I am currently in Moscow and will soon travel to Saint Petersburg, Russia for an EIPC printed circuit board conference. After many years of minimal investment the Russian electronics industry appears to now be in a revival mode.

While speaking at a science and education conference, Prime Minister Vladimir Putin was quoted in an August EETimes Europe article as saying, “Russia plans to put 600 billion rubles (about $25 billion) into technology-based research programs over a two-year period."

"We have never provided this sort of money for such purposes before," Putin was quoted. The money will go toward "various federal target programs in the field of high technology" from 2008-2010.

Next week I’ll report on the conference. Until then here’s some recent news and also an economic update from my colleague Ed Henderson.

North American Semiconductor Equipment Industry Posts August 2008 B/B Ratio of 0.83 ( Chart 1 & Chart 2 )

	Chart 1

	Chart 2

North America-based manufacturers of semiconductor equipment posted $884 million in orders in August 2008 (3-month average basis) and a book-to-bill ratio of 0.83 according to SEMI. Bookings were about even with July 2008’s $889 million and about 36% less than the $1.37 billion in orders posted in August 2007. The 3-month average of worldwide billings in August 2008 was $1.0 billion, about 1% less than July 2008’s $1.08 billion, and almost 37% less than the August 2007 billings of $1.68 billion.

"As we approach the end of the third quarter, orders for semiconductor manufacturing equipment remain very weak compared to 2006 and 2007 levels," said Stanley T. Myers, president and CEO of SEMI. "While there are indications of resumed spending in 2009, current economic conditions, industry oversupply and economic uncertainty have resulted in the lowest three month average order level since 2003."

Source: SEMI

Currency Exchange, Oil and Metal Price Updates

After strengthening significantly in the last few weeks the U.S. dollar slipped a bit following the recent turmoil on Wall Street. ( Charts 3 to 9 ) show historical values for the Trade-Weighted Exchange Value of U.S. Dollar plus its performance against select currencies.

	Chart 10

	Chart 11

	Chart 12

	Chart 13

	Chart 14

Intel Nehalem CPUs expected to boost substrate demand

The launch of second-phase Intel Nehalem-based CPUs (scheduled for 3Q’09) is expected to have a corresponding impact on substrate demand. Although the number of IC substrates will decrease, flip-chip substrates will increase in terms of their number of layers, while substrate area will also be larger due to the integration of several ICs.

For Intel's Lynnfield products, each chip will integrate several IC including CPU, memory controller, and GPU using a multi-chip-package design. Additionally, corresponding platform control hub chips will become more complex due to the combining of Northbridge and Southbridge functions into a single chip.

The relocation of the GPU from the Northbridge IC to the CPU package will require a change from ball grid array to flip-chip packaging.

Source: Digitimes

Softening PC demand threatens chip sector

Signs of weakening demand for personal computers, including notebooks, have prompted analysts to scale back chip projections. Manufacturers and suppliers in Asia point to a softening market for both desktop and notebook computers, highlighted by a weak back-to-school season and slowing demand in the United States and Europe.

"We re-assessed the ratings and estimates of our coverage list to reflect a more conservative back-to-school assumption, weakness in PCs [enterprise and US consumer], slower handset growth, and the potential for higher inventory to limit upside, even in an unlikely better holiday build period," Doug Freedman told his clients.

Source: MarketWatch

Economic Update

Below is the Economic Update section of Henderson Ventures’ September Henderson Market Forecast. It was released Sept. 8 (before last week’s Wall Street turmoil). See www.hendersonventures.com for details on how to get Ed's entire 26-page newsletter that includes global forecasts of electronic equipment and semiconductor markets./p>

Global Economic Growth To Slow Through 2009 (Chart 15, Chart 16 & Chart 17)

	Chart 15

	Chart 16

	Chart 17

Surprising second-quarter results A funny thing happened on the way to the second-quarter economic forum. The United States, which has been weighed down by collapsing home prices, constricted credit markets and high energy costs, had been expected to turn in a meager performance during the second quarter. In contrast, the other major developed economic countries were predicted to weather the financial storm more easily. Instead, Japan and the European Union (EU) posted sharply reduced levels of Gross Domestic Product (GDP) during the second quarter. The United States, with a huge assist from improving trade statistics, registered a rather startling 3.3% annualized increase during the quarter ending in June. But the strong U.S. rebound was not sufficiently large to keep global GDP growth from decelerating from a 3.4% annualized pace during the first quarter to 2.9% during the second quarter, as shown below.

