By Mark Diorio
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There are a variety of factors indicating that 2001 could be an interesting year for forecasting. PC sales are down and so is the communications market. For semi-conductor packaging and assembly, there is a softening in loading. IDMs are not forecasting or even loading quite as strong recently; this is validated by the fact that assembly capacity constraints have been eased significantly as of late.
Now the economy is down. The delayed U.S. presidential elections didn't help investment markets, sending the overall market into a quandary. Combine this with technology stocks plummeting because of weakening performance, and the extent of growth in 2001 is highly speculative. The only positive economic indicator at the time of writing this column was the Federal Reserve Board's indication that there might be a loosening of interest rates, which could possibly continue or fuel the growth that we have come to expect during the past few years.
Investments Leading the Slow-down
Many modern-day investors have taken beatings on their investments during the past six months, thereby limiting much disposable income. Because of this, there will be less disposable income to purchase commercial products. This could possibly fuel further decline for semiconductors. People are beginning to ask, “Do I really need that new computer?” They may question the “need” to have a new 1Ghz processor, whether or not it's really more efficient and worth the investment. Even if you realize that the package and the board are definitely not clocked with the same speed function, chances are that you already recognize that your switch from a 400 MHz computer to a 600 MHz did very little (did you really notice it?). If that's the case, you may decide to forgo a new computer right now…and you're not alone as is indicated by PC sales plummeting. And because many may have less disposable income (at least on paper) than last year, what else are consumers not buying? Well, indications are that other application sectors are off, too, and recent market outlooks from IDMs suggest that this will continue through the second quarter.
Gloom and Doom for Tech Stocks
Technology stocks, largely represented by IDMs, took a beating in the fourth quarter of last year. The semiconductor market is becoming less dependant on the basic personal computer, as 35 percent of semiconductor sales in 1998 went to PCs as compared to 25 percent estimated by 2003. It's the networking and other computing applications that are taking a bigger percentage of the pie: 10 percent in 1998 to 21 percent in 2003. However, this area is showing signs of softening, as well. At the time of writing this commentary, it was learned that there was a significant overall supply of components at a significant Internet network system provider, so the overall effect is a weaker demand for components. This means there is less of a need to increase production.
While it is highly doubtful that unit volumes will decline – units manufactured has only had one downturn during the past 20 years – the need for capital equipment will be off-center. This capital expenditure is less cyclical in assembly when compared to fab because of the ability to easily and quickly add incremental capacity when there is sufficient capacity. The likelihood is that equipment buying will be in decline unless there is a shift in technology or other segments, such as power surge, ahead.
It’s the Conservative Front
Last year, I was highly conservative in my forecast compared to others. Am I overreacting to the current market conditions and being a doomsayer? Well, by the time you read this column, the chances are good that if haven't already submitted your forecast for 2001, you are in the process of doing so. And if you think I'm being unreasonable, then remember this (if you can)…When your customers tell you that they think this is a temporary pause in business, then it usually means get ready to hold your hat! And if I'm wrong, so what? If you erred on the conservative side of your forecast and you exceeded profits this year, what's the worst that will happen? Your commissions will double? An extra bonus? Well, I suppose you could live with that extra cash to make up for all that money you lost on technology stocks. Good luck in 2001!
MARK DIORIO, chief executive officer, can be contacted at MTBSolutions Inc., 1630 Oakland Road, Suite A102, San Jose, CA 95131-2450; 408-441-2173; Fax: 408-441-9700; E-mail: [email protected].