Hi John,
Sorry to respond so belatedly to your concern about margins being sqeezed by the big electronics companies. I have some thoughts I'd like to share. Chartered is not too different from the electronics manufacturing services companies like Flextronics, Jabil Circuit, and Solectron. Chartered and the other foundries make the chips, and the EMS make the products that use the chips. Either way, it's manufacturing that is being outsourced, that was once done in house. I recently read a press release that stated the big electronics firms now outsource 15% of manufacturing, and want to eventually outsource 72%. They are transitioning the manufacturing to the contract firms as fast as they can take it. As long as the demand for these services exceeds the supply, the contract firms will have pricing power. Eventually, the contractors will have ramped up capacity to meet the demand, and at that time I too would be concerned about pressure on profit margins.
I would guess that in the automotive industry analogy you mentioned, the availability of contract, or more likely vendor, manufacturing services is not in short supply. When supply is excessive, such as with the disk drive industry, prices fall through the floor.
I would expect the foundries and EMS firms will have pricing power for at least the next five years. After that, who knows.
SPB |