The European Union flirts with a recession. Although the excesses in the U.S. housing market during the last two years received most of the media ink, residential housing prices in England, France, Ireland and Spain actually rose faster than those in the US during the years of frenetic speculation. But now, European prices are tumbling, and with some dramatic economic fallout. For example, Spanish retail sales fell by almost 8% during the first half of 2008. Similarly, retail sales in the United Kingdom grew at the slowest pace in 25 years. And an appreciated euro has not helped the EU export economy. For example, German GDP fell at an annualized rate of 2.0% during the second quarter as its export engine sputtered. Moreover, consumer and industrial surveys reveal low levels of confidence, particularly in Germany, the European Union’s largest economy.

Going forward, tight credit conditions, precipitated by the global banking crisis, will inhibit consumer and corporate lending. Moreover, unacceptable levels of inflation will prevent the European Central Bank (ECB) from lowering interest rates anytime soon. Those forces are expected to drive West European economic growth rates even lower in 2009. Only a 1.2% increase is predicted for next year, compared to 1.4 % this year and 2.9% in 2007.

Asia becomes even more dependent on China. Since 2002, the U.S. consumer has been the engine of growth for export-oriented economies. But US shoppers have been retrenching because a weak dollar has made imported goods more expensive. In fact, U.S. real imports have been contracting during the last three quarters, culminating with a huge 7.5 % real plunge during the second quarter. Moreover, a cheap US dollar has finally helped US exports to soar. Outgoing trade jumped by a huge 16.6 % rate during the second quarter. The downturn of U.S. imports has had worldwide ramifications, as evidenced by a 2.4% annualized drop in Japanese GDP during the second quarter. And Chinese economic growth actually fell into single digits for the first time since the fourth quarter of 2005. Moreover, intra-Asian exports are suffering, reaffirming that developing countries are not immune to the economic fortunes of the rich world.

China has reacted to the slower economic prospects by reversing economic policy. That is, high levels of inflation had prompted monetary officials to tighten credit and raise interest rates. But now, policy makers are espousing a policy of economic stimulation, despite inflation rates that are currently running in the neighborhood of 10%. Recognition of a weakening global export market has also prompted an increased concentration on domestic markets, which continue to grow rapidly.

But Chinese GDP is predicted to continue on a path of decelerating growth. After a 9.8 % increase this year, economic output is forecast to slide to 8.9% in 2009 and 8.5% in 2010. Global GDP will also decelerate through 2009. After a 3.9% jump in 2007, output will slow to 2.9% this year and 2.6% in 2009. However, a resolution of the ongoing financial crunch is predicted to be completed by late 2009, resulting in a global GDP rebound that takes world economic growth back up to 3.9% that year, as shown below.

The inflation news is good and, perhaps, bad. Crude oil prices peaked at $147/barrel during early July. As of this writing, prices were running at $108/barrel, representing a drop of about 27%. Metal and mineral prices have also been plunging. Falling commodity prices should take some of the air out of the global inflation bubble. That, in turn, will allow some central bankers to lower interest rates in 2009. While a part of the price reductions can be traced to speculators unwinding their investment positions, weak commodity prices may also foreshadow substantially worse economic conditions.

The credit crisis may not be over. There is a major risk that the subprime credit crisis will migrate to credit cards, consumer loans and leveraged loans held by hedge funds and private equity investors. That is, banks will be hard-pressed to make liquidity readily available during the next 18 months because nearly $800 billion in short-term “floating rate notes” issued by the banks are coming due. Banks will find it more difficult this time around to roll over their own loans, given their dented credit ratings, partially precipitated by a $250 billion write-down of assets held by 10 of the largest global banks. In short, major banks will be more scrupulous in their lending policies, and less generous in the interest rates offered to their customers.