Gain and pain? What’s going wrong?
27 October 2008
Is it just me or is this ‘recession’ not hurting as much as it should? And how I pray that I am not forced to eat my words!
Certainly we are starting to see Q3 company results come in now that reflect a slowing of the industry since the summer – EMS and OEMs alike showing a flattening of profits, albeit with relatively strong sales. While the days of double digit growth are but a distant and happy reminisce, the days when profits have slumped into loss don’t seem to be with us just yet.
Everything tells us that the current situation should be far worse than reality tells us it is. A typical comment I received last week was from an EMS provider who said that he had one customer in the construction business who was being hit hard at the moment, but every other customer, across a spread of markets, was showing positive and sustained growth.
Nobody is shouting about this of course, as it seems inappropriate to be positive when so much around us is negative – but this is a shame. If we stopped and took stock of all the industries, whether in public or private sector, that were moving along quite nicely then maybe the reality of a ‘technical recession’ wouldn’t be accompanied by such gloom. Many of these industries - military, automotive and medical are prime examples – have a symbiotic dependency with the electronics industry, so while they prosper then so do we.
However I suggest that there are two other factors that are playing an important part in our relative success at the moment. The first is that we are cheap. Or at least our products are. Consumer and computing are the most obvious markets where luxury performance can now be bought off the shelves at commodity prices. A recession might stop you buying a new house, but buying the latest cell phone or MP4 player or notebook PC is not going to break the bank. There was even a report a few months ago that the downturn was good for the consumer electronics market as people would give up their holidays and take the relatively cheap option of spending on gadgets and games to compensate (Is the consumer electronics market immune to economic pressures?). I’m not sure that this is a huge contributory factor in saving the electronics industry, but I do think that the low prices of goods is.
The other saving grace is that inefficiency was a luxury that went unnoticed in the ‘dot-com boom’ in the 90s, but has been hunted down and put to the sword in most organisations since the turn of the millennium. Most factories these days are lean, flexible and ready to react positively to customer demands. On a global level we appear to have approximately the right amount of capacity to serve the end markets, whereas in 1999 it appeared that we were planning for every human being on the planet, and all of their pets, to be equipped with at least one cell phone.
A sustained global recession, if it happens, will inevitably have casualties in the manufacturing sector, but my feeling is that we are much better prepared to weather the storm in the short term than we were seven years ago. Certain, well managed, companies in the right sectors might even be doing quite well – but we don’t like to shout about it!
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