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Environmentally Mind
Till now I agree with you most on the rubbish that we have in our houses thrown ...
bolaji.ojo
You are a winner when you come up with a great product notwithstanding other ...
15 unknowns for electronics companies
Bolaji Ojo
7/29/2010 12:36 PM EDT
Electronics manufacturers are enjoying resurgence in their business fortunes as rising sales and tight demand conditions boost profits, helping many companies strengthen their already beefy cash positions.
Yet, industry executives continue to worry about the future. Most companies are keeping as much cash as they can on their balance sheet rather than add new employees or fund expensive capital improvement projects. Although some leading semiconductor companies like Intel Corp. and Samsung Inc. have jacked up their capex in recent months, others have been slow to write checks for big-item acquisitions and manufacturing expansions.
There are numerous reasons for this situation. The global 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 countries like Greece, Portugal and Spain have kept consumer spending on a tight leash.
Furthermore, the electronics supply chain itself is in turmoil. Demand is generally acknowledged to be strong and vibrant but some executives still wonder if the double-digit sales growth they are seeing is because demand is so strong or if the fear of insufficient supplies—the traditional bane of the industry—is responsible for a chunk of the increase.
Here is my list of the top 15 questions industry executives would like to have answered with a high degree of accuracy. If you have answers to them, please list them below in the comment box. Also, if there are other questions you believe executives should be asking, please put these also in your comments and I will update the listing over the next few days with those that make the grade.
Here are the questions. Further explanations on them follow in the next pages:
General questions
1. How long will this upturn last?
2. How much visibility do OEMs, suppliers and third party suppliers have?
3. Will businesses increase or continue to raise capital expenditure, purchase computers and other IT equipment?
4. Will consumer sentiments remain strong and, if yes, for how long; if not, when and how much will it decline?
5. When will the financing crunch really end and are there still lenders out there interested in supporting my business?
Strategic questions
1. Who exactly are we competing/will be competing against?
2. Which of today’s market segments will disappear and which new ones should we focus on?
3. Is the government getting ready to or likely to take away my competitive weapons by introducing “fair use” or other legislation that purport to and aim to break down barriers to entry in my market segment?
4. Whose garage should I be peeking into for the next Apple, Dell or Microsoft?
5. Are my employees sufficiently motivated and do I have the right mix of design, manufacturing, marketing, production and management resources?
Operational questions
1. How much capacity should I be adding?
2. Who is stockpiling components, double-ordering and screwing up the supply chain?
3. Is my supplier able to support my future component requirements?
4. Is my supply chain flexible enough to support continued strong growth or moderate to sharp dip in demand?
5. What do I do with my cash hoard?
Yet, industry executives continue to worry about the future. Most companies are keeping as much cash as they can on their balance sheet rather than add new employees or fund expensive capital improvement projects. Although some leading semiconductor companies like Intel Corp. and Samsung Inc. have jacked up their capex in recent months, others have been slow to write checks for big-item acquisitions and manufacturing expansions.
There are numerous reasons for this situation. The global 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 countries like Greece, Portugal and Spain have kept consumer spending on a tight leash.
Furthermore, the electronics supply chain itself is in turmoil. Demand is generally acknowledged to be strong and vibrant but some executives still wonder if the double-digit sales growth they are seeing is because demand is so strong or if the fear of insufficient supplies—the traditional bane of the industry—is responsible for a chunk of the increase.
Here is my list of the top 15 questions industry executives would like to have answered with a high degree of accuracy. If you have answers to them, please list them below in the comment box. Also, if there are other questions you believe executives should be asking, please put these also in your comments and I will update the listing over the next few days with those that make the grade.
Here are the questions. Further explanations on them follow in the next pages:
General questions
1. How long will this upturn last?
2. How much visibility do OEMs, suppliers and third party suppliers have?
3. Will businesses increase or continue to raise capital expenditure, purchase computers and other IT equipment?
4. Will consumer sentiments remain strong and, if yes, for how long; if not, when and how much will it decline?
5. When will the financing crunch really end and are there still lenders out there interested in supporting my business?
Strategic questions
1. Who exactly are we competing/will be competing against?
2. Which of today’s market segments will disappear and which new ones should we focus on?
3. Is the government getting ready to or likely to take away my competitive weapons by introducing “fair use” or other legislation that purport to and aim to break down barriers to entry in my market segment?
