by Michael A. Fury, Techcet Group
June 27, 2011 – About a hundred people gathered at the San Jose Marriott on June 22 for the first IHS Global Design & Supply Chain Summit. The objective of the forum was to provide a strategic perspective on both managing and surviving product innovation and supply chain cycles in an electronics industry now subject to highly correlated global uncertainties. With the exception of the opening talk, the agenda comprised a series of IHS speakers showcasing their various services. (While the event was clearly a marketing vehicle for IHS and its services, it was well attended and provided a lot of information. I expect the presentations will be available shortly on their website.)
The session led off with the upbeat views of Jim Brown, president of Tech-Clarity, speaking on innovation and engineering excellence. Regulatory compliance and sustainability issues have measurably impacted businesses globally in the past two years, compounding the recession effects. The number of companies reporting no impact due to regulatory issues has dropped by 70% in the past year as the impact becomes more pervasive.
Lloyd Kaplan, COO of IHS iSuppli (iSuppli having been acquired by IHS earlier this year), discussed the wireless ecosystem for the technology, media and telecommunications sectors, which are a $1.6-$1.7 trillion market growing at 6%-7% globally. Consumer spending on wireless services averages $14/month per customer — clearly, some of us need to reassess our service plans. Legal handset shipments will be 1.428 billion units in 2011, with the gray market adding an additional 250-300 million units. The lifecycle of 3G smart phones is being compressed to 25% of the prior 2G and 2.5G due to the pending introduction of 4G units. The operating margins of AT&T Wireless have increased from 15% to 25% since AT&T introduced its iPhone service. The netbook market peaked in 2010 and is already in decline, losing share to tablet PCs like the iPad. Apple will surpass HP this year as the largest consumer of semiconductor components, including 35% of the global supply of NAND flash memory.
The risky after-lunch speaker position was bravely handled by Duncan Meldrum, director of the IHS Center for Forecasting and Modeling (and retired former chief economist for Air Products). Following a recession, consumer savings typically spike and then decline as consumer confidence and spending resume. This time, the savings spike is declining due not to confidence but to pressure on disposable income. Industrial production recovery to the pre-recession peak is expected to be four years, fully a year longer than the 2001 recession. This translates to 2011 being a soft year for computer and communications equipment sales as corporate buyers hold back until their own business improves.
Mitigating global supply chain risk — a timely topic given the March 2011 earthquake in Japan — was addressed by Glenn Bassett, IHS VP of strategic biz dev for design & supply chain. This talk focused on methodology used by IHS for BOM management and sourcing. The most surprising item was the extent to which counterfeit components are penetrating the marketplace, which prompted the issuance of a DoD procedure to bring the problem under control.
Keith Doubleday, IHS director of product development, talked about compliance with industry standards and environmental regulations, an issue made all the more complex by globalization. The use of a database of local regulations as a decision tool in both site selection and product design is a practice that is becoming an essential element of product and project approval.
Lessons from the March 2011 Japan disaster continued into the next talk by Dale Ford, IHS VP for market intelligence services. Electronics is only 4.7% of global manufacturing output, but there is no other industry except energy that has such a pervasive impact on the global economy, he noted. Fab capex investment since 2008 has been more heavily driven by keeping up with technology evolution than by addition of capacity for established nodes. The Japan earthquake has resulted in an upward adjustment in the 2011 semiconductor revenue growth forecast (in the case of IHS, up to 7.2% from 7.0%) due to pricing pressure resulting from constrained supply. Starting with 4Q10, semiconductor revenues have fallen back in line with seasonal expectations, building anticipation that the remainder of 2011 will play out normally. Since 1979, the 2008 recession has been the only time that the global economy played a primary role in driving a semiconductor cycle. As to the specific impacts of the earthquake on our industry, automotive electronics have been hit the hardest. Hitachi will be back to nominal production levels in September of this year. Fujitsu, the 2nd hardest hit, announced only this week that they are back up to nominal production levels, but they were well served by an elaborate disaster preparedness plan. The supply of hard disk drive blanks continues to be constrained. (This talk was followed by what seemed like a large exodus from the room, indicating the draw of this post-earthquake topic… in fairness to the final speaker, I’m sure there was also a compelling desire to beat the rush hour.)
Counterfeit risk mitigation was then addressed by Bob Braasch, IHS director of electronic products & services. The counterfeit problem has reached the point of affecting 40% of the Pentagon’s DoD supply chains, as reported by CNN last week. A portion of such parts are being extracted from e-waste and being relabeled and misrepresented as new or higher-grade components. Guidelines for detecting some counterfeits and avoiding them in the first place are well documented but perhaps not widely distributed enough.