From Page One of Electronic News: April 27, 1998 Issue
Slowing Electronics Industry?
By Lewis H. Young
Compaq has reported a one cent-a-share profit in 1Q98, blaming inventory problems for the debacle. It shut down manufacture of some models of PCs at its Houston plant for two weeks in April. IBM reported a 13 percent profit decline in the quarter, also blaming PC inventory problems. Intel plans to reduce staff by 3,000 over the next six months after its 1Q earnings fell 36 percent. National Semiconductor announced a layoff of 1,300 people, citing slower sales. Motorola too had a disappointing first quarter, blaming slumping sales of cellular phones and pagers. The semiconductor equipment book-to-bill dropped to a perilous 0.8 in March after a steady monthly drop since December. Revenues of the major disk drive companies have tumbled, some by as much as 50 percent.
That is enough bad news to make industry observers feel that the electronics industry has entered one of its regular cyclical slowdowns. And if this quarter's financial news was mainly bad, worse is yet to come.
Sales of systems are slowing and that translates rapidly into diminished sales of semiconductors and passive components. Although some marketing people insist that sales of PCs, a major driver for growth of semiconductors and peripherals, continue to grow, other evidence grows that shipments are now declining.
Part of the problem has been the economic slowdown in Asia. In Japan, for example, shipments of PCs declined more than 2 percent last year, with NEC's shipments, which dominate the market, off 7 percent. Semiconductor makers in Japan and Korea have slowed down their purchase of manufacturing equipment because of the lack of financing to build new fabs. And many have had to curtail their purchases of design automation software.
Squeezed for funds, several Asian countries, like Indonesia, Malaysia and Thailand have slowed or cancelled infrastructure projects that included the installation of cellular phone systems. And China, which has seen both its economic growth and its foreign investment slow, has cut back on plans to install new paging systems and new cellular phone systems.
Still another problem has been the steady move to PCs that retail for $1,400 and less. Initially the inexpensive PC was a product designed for the consumer market, but now corporations have discovered that many of their employees can do what they have to--mainly word processing, spread sheets and E-Mail--with these less expensive machines.
Finally, many segments of the industry suffer from overcapacity. This has been true in the DRAM market, the SRAM market, the flash memory market, the liquid crystal display market, the PC market, the disk drive market and the cellular phone handset market.
Another sign of a slowing industry is the increased pace of consolidations that are taking place: Compaq acquiring Digital Equipment Corp., Acer acquiring Siemens-Nixdorf's PC manufacturing, NEC buying most of Packard Bell, Vishay buying Temic, Adaptec buying Symbios, WHO buying GEC-Plessey's semiconductor operation.
Many electronics companies are battening down their hatches for the storm they see coming. They are laying off workers, closing factories and trimming less profitable product lines. |
