While the plural of anecdote still is not data, the stories this week in the industry are actually data that underscore the significant supply chain shifts that we have been monitoring for a number of quarters now, and as highlighted in the recent MarketWatch Quarterly by Marc Barnhill, chief trading officer at Smith.
Competition is increasingly tightening along with margins, inventory management, and shortening lead-times all due to the macroeconomic and consumer vascilations impacting demand. However, the hot tablet PC and smartphone sectors, while vibrant, are also squeezing margins and forcing tough decisions by corporations to focus on strengths, outsource to strong, trusted supply chain partners, and improve their competitive market positions as we recently discussed (see this recent discussion of competitive tightening from Solid State Technology).
Agile supply chain strategies in play
Agility is the semiconductor supply chain word of the year. The challenges from external macroeconomics to ever-tightening internal margin and inventory management have been dramatic for many in the semiconductor and electronics industry this year. In response, there have been a number of moves by OEMs, chip manufacturers and fabs to directly address these margin and inventory (hence ASP) issues.
As we discussed last week, OEMs are continuing their supplier consolidation strategies as streamlining outsourcing facilitates agility, cohesive market strategies, and eliminates unnecessary costs. In the same vein, with prospects for initial rebound during 2H13 and positive growth in 2014, as we discussed earlier this week, is similarly promoting serious review by corporations to determine core strengths in light of the current trajectory of the industry – the move away from traditional PCs and continued favoring of mobile devices (especially tablets and smartphones).
Making news – and waves
In the past week, we saw some significant announcements which are likely still being digested by industry journalists. Notably, Hitachi announced last Friday that they will "discontinue the manufacture of semiconductors for information and telecommunication hardwares." The reasons given by Hitachi include the strategic decision to focus on reducing manufacturing costs while improving production efficiencies in an increasingly competitive market. More specifically, Hitachi offered that the intent is "to promote business and pursue greater management rationalization by specializing in the development, design and quality assurance of LSIs primarily for Hitachi Group products, including information and telecommunication hardwares." To accomplish this, Hitachi has consolidated its internal operations and will "outsource externally the manufacture of semiconductor integrated circuits presently performed under the Micro Device Division."
Flextronics & Motorola Mobility
A number of financial analysts stated their surprise at this week's announcement of Flextronics' acquisition of Motorola's manufacturing operation in Tianjin, China and the management and operation of the Jaguariuna, Brazil facility. Taken in the context of our industry's ongoing consolidations in the EMS and CM sectors as well as the demands that major OEMs are requiring of supply chain partners in outsourcing, this strategic move by Flextronics underscores their strategic positioning. More specifically, as Mike McNamara, chief executive officer, Flextronics, offered in the press release on 12/10/12, the acquisition positions Flextronics "to leverage[e their] extensive manufacturing expertise and supply chain solutions to provide Motorola Mobility with increased value."
Adding these facilities and capabilities to Flextronics' existing strengths accomplishes the manufacturing streamlining and cost efficiencies that are essential to successful competitive positioning today.
AMD & GlobalFoundries
While not representing a consolidation or supply chain change, per se, the recent agreement between the two companies to redefine 4Q12 purchase commitments and establish new fixed pricing levels is in the same vein as the above moves. In order to respond to the dramatic supply chain changes that have resulted from the move away from traditional PC sector end-demand, AMD is strategically positioning itself to respond to both immediate and longer-term supply-demand issues. More specifically, by lowering wafer purchase commitments immediately for 4Q12, AMD will be able to continue its move to standard 28nm process levels with wider market flexibility.
Again, the resounding theme of supply chain agility and strategic supply chain partnering is definitively expressed in the semiconductor and electronics supply chain. Next week the last 2012 issue of MarketWatch Quarterly will be sent to subscribers (free subscription here); watch for in depth analyses of the supply chain events that are affecting our industry and informing business strategies.