BY VINCENT PALERMO
President and Chief Executive Officer,
Aura Communications Inc.,
Wilmington, Mass.

Companies wishing to navigate the tumultuous waters ahead and prepare for sustained growth through the second half of 2001 and into 2002 must weigh the current business climate as well as consider subjective measurement tools.

One such subjective measurement on the demand side is the Consumer Confidence Index. As a predictive gauge for the remainder of the year, this vacillating index with a flat trend line from February to June is not much help.

The inventory-to-sales ratio has been flat for the first quarter of 2001. New orders (net of cancellations) are down and inventories are marching down at the same rate, as manufacturers continue the purge after last year's binge. Inventories include end-of-month total inventory, finished goods, materials, supplies and work in process-known as WIP-affecting the whole supply chain.

Plunging book-to-bill ratios have semiconductor foundries in Taiwan and Korea forestalling expansion plans, while both chip and consumer device suppliers are slashing prices. But it is not all bad news. The whole truth is that this is somewhat better for small fabless semiconductor companies like Aura Communications. Our products serve as the underpinnings for wireless communications in consumer, industrial and business applications.

In an economic decline, fabs feel the pinch from their large customers first as a percentage of their business. There is an immediate positive impact for small customers, as their value to the fab rises in proportion.

Similarly, the economic wake has created more flexibility between the customer and all its prime suppliers. That allows small companies to compete with large companies on a more level playing field. This silver lining in the current economic cloud will allow small companies to hire resources needed for new product developments and get products to market faster.

Our company-which is starting a development cycle now-expects to cut six to nine months from the original schedule. Garnering engineering resources alone will save three months. Therefore, the downturn has created greater efficiencies for us across the board and will allow our new planned products to be available in a market window that wasn't previously open.

It is difficult to be an oracle of the future in a down cycle, but I expect an economic trough in the fourth quarter of this year. Smaller companies like Aura Communications that can react faster to market changes have been empowered by the current downturn to lead the global recovery starting in the first quarter of 2002.

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