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Spring report: Electronics supply chain optimistic for second half of 2011 though fear, uncertainty, doubt regarding Japan is evident

Automotive respondents generally were the most optimistic, based probably on the recovery in the segment plus the increasing electronic content in vehicles partly driven by consumers appetites for greater uses of technology in cars and auto makers’ abilities to design greater technological functionality into increasingly smaller spaces and footprints. (Read an interview with the president of the Society of Automotive Engineers (SAE) International)

However, the automotive industry has suffered the most immediate impact from the Japanese earthquake and tsunami and was expected to be one of the areas that would have a more worrisome outlook.

Telecommunications, and especially networking respondents, were consistently the least optimistic group of survey respondents.

While the networking segment has not been performing as well as other industries, the telecommunications market is expected to grow rapidly on the back of mobile data infrastructure deployments.

 

Role in decision-making and market segment tend to have a greater impact on outlook than company type, which highlights the strengths of supply chains.

 

Over the next several years, a majority of Internet traffic will pass over mobile networks and should prove to be a shining star in the electronics supply chain.

On average, telecommunications respondents averaged 5.7 and networking averaged 5.6 on the Overall Index.

 

Figure 4
Supply chain outlook, Overall Index by company type and product area

Supply chain outlook, Overall Index by company type and product area

 

By type of company, component manufacturers, distribution / logistics, and semiconductor respondents were the least optimistic, but held close to the average scores on the three indices.

The most optimistic were OEMs, EMS / ODMs, and electronics equipment manufacturers. But again, these scores stayed close to the survey-wide averages showing that role in decision-making and market segment tend to have a greater impact on outlook than company type, which highlights the strengths of supply chains.

Now turning to the current outlook, the survey indicated a Current Index of 5.8, on average. Respondents were most optimistic regarding the economic environment (average score of 5.9) and that the employment situation was improving (average score of 6.0), as shown in Table 4. Respondents also felt pricing would increase (average score of 5.8).

The most critical area, given the supply chain shock emanating from Japan, was that respondents did not expect current inventories to change significantly.

On current inventories, the average score was 5.3. This may be due to the ramifications not yet being felt from this supply chain disruption or to the general uncertainty as to the ultimate magnitude of this disruption.

As a part of this survey, an open-ended question was asked to gather insights and opinions regarding this supply chain shock from Japan. Responses varied greatly with the only real consensus are there is still a large amount of fear, uncertainty, and doubt in the supply chain. (Read opinions / insights regarding the supply chain shock from Japan)

 

Table 4
Current outlook question type, average responses

Current outlook question type, average responses

 

 

As shown in Figure 5, respondents focused on the PC, server, and automotive segments were most optimistic and networking respondents were the lease optimistic. OEMs and EMS/ODMs were also the most optimistic regarding the current situation. However, semiconductor firms and others farther up the supply chain were most worried about the current situation, probably feeling the impact from Japan more immediately than other players in the supply chain.

 

Figure 5
Supply chain outlook, Current Index by company type and product area

Supply chain outlook, Current Index by company type and product area

 

Turning to the future outlook, as stated above, respondents were fairly optimistic regarding the future outlook for the supply chain. The average Future Index score was 6.1, a significant increase from the Current Index. Regarding the individual components of the Future Index, respondents expect the future economic environment to improve and business volumes to improve in the second half (both had an average score of 6.2), as shown in Table 5.

This indicates demand will continue to improve among end-users, enterprises, service providers, and other technology purchasers.

Also, respondents must feel that the Japan supply chain disruption will likely subside by the second half of the year without significant impact on the market.

Among this set of questions regarding the future, future profits (average score of 5.7) is the one area respondents appear to be most concerned.

 

Table 5
Future outlook question type, average responses

 Future outlook question type, average responses

 

 

Again the spread is fairly narrow across end-market and company type, but PC and server respondents were the most optimistic (see Figure 6). Also, OEMs and electronics equipment manufacturers were the most optimistic groups of respondents.

