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Industry analyst, Walt Custer, provides a recap of the industry for the fourth quarter of 2007 in this latest MarketEye installment. .

4Q'07 Global Performance by End Market: OEM Sales up 14% in Fourth Quarter but Signs of a Slowdown

Walt Custer Feb. 11, 2008

Identifying end market growth by electronic equipment type is useful in focusing your companies’ sales efforts – both in good times and bad. Targeting the growth sectors can provide a major competitive marketing advantage.

Custer Consulting Group tracks quarterly revenues, net income and inventories of more than 450 major, global companies in the electronic food chain. By creating composite financials by product type, it is possible to track financial performance by sector. Most (but not all) of the 4Q’07 financials are now available. We had to make a few estimates (for companies reporting late) but here are the results thus far:

Global OEM Revenue Growth

A composite of 61 large, multinational OEMs grew approximately 14% in 4Q’07 versus 4Q’06 ( Chart 1 ). These combined companies’ annual sales are about U.S. $800 billion, approximately 50% of the world’s electronic equipment production. In Europe ( Chart 2 ) most sectors are flat with the exception of declining telecom and growing computer production. In Japan( Chart 3 ) telecom (mobile phones) and consumer electronics are highly seasonal, but in general since early 2003 production has been flat. In the United States ( Chart 4 ) orders for computers and telecom rebounded in December. Fortunately, the ratio of inventories to orders eased( Chart 5 ).

Business/Office Equipment & Military Electronics Sales Both Up 8%

Globally in 4Q’07 business and office equipment sales rose 8% ( Chart 6 ) as did the U.S. government’s major military subcontractors revenues ( Chart 7 ). Based upon U.S. DOC data military electronics bookings exceeded shipments for the second half of 2007 ( Chart 8 ).

Instruments & Controls Grow 13%; Medical Electronics Climb 8%

In the instrument and control equipment sector 4Q sales rose 13% ( Chart 9 ) . These combined end markets have enjoyed relatively steady growth since early 2003 ( Chart 10 ). Medical electronics revenues climbed 8%. However, ( Chart 11 ) is based upon an estimate for Medtronics – a company that reports late because its “4Q” ends in January (rather than December).

Telecom “Rises” 22% but FOREX and Alcatel-Lucent Consolidation Inflate the Numbers

The major international telecom companies ( Chart 12 ) reported a 22% increase in 4Q revenues however this hefty growth figure is misleading. A combination of restated sales for the combined Alcatel-Lucent and strong Alcatel-Lucent euros and Ericsson Swedish kronas currency converted back to weak dollars amplified this quarterly consolidation (done at fluctuated exchange). ( Chart 13 ) shows the annual sales growth (at fluctuating exchange) of the major global telecom companies. I added Huawei Technologies for comparison at a reader’s request.( Chart 14 ) has monthly U.S. communication equipment orders and shipments through December.

Internet Gear Up 18%; Computers 14% and Data Storage Equipment 20%

Internet equipment sales rose 18% in 4Q’07 thanks to a strong performance by Cisco and Juniper ( Chart 15 ). Most of the world’s computer sales (unit volume) are in desktop PCs and notebooks ( Chart 16 ). World personal computer sales climbed 15.5% on a unit basis in the fourth quarter ( Chart 17 ) while a composite of 11 global computer companies reported a 14% increase in 4Q’07/4Q’06 sales( Chart 18 ). U.S. computer equipment orders and shipments improved in December ( Chart 19 ) and storage equipment sales surged globally ( Chart 20 ).

SEMI Equipment Drops 2%; Chip & SEMI CAPEX Business Cycles Flat

Semiconductor fab, assembly, test and measurement saw a downturn in 4Q’07. A composite of 14 global SEMI suppliers ( Chart 21 ) reported a 2% revenue decline (includes an estimate for sector giant Applied Materials). Both the chip and SEMI CAPEX business cycles are now in a “zero growth” mode ( Chart 22 ).

Passive Components Flatten; Inventories Climb

Other U.S. made electronic components (excludes semiconductors) saw orders and shipments soften at year end ( Chart 23 ) as inventories/orders climbed ( Chart 24 ).

Wrapping It Up

( Chart 25 ) summarizes the annualized (12/12) and 3-month (3/12) growth for the U.S. electronics food chain. The 3/12 is the leading indicator. The many 3/12 values below 100 (yellow text) supports our feelings of an industry wide slowdown. 4Q’07 wasn’t that bad (except for SEMI CAPEX), but lower growth is expected this year.