4. Whose garage should I be peeking into for the next Apple, Dell or Microsoft?
5. Are my employees sufficiently motivated and do I have the right mix of design, manufacturing, marketing, production and management resources?
Operational questions
1. How much capacity should I be adding?
2. Who is stockpiling components, double-ordering and screwing up the supply chain?
3. Is my supplier able to support my future component requirements?
4. Is my supply chain flexible enough to support continued strong growth or moderate to sharp dip in demand?
5. What do I do with my cash hoard?
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Comments
ylshih
7/29/2010 10:19 PM EDT
These are reasonable questions, but they are mirrored in most other industries and throughout the economy. Experienced managers know how to manage for a growing economy or a recession, but if you're not sure which, you wait and keep your powder dry. Clarity in the stability of US and European economies and the global economic recovery is needed to recover corporate confidence, commit capex, generate hiring, put the unemployed back to work, generate additional discretionary spending, and ultimately recover consumer confidence. With this, we could see a U-shaped recover, without this, we could see W-shaped or worse.
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bolaji.ojo
7/29/2010 10:56 PM EDT
Correct. Executives prepare often for various scenarios and hope for the best. Experienced electronic companies have learned to do this but it seems more than half the industry get things wrong always hence the crazy pendulum swing in either direction whether it be towards growth or decline. Many companies are today celebrating huge double-digit sales growth, upward of 30 percent in some cases. Even that is wacky because it is not sustainable and lays the foundation for a similarly excessive future correction.
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EE.Mod
7/30/2010 12:55 AM EDT
from the economic/financial perspective I think they are very valid questions, however, I'd like to point out a very different perspective that is not on the top lists of most electronics companies and that is creating recyclable products.
many other industries have already learned to value our earth and its endanger eco-system by producing recyclable products and use recycled materials, however, in my opinion, electronic companies are far from this green cycle. This industry arguably has the fastest innovation cycle and the shortest product lifetime among other high-tech industries and yet does not have a clear solution for re-using/recycling its products.
Sadly, environmental considerations are usually considered an extra expense without financial return (or at least no short term return) but for the sake of our children and planet earth, I would like to see it in the top 20 exec. questions of this industry if not in the top 15 :)
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bolaji.ojo
7/30/2010 9:04 AM EDT
Agreed. I have a box filled with old cellphone chargers and other electronic odds and ends. I know, for instance, it would be good not to have to buy a new car charger each time I get a new cell phone. It may make sense for the environment but not for the companies who sell these accessories. The trick is to find a way to make electronic recycling economically attractive for companies. If and when it does, you can be assured companies would jump on board. Right now, tugging on executives hearts and asking them to be morally responsible will not yield as much progress on the recycling front.
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Environmentally Mind
8/11/2010 11:14 AM EDT
Till now I agree with you most on the rubbish that we have in our houses thrown in the ambient and I'm talking only of the finished devices on which we spend mony. What about all the non environmentally industry? Would not be better to think at the real things of life: family, pace, healthy food done with healthy agriculture... We think only at billing, share and the population is becaming older and older. We complain about a stresing life but at the end we do anything to demonstrate to the future generation that we are realy an advanced humman being.
We hide behing an ill world.
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piitaq
7/30/2010 11:12 AM EDT
Q: Will consumer sentiments remain strong and, if yes, for how long; if not, when and how much will it decline?
A: As far as low end sticker price items (such as electronic gadgets) goes, consumer sentiment will probably stay strong as long as industry can keep innovating at the current rate. For high end items, the upside-down real estate market will continue to have a depressing effect as far as the eye can reach.
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bolaji.ojo
8/5/2010 6:34 PM EDT
The real estate market is not bouncing back anytime soon despite record-low mortgage interest rates. So, are there other areas of the economy that could help boost spending in the United States? If small consumer items. e.g., smartphones, PDAs etc., continue to do well and big-price items lag, the economy would need a lift from other areas. The electronics market is growing now but if consumer spending drops we may see a quick return to tepid growth or sales decline.
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Schatzy
7/30/2010 12:08 PM EDT
The Technology Revolution is wavering! As US production of goods and materials is moving overseas and the US turns into more of a service-oriented society I would think that companies that produce products would want to recover slowly.
