Wednesday we reviewed some of the macro-economic events that are affecting semi growth both now and during 2013. We all understand well that growth and trends in the semiconductor and electronics industry are at this point, intricately tied to economic trends, at global, regional, and national levels.
Overall, the global, macro-economic situation is set to be stable with modest growth increases that do point toward a reasoned expectation of roughly 5% growth for semi this year, plus or minus ~2%, depending on economic events and on semi equipment production and purchasing.
Today we will very briefly look at a couple of the more national-level economic trends that support this positive outlook for semi. Also, there are significant supply chain changes that are playing a very important role in shaping how 2013 may play out.
A recent study conducted by Manufacturers Alliance for Productivity and Innovation (MAPI)showed that there is a resurgence of US manufacturing as well as a wider trend for localization, meaning the movement of manufacturing closer to end-markets. As explained in this IndustryWeek article, some of the reasons for this change are based in companies' desire to reduce supply chain uncertainties, to reduce escalating shipping costs, and to have quicker time-to-market access for their products by having them manufactured closer to their intended markets.
While more distant, off-shoring, manufacturing locations may offer a lower facility and/or production cost by being located closer to suppliers, or other agglomerated industry parks, off-shoring costs are being balanced against currency exchange fluctuations, just-in-time delivery to enable more agile market capabilities (to respond to fickle and quickly changing consumer sentiment), increased fuel and freight costs, as well as other issues such as heightened anti-counterfeiting, increasing labor costs, green tech and sustainability management strategies, and the ability to quickly respond with new product introduction – which is related to the agility and just-in-time issues. This shift to more localized manufacturing will have an effect on the wider contract manufacturing (CM) space.
As the InformationWeek article offers, these manufacturing variables are important because they point to a return to more normal strategic planning for growth and reinvestment. This growth and reinvestment includes not only likely equipment purchases, as discussed here, in MarketWatch Commentary on Wednesday, but also the likelihood of a rise in mergers & acquisitions (M&A).
Manufacturers are thinking about how to improve and position themselves for what is being called a US resurgence of manufacturing. Confirming this position are the data from MAPI for IT hardware and software spending, " MAPI projects equipment and software spending to increase 6.1% in 2013 and 7.4% in 2014."
Supply chain changes include M&A rise
Manufacturing's shift to localization does increase the likelihood of an increase in M&A in 2013; an event which we are already seeing across many OEMs (e.g., Dell buyout possibility) and backend suppliers (e.g., Renesas and J-Devices' MoU) now.
M&A activity increases to tend to rise when we see increased confidence in the economic situation, both globally and regionally. Certainly the ongoing M&A events across the industry are lending support to what we are also hearing from both financial and industry analysts supporting 2013 as a growth year, albeit somewhat modest.
One other important indicator (or anecdote?) further underscoring the fact that optimism is warranted, are the recent positive statements by three of the leading European semi CEOs, namely from NXP, Infineon, and STMicroelectronics, as cited in David Manners' blog this morning. Each expressed outright confidence that a bottom had been reached and expected renewed growth in 2013, beginning now, in 1Q13.
Remember to juggle the variables
The questions that most significantly impact the direction of the supply chain effects and that are related to localization include:
- What is the direction and confidence in the global economy and in individual economies?
- What cost-saving strategies will be adopted by OEMs, outsourcing to CMs, streamlining the number of CMs they work with, or pulling more operations back into the OEM itself?
- The degree to which any increase in M&A change the competitive landscape for CMs and OEMs – a more stable economic situation is generally correlated with increased M&A activity.
- Legislative requirements on conflict minerals reporting, RoHS recast, eWaste and WEEE, US NDAA reporting for electronics to the Department of Defense, etc.
- And, of course the usual cadre of wildcard natural and manmade events and supply chain disruptions.