Times are tough to say the least. Domestically the September ISM “Purchasing Managers’ Index” graphically depicted the extent of the U.S. manufacturing slowdown ( Chart 1 ). In a recent Nikkei news article Masayuki Oku, president of Sumitomo Mitsui Financial Group predicted that the fallout from the U.S. financial crisis will eventually engulf newly emerging markets, with the global economy not recovering till around 2011.

	Chart 1

North American Electronics Equipment Production

From a final assembly standpoint North America produced $431 billion of electronic equipment in 2007 ( Chart 2 ), about 25% of the world’s $1,700 billion. However, this is “final assembly” production value, where the “produced” equipment is often assembled simply using a screwdriver and imported electronic sub assemblies. From an “electronic assembly” (components soldered on board) position (based upon chip consumption), North America made only about 17% of the world’s electronic equipment.

	Chart 2

The U.S. share of North America’s “final electronic assembly” was $377 billion in 2007 ( Chart 3 ). Government/military electronics is approaching the United States' largest product.

	Chart 3

Source: SEMI

U.S. Electronic Equipment Production

Based upon the U.S. DOC’s recent “Factory Orders” report, domestic electronic equipment shipment growth slowed to +2.9% and order growth to +1% in August ( Chart 4 ).

	Chart 4

Using the seasonally adjusted DOC data, orders were slightly above shipments ( Chart 5 ) with a book/bill ratio of 1.03 in August ( Chart 6 ). However, as I pointed out a few months ago, this DOC “adjusted data” may be too optimistic. Comparing non-adjusted and seasonally adjusted orders ( Chart 7 ), it would appear that the DOC’s seasonal adjustment factors need review. While seasonal adjustments should merely smooth the monthly data, the real and adjusted full year totals should be close. In 2008 it appears that the adjusted orders may be too high by about $3 billion/month – a substantial amount!

	Chart 5

	Chart 6

	Chart 7

( Chart 8 ) shows “adjusted” monthly orders by major category (search & navigation, electromedical, measure & control, communication and computer) while ( Chart 9 and Chart 10 ) show military electronics and automotive shipment performance.

	Chart 8

	Chart 9

	Chart 10

Inventories are climbing slightly vs. orders (Chart 11 and Chart 12 ) with a strange large increase in “work in process” ( Chart 13 ).

	Chart 11

	Chart 12

	Chart 13

Global Semiconductor Shipments

	Chart 14

	Chart 15

	Chart 16

	Chart 17

North American Printed Circuit Boards

The IPC’s N American rigid PCB book/bill ratio ( Chart 18 ) has been “under water” for most of 2008. In general both orders and shipments are below similar months in 2007 ( Chart 19 ) as PCB order growth has slipped well into negative territory ( Chart 20 ).

	Chart 18

	Chart 19

	Chart 20

Looking Forward

The hoped for 2009 “recovery” now looks to be muted at best. How quickly the world recovers from our current economic mess is uncertain but I expect continued challenging times.

Here’s some other recent news:

"Perhaps the only good to come out of the economic downturn is that DRAM players will lack the cash to over-invest, thus curbing supply growth," said iSuppli's Nam Hyung Kim.

Kim said that some DRAM companies will face serious liquidity issues in the near future, based on the pace of their cash burn and the maturation of their short-term debt. "Amid weak market conditions and the credit crunch, cash management has become the most critical issue facing DRAM suppliers," he said. "This will have the impact of reduced capital expenditures among DRAM suppliers in early 2009."
Source: Electronic News

DRAM Cutbacks to Reduce Worldwide Production 5-6% by the End Of October

PSC, Elpida, and Hynix announced production cutbacks that will result in worldwide production being reduced by 5-6% by the end of October, according to DRAMeXchange.

SIA Cautious About Near-Term Industry Outlook

Worldwide sales of semiconductors grew by 5.5% to $22.7 billion in August from August 2007. Sales grew by 2.4% from July 2008. Year-to-date sales through August were $170.2 billion, an increase of 4.5% from the same period of 2007.

"Global sales of semiconductors remained strong in August," said SIA President George Scalise. "Sales of personal computers and cellular handsets continued to be the principal drivers of demand. Continuing price pressure on DRAMs and NAND flash memory dampened overall industry growth. Excluding memory products, industry sales were up by 11.4% year-on-year in August. Year-to-date sales were 4.5% ahead of last year and remain in line with the SIA mid-year forecast of 4.3% growth in 2008," Scalise continued.

Caution for Future

Semiconductor makers have turned cautious about year-end sales, amid worries the global financial crisis is hurting consumer confidence and could put a dent in holiday sales.

"At this point we don't have any hard data to go on as to how much consumers are going to open up their wallets," said John Greenagel of the Semiconductor Industry Association.

Regarding the $700 billion bailout of the U.S. financial sector, Greenagel noted "With restoring confidence or maintaining consumer confidence, we would enter the strong-selling quarter for our industry in good shape. If that is done, and consumer confidence remains, we are on track for a decent year."
Source: SIA & Reuters

PC demand slipping broadly; Falloff started in China in August - Mercury Research

PC demand started falling in emerging markets including China in mid-August and has been on the decline globally most of September, adding a major economic headache for the electronics industry to the existing U.S. financial worries, according to Dean McCarron of Mercury Research.

"We won't know all the details until companies start reporting their financials, but right now I am considering cutting my fourth-quarter forecast in half," said McCarron.
Source: EE Times

Supply Glut Pushes Down LCD Prices

The accumulation of inventory, coupled with a supply glut, are likely to put further downward pressure on LCD display prices toward the end of the year now that deepening economic gloom worldwide is dampening consumer demand for personal computers and home appliances, according to projections by Nikkei Inc.

Toward the end of the year, oversupply worries will also gradually drive down prices of DRAMs for PCs and other memory devices.