At the IPC Technology Market Research Council's (TMRC) May meeting in Baltimore, the speakers concurred on their midyear business outlooks for electronics manufacturing: Orders are steadily up, but modest for some sectors, with intense price pressures still reigning supreme.

Speaker Walt Custer of Custer Consulting Group gave his typical fast-paced look at the macro and micro conditions currently affecting the electronics industry. According to Custer, world electronic equipment production is headed up. It's estimated at $1.199 trillion for 2004, a hefty $100 billion jump from 2003's $1.090 trillion.

Another macro indicator for Custer is world gross domestic production (GDP), with every country/region except China, surprisingly, and Japan, not surprisingly, projected to experience growth in its GDP from 2003 to 2004. Overall, the world's GDP is estimated at 4.0 in 2004 from 2.4 in 2003, with the U.S. weighing in at 4.6 (2004) vs. 3.1 (2003). China will hit 8.3 in 2004 from 9.2 in 2003, with Japan at 2.5 in 2004 from 2003's 2.7.

January/February figures released at conference time reflected that industrial production worldwide is also up, with Germany (+1.8), the U.S. (+2.7) and China (+23.2) all experiencing positive percentage changes from one year ago. Even though the world is in a growth mode, however, Europe is doing less well overall, according to Custer. Case in point: Britain was at -1.3, with overall Europe at only +0.6.

Custer summed up by analyzing the end market situation for electronics manufacturing. Both the computer and semiconductor industries have resumed modest growth, with personal computers (PCs) and cell phones actually enjoying robust growth. Along with security and medical, military has been one of the main industries leading this upturn, but Custer had two cautions for the audience: 1) it's not that big of a market and 2) it's U.S. presidential administration-dependent. On the downside, automotive has had stable volumes, but severe price pressures continue; and telecom/datacom, once thought to be headed for recovery, hit a negative plunge in late 2003 from which it has not completely recovered.

Shawn Severson, senior vice president with Raymond James, Inc., presented his take on the electronics manufacturing industry from a Wall Street perspective. According to Severson's analysis of the macro landscape, conditions are improving. Management teams at electronics manufacturing services (EMS) providers are indicating that business is better, with this positive sentiment the best that Severson has "heard in a long time." Overall, he predicted that 1) high-end information technology (IT)/telecom applications would make a recovery in 2004 and 2) investors in the EMS niche will be mostly concerned with EMS companies' ability to sustain the current recovery and growth throughout 2005.

Drilling down further, Severson indicated that EMS industry restructuring plans are mostly complete, with stabilized pricing and higher capacity utilization driving margins up. The caveat, however, is that EMS companies are still trying to re-price business they priced way too low during the downturn. Severson cited Solectron, in particular, for getting "into trouble" for not figuring out the cost of doing business and pricing accordingly; instead, Solectron's price-slashing was just an attempt to keep customers.

Other speakers focused on the overall theme of the TMRC meeting, which was disruptive technologies and how to cope as electronics manufacturers. Although lead-free and nanotechnology applications were the primary focus of these presentations, disruptive technologies are not the only bugbears challenging electronics companies' current growth. Other disruptions include the continued strength of the euro and the U.S. Federal Reserve Board's almost certain propensity to soon increase interest rates to avoid inflation and a rising U.S. domestic economy. The smart companies are the ones already planning for and addressing these issues. As Custer stated at the end of his presentation, "The law of the jungle will prevail. Financially and technically strong companies will survive."

Custer's statement clearly echoed that of keynote presenter Jack Shaw, who cited the example of Digital Equipment Corp. (DEC) being swallowed up by Compaq due in large part to DEC's not catching onto the PC revolution. He stated: "Every business in this room will learn to deal with disruptive technologies or they will become parts of businesses that have learned how to deal. It's not enough to accept change. It's not even enough to embrace change. You've got to seek out change."

Adapt to disruption or be swallowed: wise words for us all in this improving, but still challenging, electronics manufacturing environment.

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