Key decision makers in the semiconductor market and in distribution / logistics were the most pessimistic, perhaps because of concern over what the true impact of the Japanese tragedy may prove to be.

OEMs are likely looking forward to the large shopping periods in the second half of the year.

Telecommunications respondents also continued to be more pessimistic than the rest of the market, which is curious considering the expected build-out for mobile data infrastructure.

 

Figure 6
Supply chain outlook, Future Index by company type and product area

 Supply chain outlook, Future Index by company type and product area

 

As stated above, the three indices formed from the 12 core questions in this survey were all higher than the survey in 2010, indicating a more optimistic outlook among participants in the supply chain.

Looking at the individual questions shows a greater insight into how opinions have changed over the course of the past year (see Table 6). Attitudes towards employment, both current and future, showed just a 5% increase from 2010 to 2011, indicating companies are still concerned about adding resources, an attitude reflected in the broader employment statistics. (Read: EMS Industry job trends, salaries and 2011 hiring outlook)

Most other topics showed a larger increase from last year. Attitudes towards the economic situation have improved the most, 24% for the current situation and 20% for the future situation.

Compared to the 2010 survey, respondents were also more favorable in their attitudes toward future profits and business volume, growing 12% and 10%, respectively. While future profits had the least positive score among the questions on the future environment in the 2011 survey, the increase was significant from last year, indicating much higher expectations from last year.

Finally, respondents were also more certain that prices would increase in 2011, 13% higher than in the 2010 survey. This was especially true for electronics equipment manufacturers, who had an average score of 6.1, compared to 5.8 for all respondents in the 2011 survey.

The one area that bucked the trend was in current inventory levels and business volumes. The average score for current inventories was down 5% and current business volume average score was off a point from the previous forecast. Again, these scores may be where respondents showed their concern for the supply chain disruption from Japan.

 

Table 6
Average supply chain sentiment, 2010 versus 2011

Average supply chain sentiment, 2010 versus 2011

 

Except for the questions regarding current inventories and volume, respondents responded with higher scores in the 2011 survey, versus the 2010 survey. The indexed scores point to the generally more optimistic feelings regarding the electronics supply chain this year, compared to 2010.

Whereas, continued weakness in the European market and the possible impacts from the Japanese earthquake and Tsunami are likely holding down respondents’ scores on current inventories and business volumes while a year ago, respondents would have been buoyed by the rebounding economy.

Overall, respondents’ confidence in their answers mellowed somewhat compared to the last survey, where 85% of respondents rated their confidence at 7 or higher out of a scale from 1 to 10. In the current survey, only 66% of respondents rated their confidence at 7 or higher. However, 56% rated their confidence at 8 or higher and nearly one fifth stated their confidence was at a 10. The average score was 7.4. (See Figure 8.)

 

Figure 8
Respondent confidence level in their responses

Respondent confidence level in their responses


For additional questions on survey findings, connect with Mark Zetter in VO GlobalNet.

Methodology
VentureOutsource.com’s Electronics Supply Chain Business Outlook Survey for spring 2011 was put online and made available to industry clients and Website readers the second week in March 2011. The survey was also sent directly to individuals in electronics corporations, organizations and agencies that use, offer and are employed in electronics contract manufacturing and / or technology supply chain and outsourcing services or subscribe to our opt-in e-newsletter INsight. Survey participation was voluntary. Survey questions designed to define survey respondent demographics did not collect any personally identifying information. The survey closed May 1, 2011. Survey questions focusing on indicators of respondent expectations and experience were posed with a scoring basis of 1 to 10 (1 = very negative experience or expectations and 10 = very positive experience or expectations) per survey question / criteria.

The survey also included questions that asked respondents to describe the type of company they work for; what product areas their business unit or corporation are active in; their role in the decision-making process; and what level they can speak to (business ‘units’ versus overall corporation).

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