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High-tech market confronts 'unique' downturn

Posted: 27 Jan 2009     Print Version  Bookmark and Share

Keywords:survival strategies  electronics industry  recession  high-tech 

As electronics sales drop and companies dust off survival plans, high-tech market executives, especially those in the semiconductor segment, are confronting a downturn like no other.

Industry experts agree that the current market downturn is not the direct result of any irrational exuberance on the part of electronic manufacturers or their supply chain partners. Unlike in the past, the market did not crater this time because component suppliers built up huge inventories, added too many production plants or relied on wildly inaccurate forecasts—all structural problems that earlier in the decade triggered massive corrections within the industry.

The culprit this time is more nuanced and largely external to the electronics industry. While high-tech companies have many options for mitigating the recession's impact, other players like national governments, banks and other fiscal players will this time determine how the recession plays out, analysts said.

"There will be at some point a return to growth, but this is not something we emerge from by introducing an exciting new electronic application, the right investments or by creating surging consumer interest in a product," said Dale Ford of market researcher iSuppli Corp. "To a large degree the future of this industry in the near time is somewhat dependent upon other factors such as governmental actions to stimulate the economy than on an individual industry segment like semiconductor."

That's because the problems facing high-tech started in the real estate sector, gathering force as it hammered financial companies before wreaking havoc on corporate IT equipment and consumer electronics demand. As government officials prepare economic and fiscal stimuli to energise spending, they are also complicating how companies can react to the situation, Ford said.

Government aid
In the United States alone, the Obama administration is considering injecting upwards of 85000 crore ($850 billion) in new funding for a wide range of projects into the economy. Similar actions are taking place in China, Europe and Japan. In Europe, governments are directly or indirectly taking over control of banking institutions in a so-far futile attempt to force banks to resume lending to businesses.

The tight credit situation will definitely affect how electronic companies respond to the current situation. Many merger and acquisition opportunities would likely go unfulfilled and some companies may fail because lenders are still unwilling to provide financing for transactions that could salvage their operations.

"The inability to access credit is changing the normal behaviour pattern. Companies might be looking for growth opportunities but there's just simply isn't the credit to act on it," Ford said. "So, instead, governments are going to be stepping in, putting in bailout packages and distorting normal market behaviour."

Even Intel Corp., the world's No. 1 chipmaker by revenue, has been blindsided by the economic weakness ravaging global markets.

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