I am currently on a 10-day “around the world” business trip with stops in Hong Kong, China, Switzerland, Israel and Germany. I am writing this week’s comments from Shenzhen.

Weaker U.S. Economic Signals - with Global Implications (In Case You Hadn't Noticed)

Not much good news in the United States. The housing market remains in trouble ( Chart 1 ), unemployment is at its highest level since mid-2005        ( Chart 2 ), consumer confidence has plunged ( Chart 3 ) and consumer and business spending is suffering. Asia (including Japan) produced 82% of these boards.

	Chart 1

	Chart 2

	Chart 3

The Conference Board’s “CEO Confidence Index” ( Chart 4 ) fell to 39 in 4Q’07 (a reading of more than 50 points reflects more positive than negative responses). The last time the measure fell below 40 was in 4Q’00 when it fell to 31. "CEOs' confidence in the state of the U.S. economy continues to wither and is now at a seven-year low," says Lynn Franco, Director of The Conference Board Consumer Research Center. "Given continued trouble in the housing and credit markets, persistent volatility in financial markets and increases in energy prices, it's not surprising that confidence has eroded. Looking ahead, the majority of business leaders expect these lackluster economic conditions to prevail throughout the first half of 2008."

The Fed’s ¾ point drop in the Federal Funds Rate ( Chart 5 ) will help but not for a while. Per ( Chart 6 ) it normally takes 12-18 months for a significant interest rate drop to noticeably stimulate economic growth. The most recent Conference Board composite leading indicator decline            ( Chart 7 ) definitely points to a slowdown. Belt tightening is occurring in most households and businesses in the United States, and there is a significant likelihood of a negative global impact.

	Chart 4

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	Chart 7

United States Cuts Fed-Funds Rate by Three-Quarters Point (Jan. 22, 2008)

The Federal Open Market Committee has decided to lower its target for the federal funds rate 75 basis points to 3-1/2 percent. The committee took this action in view of a weakening of the economic outlook and increasing downside risks to growth. While strains in short-term funding markets have eased somewhat, broader financial market conditions have continued to deteriorate and credit has tightened further for some businesses and households. Moreover, incoming information indicates a deepening of the housing contraction as well as some softening in labor markets. The committee expects inflation to moderate in coming quarters, but it will be necessary to continue to monitor inflation developments carefully. Appreciable downside risks to growth remain. The committee will continue to assess the effects of financial and other developments on economic prospects and will act in a timely manner as needed to address those risks.

Dollar Remains Weak, Euro and Yuan Strengthen

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A Few Thoughts about China

China, the manufacturing center of the world, is enjoying great success but also facing increasing challenges. While visiting various PCB makers in the “Pearl River Delta” I continually heard concerns about tighter environmental regulations, power and water shortages, increasing wages and high employee turnover. There is no doubt that China is the dominant force in printed circuit manufacturing. With its low costs, massive economies of scale, well equipped plants and rapidly improving technology China is a formidable “world class” PCB competitor. However, rising costs and possible slowing end market growth are reasons for concern.

Terabyte Memory Chips? Nanochip Raises $14 Million to Complete Development of Ultra-High Capacity Removable Data Storage Chips

Nanochip, a developer of microelectro-mechanical systems (MEMS) silicon data storage chips, completed a $14 million financing round in conjunction with Intel Capital and JK&B Capital. Nanochip is developing a new class of ultra-high-capacity storage chips (tens of gigabytes of data per chip). By coupling MEMS with nano-probe array technology that far exceeds the expected limits of conventional lithography used in present semiconductor memory, these new chips are designed to meet the growing demand for cost-effective, removable and rewritable data storage for use in a wide range of computing, server and consumer electronics products. Nanochip’s first products are expected to exceed 100GB per chip set, reaching terabytes (TB) in the future, and at a substantially lower cost compared with flash memory solutions.

“Flash has become the technology of choice for a variety of consumer and business applications where cost-effective, non-volatile solid-state storage is a must,” said Keith Larson, vice president and director of manufacturing, memory and digital health sectors for Intel Capital. “However, as flash process technology scaling begins to approach its limits, Nanochip’s technology is well positioned to provide memory capacity with exponentially higher storage densities at a cost per gigabyte significantly below that of flash technology. New memory components, such as Nanochip’s, will enable new, innovative electronics devices and increase the performance of existing computing and other devices.”

Nanya Technology Sees Record Quarterly Loss Due to DRAM Oversupply and Price Drop

Nanya Technology, the nation’s second-largest DRAM maker, posted record quarterly losses for last quarter as prices collapsed. In the quarter ending on Dec. 31, Nanya lost NT$8.2 billion (US$252 million) compared with net profits of NT$6.5 billion the previous year. Revenues dropped to NT$10.4 billion from NT$22.3 billion.

Japan Bans Import of Nanya DRAMs

Per local news reports Japan Customs officials granted Fujitsu’s application seeking suspension of the import of Nanya Technology’s DRAM products effective Jan 23, 2008. Japan Customs will take procedures to inspect Nanya’s DDR/DDR2/DDR3 synchronous DRAM and memory modules for import into Japan, and if products are confirmed as infringing products listed on the application, Japan Customs will suspend their import.

Worldwide PC Processor Market Hits Record Levels of Unit Shipments Again in 4Q07, According to IDC

Worldwide PC microprocessor shipments grew 8.5% sequentially (in 4Q’07) to record levels for the second quarter in a row, according to IDC. Growth in overall unit shipments and stable average selling prices stimulated overall market revenue to grow 9.6% sequentially to $8.7 billion. On an overall unit basis Intel had 76.7% market share, up 0.4% while AMD had 23.1%, a loss of 0.4%.

Japan’s December SEMI CAPEX Weakens

December 1-month bookings for Japanese tools used to make microchips ( Chart 12 ) declined versus November. Although the 3-month average orders rose and the 3-month book/bill improved, December (on a 1-month basis) saw a clear weakening of orders.

	Chart 12

Handset and notebook PCB industries see dropping orders

Digitimes reported that due to post-Christmas seasonality, fewer working days in February (Lunar New Year) and an unclear economic future, notebook and handset PCB makers are facing low order visibility for 1Q’08 with first quarter revenues likely down 10-15% or possibly even 15-20% or more.