I would expect to purchase inventory to produce product in my US factory, but I might be inclined to slow down the lifecycle of my product offerings. This is not good for the engineering design folks, but insures that the growth of my company is not stifled too much by the unsure economy.
If US companies are stocking up to produce more of the same products, we would see growth in the components market. We would also see less expansion in the startup companies.
Everybody in the world wants the latest technology, and now more people are catching up due to a lag in development, yet supply of the latest available technology. We see more technology devices in the common-folk sector than we have ever before.
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new2coding
7/30/2010 4:33 PM EDT
op Q2- when companies drop their lead times to a few weeks the 2ndary market will stop ordering extra parts because they will not be able to get a premuim as when there is a long lead time and end useres need parts now.
This will be hinted at first by 2ndary orders falling off and end user orders picking up.
Probably a few months of excess inventory will follow about 2 months to a quarter long.
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new2coding
7/30/2010 4:34 PM EDT
Op Q5
Hire me!
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goafrit
7/31/2010 11:43 AM EDT
Good points and I know no industry is spared from these points. The world has become ultra competitive because technology has enabled globalization to a scale we have not anticipated. But there is one issue that keeps companies worried: subsidizes by western governments. How can I be a farmer in Africa when American farmers get subsidies to tune of 80%. That creates a disequilibrium in the market. In the electronics industry, it may not be obvious how that can play, but when you notice that some SMEs create sensors for farms, you will notice that other SMEs in other countries are disadvantaged. Subsidies is a bad thing in the world competition. So to start a company, think through the subsidies.
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Kiran_NSN
8/2/2010 12:22 PM EDT
This is definitely a solid list of questions that anyone in the electronics industry would be thinking about. But the real need identification will be a strong pillar for the future growth. When there is a purpose there will be market and there will be every thing growing. Industrial, Medial and Avionics will definitely provide enough market for the future and they have to exist along with the consumer electronics. But I would like to see more start up companies to make products for agriculture and solar power markets.
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CamilleK
8/3/2010 3:29 AM EDT
To expand on EE.mod's concern related to lack of recycling, we have the opportunity to create 'good growth' by enabling green technology which will help in jobs and ultimately in cost. The way to sell this added cost is looking at it from a total ecosystem reduced cost and a longer time horizon. If resources are depleted they will cost more on top of the added health and environment costs.
The population growth (and demographics tending to younger clusters) and new emerging markets will be the engine of growth and I think this will be sustainable with new products, or replacement with green products. Jobs on the other hand may evolve into either services or software or pharma/bio and manufacturing technology jobs will not increase mainly due to automation/ job category obsolescence. The recovery with full production has to translate ultimately into new, albeit different type jobs. We can all help by buying something now, preferably green....
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UdaraW
8/3/2010 7:07 PM EDT
True, while agreeing with CamilleK, I do feel that the present state of economic flux is not something entirely bad or evil. Sure it will be disadvantageous for some more than others.
However, looking at it from an economic perspective: the recession will weed out the inefficient players from the market. The electronics industry is no exception to this process, in spite of the fact that electronics industry might have been hit little harder than the others. The companies that entertain hefty executives who add no reasonable value, the companies that fail to deliver on-time, the managers who fail to garner the best from their engineers/staff/workers all tend to go down the duct. What will take their place would be companies who make efficient use of the resources. Ones that can analyse and position their products better, ones that will deliver on capitol, once that will deliver on time....etc.
This is an economic cycle that the industry is facing. Therefore, what I believe to be a reasonable approach in answering these fifteen (or may be more) tricky questions currently faced by the electronics industry, would be for the companies to think along the basic economic question: “am I economically efficient than my competitor?” When economic conditions and market demand take the roller-coaster rides that they take every once in a while, if companies in the electronics industry can focus on being making efficient use of the resources, they will be the winners.
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bolaji.ojo
8/5/2010 6:39 PM EDT
You are a winner when you come up with a great product notwithstanding other economic issues. So, perhaps the bigger issue here for companies is figuring out how to come out with products that buyers drool over. Apple is doing it. More companies need to figure out how to do this and back this up with an efficient manufacturing and marketing operation.
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