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Where’s the Demand? US consumer confidence & Japan's auto numbers down, is there good supply-demand news out there?


US consumer confidence numbers came out today and they are running lower than the previous numbers and counter to both the Thomson Reuters/University of Michigan and Bloomberg Consumer Comfort Index reports for the same period, according to this discussion on  Disappointing consumer confidence numbers along with high fuel prices (despite an easing since early May's highs) and news of record low housing prices driving increases in rental prices are now feeding US inflation concerns (see here and here from Bloomberg).

With US and European markets continuing to wobble post-recession, we, in the semiconductor and electronics industries, continue to wait for the 'corporate refresh' cycle to hit and for consumers in these mature economies to resume normal purchasing behaviors.  The problem is that a set of lingering problems are not easing and so the slow climb up continues to wobble as well.  While these economic concerns don't seem to be keeping consumers and corporations from joining the tablet and smartphone demand craze (see our recent Commentary here) with volume and profit forecasts continue to hit highs, other market and device sectors are not faring as well.


The recent disasters in Japan have pulled automotive production in Japan for the top three Japanese automakers (Nissan, Toyota and Honda) to historic lows, down between 48-80% for the month of April year-over year, and down between 22-52% for global production (see this video from CNN and this article from Manufacturing Business Technology).

These very different data sets don't seem like they would have much in common, and particularly do not seem to be directly relevant to chip sales.  However, today's global marketplace for semiconductor forecasts is directly impacted by just these different types of economic situations.  The skittishness of consumer and corporate spending in the mature economies is having a slowing effect not only on specific device categories' volume sales (e.g., PC sales are down thus far in mature economies while tablets are up and rising as we discussed here last week), but also on sector growth across the electronics supply chain due to the reluctant demand.  The one safe-haven globally is this hot, trending set of devices and their components, namely tablets and smartphones (see this recent iSuppli report on NOR flash growth for 2011).

Adding to these negative market conditions are the losses in discretionary spending for consumers and added costs for transportation for businesses due to high fuel prices.  Suddenly, the mature market is demand-weak (see iSuppli's latest numbers showing disappointing DRAM revenue for 1Q11 due to ASP declines).  Furthermore, The historic lows in Japanese automakers' production levels, in Japan and globally, will negatively impact the growing automotive semiconductor and automotive infotainment sectors (see this report and this one from iSuppli).

Where are the demand drivers then?  Well, the emerging markets with rising middle classes continue to be the source of double digit demand for a wide swath of devices and components (watch for our upcoming article on Brazil's current rise in the next MarketWatch Quarterly in June).  Not only are automotive, consumer & corporate electronics, and home appliances (including TVs) on the rise in the emerging economies, the continued low unemployment levels, increases in wages, and access to credit are fueling high demand cycles favoring significant growth for the electronics industry.

However, it is not as simple as just finding a new 'geolocation' to sell electronics products in.  If we look into Intel's latest foundry strategies, in light of soaring costs for fabs due to ever-shrinking nanotechnologies and complex architectures, we begin to realize that the entire electronics supply chain strategy is undergoing an important shift.  Even giants like Intel are now exploring ways to provide more open business alliances in order to expand market penetration and coverage for devices and locations while offsetting extreme CAPEX investments necessary to hold onto their leadership positions (see this article from Reuters, for example).

Rising fab and manufacturing costs, shrinking supply chain nodes, skittish confidence levels in mature economies, aftershocks of the devastation in Japan, and the continued high fuel prices are providing significant growth and profit challenges to the semiconductor and electronics industry this year.  Opportunities do exist and companies are moving not only into new geo-economies but also adopting new value chain strategies to meet these challenges.  Despite these complex problems, at the global level and with new value chain strategies, 2011+ growth forecasts are holding strong for the semiconductor and electronics industries.  We just need to think outside of the traditional box.

Lisa Ann Cairns, Ph.D.
Written on Tuesday, 31 May 2011 16:22 by Lisa Ann Cairns, Ph.D.

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