Further Signs of Slowdown in Europe

Although U.S. industrial production increased slightly in June ( Chart 1 ), European growth has slowed or moved into negative territory ( Chart 2 ).

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U.S. Pulse is Weak

U.S. civilian unemployment ( Chart 3 ) is at its highest level since 2004. Although domestic CEO confidence ( Chart 4 ) edged up in 2Q’08, consumer confidence continues to plunge ( Chart 5 ). Most prognosticators are now extending their estimated target for “recovery” until well into next year.

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Dollar Drifts Lower

After plateauing for a few months the U.S. dollar has weakened further in July ( Chart 6 ) as the euro ( Chart 7 ) and Chinese yuan ( Chart 8 ) are at their all time strongest levels versus the U.S. currency. The Taiwan NT$ ( Chart 9 ) is at its high point since 1997 and the Canadian $ ( Chart 10 ), Japanese yen ( Chart 11 ) and South Korean won ( Chart 12 ) have all recently appreciated versus the U.S. dollar.

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Steve Williams is CEC Commodity Manager, North America for Plexus Strategic Materials. His new book “Survival Is Not Mandatory: 10 Things Every CEO Should Know About Lean” is now available from BR Publishing, Inc. as a free eBook download at: www.survivalisnotmandatory.com .

PC Market Growth Continues, Boosted by Portable Adoption in EMEA, Growth Slows in Asia/Pacific Slows
( Charts 13, 14, 15, and 16 )

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Worldwide PC shipments continued to grow at a healthy pace in 2Q’08, according to IDC. Shipments were up 15.3% from a year ago - slightly more than second quarter projections and first quarter growth of 14.9%. Solid growth in the EMEA (Europe, Middle East & Africa) region helped offset slower growth in Asia/Pacific, excluding Japan.

“Despite the economic headwinds, the PC market continued to show its resilience,” said Loren Loverde, director of IDC’s Worldwide Quarterly PC Tracker. “Product refreshes, vendor competition for channels, and aggressive pricing add to the ongoing trend toward portable computing in attracting buyers. The steady growth, despite the pressure on consumer finances, reflects the increasingly important role of PCs within personal technology, and steady improvements in price and design. Nevertheless, economic pressures are mounting and PC market growth is expected to decline over the next year. The relatively strong PC market in recent quarters does not mean that the sector is immune to the changing economic environment.”

North American Semiconductor Equipment Industry Posts June 2008 B/B Ratio of 0.85 ( Chart 17 and Chart 18 )

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North America-based manufacturers of semiconductor equipment posted $1.03 billion in orders in June 2008 (3-month average basis) and a book-to-bill ratio of 0.85 according to SEMI.

June 2008’s bookings were even with May 2008, and about 36% less than the $1.61 billion in orders posted in June 2007. The 3-month average of worldwide billings in June 2008 was $1.21 billion - 8% less than May 2008, and about 31% less than the June 2007 billings of $1.77 billion.

“With a half year of data at hand, bookings for the North American equipment manufacturers are down 27% compared to the same period one year ago,” said Daniel Tracy, senior director of Industry Research and Statistics at SEMI. “The industry awaits more clarity in the overall economic condition before increasing capital spending.”

SEMI Mid-Year Consensus Forecast for Chip Equipment Industry; Expect Semiconductor Equipment Sales of $34.12 Billion in 2008 ( Chart 19 and Chart 20)

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SEMI projects 2008 semiconductor equipment sales to reach $34.12 billion.

The forecast indicates that, following 6% market growth in 2007, the equipment market will decline 20% in 2008, but will experience a rebound with annual growth of 13% and 6% in 2009 and 2010, respectively. “We began to see equipment spending declines during the second half of 2007, driven by lower spending in the memory sector and a less than favorable device pricing environment,” said Stanley Myers, president and CEO of SEMI. “However, expectations for 2009 are leaning toward a solid industry recovery and subsequent growth in the low double digits.”

Chip Prices Could Rise in 2009 Due to Capex Cutback

A cutback in capital spending by semiconductor companies, including the foundries that many chip suppliers are outsourcing to, will lead to higher prices in 2009.

“The industry is on a collision course,” says Brian Matas, vice president of research for IC Insights, Scottsdale, Ariz. He noted that more chip suppliers that had their own fabs are deciding to either go fabless, outsourcing all chip production to foundries, or “fab-lite,” keeping some production in house and outsourcing the rest.

But, the foundries are not adding enough capacity despite the increased business. “With that happening, something is going to have to give and it’s going to be prices,” says Matas. “They will go up.”

Source: James Carbone, Purchasing

Firms in China Brace for Serious Power Shortage

With the hottest days of summer fast approaching, businesses and consumers in China are bracing for severe power shortages as the nation’s electricity grid grows more strained due to surging demand and soaring fuel prices.

An 18 million kilowatt shortfall in electricity is projected for this summer, about 5% of peak demand. That would be the second worst power shortage in history following the one that hit the nation in 2004.

South China will be hit the hardest, with an 8 million kilowatt shortfall forecast for five southern provinces and autonomous regions, including Guangdong.

“We have been experiencing blackouts one day a week since June,” said an executive of a Japanese optical parts maker in Dongguan, Guangdong Province. “We want to operate the factory every day, but small companies like us can’t afford to install private power generators.”

Source: Nikkei