readers conduct business and plan for the future. After all, information only becomes a tool when it is packaged in useful and useable formats. Some analysts present a narrow focus, such as military components, or LCD production in Asia. Some have a wider scope, dealing with such panoramic ideas as manufacturing or outsourcing. Like the youngest bear in the Goldie Locks fable, we editors try to package together analysts' reports, opinions, and forecasts to provide the "just right" amount of detail and macro view. Here's what you need to know.
In technology, the surface mount technology group at Frost & Sullivan has the word on the SMT placement equipment, holding a briefing this week titled "Shrinking Electronics Infrastructure Increases Competitive State of SMT Placement Equipment Market." End users of SMT placement and assembly equipment require additional capabilities to handle rising integration and component miniaturization, according to Frost & Sullivan. This has led to the decline of turret-head designs, in favor of modular placement equipment with high-level software and cameras, according to Julian Harris, research analyst, electronics and security, North America, at Frost & Sullivan. The current placement equipment market is at $2.7 billion, he reports. Users in higher-value/high-mix markets are using a wide range of components placed on complex boards with little to zero tolerance for error. This is leading to competition on the equipment supplier side, driving lower-cost solutions that maintain reliability and performance. Frost & Sullivan sees the end-user segment as divided into EMS providers, original equipment manufacturers (OEMs), and semiconductor package developers. The analysts expect package fragility and fine pitches inherent in miniaturized components to drive advances in capital equipment, particularly chip shooters and pick-and-place systems, in the future. These take the form of camera integration, advanced feeders, and even tracking reports for enhanced traceability.
In business, we have to examine the broad economy, as well as the EMS/ODM sector. The jury is still out on whether or not the U.S. is in a recession, and with wild swings in the stock market and heavy action from the Federal Reserve, any amateur financial analyst can see polarity and disruption in our economy. Federal interest rate cuts are offset by major financial collapses, like Bear Stearns' knock-down sale at $2/share. Analysts IDC believe the U.S. will not move into a recession, though gross domestic product (GDP) will slow considerably. The effect of recession vs. rebound is huge to the EMS industry, in which IDC includes EMS providers and original design manufacturers (ODMs). Should the economy climb back into a functional state, the EMS sector will see $437.5 billion in revenues in 2012. If the U.S. moves into a recession, IDC warns, growth in the EMS industry could be cut by as much as 50% through 2012. Forecasts of 14% growth in 2008 (to $305.7 billion) and 12% in 2009 would be decimated to mid-single digits, dropping by more than half. Consumer spending will, in many ways, determine the fate of electronics production over the next several years. Look for Q'02 through Q'03 2008 to be the decisive measure. Computers and consumer electronics represent about 66% of the market if the U.S. economic stimulus rebate combines with typical holiday spending to lift retail woes, EMS providers and ODMs will see strong revenue growth in the short-term, says IDC.
Computer and consumer electronics bring Asian manufacturing into the equation, and IDC sees labor costs rising in traditional outsourcing regions. This, combined with the tumbling value of the U.S. dollar, is forecast to increase outsourcing costs. As the euro climbs above $1.50, and the dollar simultaneously falls to below 100 yen in Japan, the outsourcing environment is bound to feel it. Deloitte Consulting LLP's Outsourcing Advisory Services used a survey of more than 300 business and IT executives representing outsourcing buyers and vendors and legal firms to investigate the current state of outsourcing. In "Why Settle for Less? Deloitte Consulting 2008 Outsourcing Report," they found that 83% of companies surveyed achieved at least 25% return on investment (ROI) from outsourcing initiatives. However, more than one in three executives felt that vendor evaluation and selection during initial outsourcing decisions was rushed and incomplete. About half of the respondents would like to better define service levels, to align outsourcing initiatives better with the company's goals. With rising costs, thin margins, and conservative consumption, now is the time to review outsourcing rules of thumb.
ThomasNet Industrial Market Trends' David R. Butcher suggests that a clear business case and effective service-level agreements (SLAs) make the difference. Butcher notes that service providers taking on outsourced business should be able to deliver strategic process improvements, not just reduced costs. Clarify the expected services and quality levels at contract negotiations, and bring in third-party companies to assess quality periodically. Never select outsourcing partners based on cost alone. In the current business unpredictability, the most sound advice is to outsource the areas where you are weakest, and maintain your core competencies and strengths in-house.
Butcher has similar advice on business locations, whether part of your business or a satellite/partner. Business-specific needs should drive your decision of where to conduct business, he says. The tense economic climate necessitates a few questions: is the business core to the company?; is this a new growth/future growth target?; how long will the company be in this location; are other operations nearby?; are key resources, vendors, distributors, or customers in close proximity?; what are the labor/tax costs associated with a location? For EMS providers and OEMs, environmental regulations and manufacturing tax incentives particularly are important.
In business, you can't go it alone. Think of analysis from the experts as you would a valued business partner, protecting you from information overload and at the opposite end of the spectrum from being in the dark about the future. Is the news always positive, or even what you were hoping to hear? Of course not. But, in uncertain times, accurate information about the near- and long-term future is more important than ever.
Meredith Courtemanche, managing editor