Just a few months ago, experts proclaimed the electronic-components industry had dramatically changed, led by an encompassing communications market rather than a narrowing PC market.
Supply-chain management had eliminated the inventory problems of yore. Outsourcing and consolidation helped wring out excesses the industry has traditionally experienced. Although distribution continues to sting from the 1996--1998 industry downturn, we had learned our lesson well.
And though this may still be the case over the long haul, this year the industry will probably pay the price for an overheated 2000.
Beginning with the economy, it looks as if Alan Greenspan will get his wish. Sales have slowed and the stock market has declined. His recent statements lean toward a possible interest rate reduction. Maybe we'll finally find a soft landing as opposed to the hard thud we normally seem to encounter.
A fair amount of inventory overhang remains from our too-optimistic forecasts, which could take up to six months to work off. In addition, some suppliers added production capacity during the past year, but not irresponsibly. This combination points to some short-term pricing pressures that could bring things back to a more normal environment for 2001.
Normal means a more evenly balanced requirements/supply level based on the product's true worth. Combined efforts of component suppliers and major OEM and CEM customers to develop agreements for long-term usage requirements should help stabilize the pricing/availability seesaw.
We're still very bullish about the business. Broadband and communications aren't a passing fad and could very well change society more so than the PC, telephone, and TV. Wireless will expand beyond the obvious telephone and Bluetooth technology to areas we've never even thought about.
As the amount of consumers craving digital technology increases, professional tools and toys will include HDTV, MP3, and new applications for DVD. The car will become a mobile computer, fully equipped with GPS, individual comfort stations, and high-tech safety features. The PC will develop into a communications appliance available in 31 colors. Many technology applications and electronic components will emerge.
To fulfill all of these opportunities suppliers will need to invent and manufacture billions of components. OEM customers will find new applications for these parts. Some OEMs will manufacture their own products, while others will outsource.
Perfect forecasting may never exist, therefore managing inventory will always be a problem. Authorized distribution will continue as the best solution for component manufacturers to get products to market and assist OEM and CEM customers in managing inventory and procurement costs.
Craig Conrad is senior vice president of sales at TTI Inc., Fort Worth, Texas.