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Economic winds may dampen electronics growth

Posted: 10 Jan 2008     Print Version  Bookmark and Share

Keywords:electronics growth  recession  data processing  wireless communications 

Despite various predictions of a robust global growth this year for the electronics equipment market driven by strength in the data processing and wireless communications markets, prevailing economic winds seem to dictate otherwise.

It's not that the electronics industry is immune to pressures building up in the U.S. economy, where troubles in the real estate and financial markets helped push up the unemployment rate to 5 per cent in December, a two-year high.

In fact, observers say the electronic sector is becoming increasingly exposed to events within the larger manufacturing and service economies due to increased adoption of electronic systems to boost productivity.

Still, total worldwide electronics equipment revenue is forecast to rise 7 per cent in 2008, to Rs.6,316,540 crore ($1.6 trillion), beating the 6.8 per cent growth rate recorded in 2007 when revenue rose to Rs.5,882,280 crore ($1.49 trillion), according to iSuppli Corp.

In the semiconductor sector, although most forecasts call for flat to slightly higher sales growth in 2008, the microprocessor market is seen expanding strongly on surging notebook shipments, according to Doug Freedman of American Technology Research.

Freedman expects MPU unit growth of 11 to 13 per cent in 2008, and forecasts notebook unit sales will surge 25 per cent from the 2007 levels to a possible high of 15.5 crore units.

"Notebook growth should continue to drive overall solid results for PC supply chain companies as the transition crosses over the 50 per cent barrier as a percentage of units in late 2008," Freedman said in a research report.

"We believe lower memory prices enable OEMs to enter lower-priced segments of the market with stronger performing PCs, along with providing the flexibility to continue adding content to the above-Rs.39,478.39 ($1,000) notebook unit without increasing average selling prices," he added.

Recession fears
It's hard to match the optimism with other data from the larger economy. Recession fears grew over the last few days as the latest unemployment numbers point to growing weakness in the United States.

David Rosenberg, an economist with Merrill Lynch & Co. Inc., is convinced the U.S. economy already slid into a recession late in 2007, an assessment already offered by Bill Gross, manager of Pacific Investment Management Co., the world's biggest bond fund PIMCO Fund.

Last week's "employment report strongly suggests that an official recession has arrived," Rosenberg said. He expects the downturn to last about 10 months ending sometime in Q4. Technology analysts say the weakness noticed by economists is already creeping into the electronics industry.

Although still optimistic about the market, Glen Yeung, an analyst with Citi Investment Research warned that "pockets of weakness" are showing up in the PC segment, further putting pressures on Intel Corp., which has seen significant pressures on its stock price following several downgrades over the last few weeks.

Yeung noted, though, that Intel should have no problems meeting the consensus analysts' revenue estimate of Rs.42,794.57 crore ($10.84 billion) for the 2007 fourth quarter. Revenue in the March quarter is seen sliding sequentially to Rs.39,438.91 crore ($9.99 billion).

Market hope
Any weaknesses in the PC market or even the consumer electronics segment should be easily offset this year by growth in the data processing and wireless communications sectors, according to iSuppli estimates.

The data processing market is considered especially hot, buoyed by the need within all segments of the global economy to take advantage of the productivity benefits expected from increased Internet use and the resulting automation of services and processes.

After leading the industry with a solid 8.6 per cent growth spurt in 2007, up from 8.3 per cent in 2006, the data processing market is forecast to deliver a blazing 9.9 per cent revenue increase in 2008, to Rs.1,861,800.87 crore ($471.6 billion) from Rs.1,694,807.28 crore ($429.3 billion) the previous year.

In 2007, iSuppli estimates the data processing market represented 28.7 per cent of the global electronics equipment market, followed by the consumer sector, which accounted for 23.3 per cent (Rs.1,374,242.76 crore ($348.1 billion)) of the industry revenue and the industrial segment with sales of Rs.1,254,623.23 crore ($317.8 billion), or 21.3 per cent of the total.

The wireless communication equipment market is also seen growing strongly this year although the sector won't expand as rapidly as it did in 2007 and 2006 when it climbed 7.7 per cent and 9.3 per cent respectively.

For 2008, iSuppli is predicting global wireless equipment revenue of Rs.894,185.53 crore ($226.5 billion), up 7.4 per cent from Rs.832,836.12 crore ($210.96 billion) in 2007.

Sales in the wired communications equipment market will continue to trend down, according to the researcher, which estimates revenue growth of 2 per cent in the sector for 2008, down from 4.4 per cent in 2007.

Automotive is seen growing strongly, though. The sector will expand 5.5 per cent in 2008 to nearly Rs.382,940.38 crore ($97 billion), building on a 5.3 per cent revenue increase in 2007, up from 1.9 per cent in 2006.

The wild card, of course, remains the U.S. economy. If global economic growth sputters, the electronics equipment market could dive into negative territory, prompting everyone to issue a more temperate year-ahead forecast.

- Bolaji Ojo
EE Times




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