PURCHASING HOTLINE
By Staff -- Purchasing, 10/19/2000 2:00:00 AM
ECONOMY
Word on the street says industrial input prices continued to stabilize this month. Purchasing's trend diffusion index tracking prices paid for raw materials prices in the prior month fell three and a half points from 65.5 to 62 this month (the diffusion index measures half reporting generally steady prices plus all reporting higher prices). Sixty percent of buyers surveyed by PurchasingMagazine this month say materials prices remain generally flat for the month while only 32% report continuing increases (down from a high of 69% last April).
If crude oil remains in the $33/bbl vicinity, then growth among the world's leading industrial economies will be cut by 0.4%, according to the Organization for Economic Cooperation and Development (oecd). oecd says oil prices at that level would cut growth in the U.S. by 0.3%, growth in Japan by 0.6% and EU growth by 0.5%. At the same time, oecd thinks consumer inflation rates would rise half a point in the U.S., six-tenths in Japan and eight-tenths in Europe.
Conference Board's index tracking consumer confidence notched up a point to 141.9 (1985=100) in September as robust employment prospects appear to be offsetting the effects of strong energy prices, higher interest rates, and weakening stock prices. Percentage of respondents characterizing jobs as "hard to get" fell to just 10.7% last month. At the same time, however, plans for buying new homes and cars-both volatile measures-fell substantially for a second straight month.
Housing market may be stabilizing as mortgage rates have fallen since spring and most analysts think the Fed will wait a while before hiking short-term lending rates again. In August, housing starts were flat as a healthy rise in single family starts offset a deep slide on the multifamily side. The National Association of Home Builders' Housing Market Index (HMI) was likewise flat in September at 161. "The fact that the HMI remained flat from last month's healthy level is a good indication that stability is returning to the housing market now that mortgage interest rates have fallen in each of the last several months, notes Robert Mitchell, nahb president and home builder in Rockville, Md.
BLS revises CPI data up for 2000. Due to a software error, the BLS was recently forced to republish its Consumer Price Index (CPI) data for January-August 2000, raising the growth rate for the first eight months to 2.7% from an original 2.6%. "Although the corrections were large enough to require re-publication, the general pattern of CPI behavior this year was little affected," the BLS said in a statement.
Final report from Commerce puts the second-quarter annualized real GDP growth rate at +5.6%. Translation: If the economy grew all year at the same rate it grew in April-June, the annual growth rate would be 5.6%. First (advance) estimate from Commerce had placed the Q2 growth rate at 5.2%. First revision (preliminary) bumped the rate up to 5.3%.
Ice-Alert releases 2001 forecast edition. While inflation reared its ugly head in 2000, next year will favor buyers, according to a comprehensive inflation outlook from the industry cost structure analysts at Thinking Cap Solutions in Port Angeles, Wash. "A slower economy combined with friendlier petroleum prices will significantly reduce inflationary pressures in 2001," TCS says. Of the 318 industries forecasted by TCS, the number expected to register price increases in 2001 drops to 180 while the number expected to show falling prices in 2001 jumps to 138. Of the 32 "core" industries tracked by TCS, only two number among TCS' top 25 inflation risks for 2001: general sawmills (SIC 2421) and plastic resins (SIC 2821). Buyers can check out the 2001 inflation/direct cost escalation forecasts for 318 standard industrial classifications by purchasing the ICE-Alert 2001 Outlook for $295. To order, contact: Elizabeth Baatz at 360-452-6159 or ebaatz@ice-alert.com.
PRICES
Expect tags for 16-bit microcontrollers to rise 2%-3% over the next three months. Reason: Demand from embedded applications is growing and supply is tightening. Contract prices range from $6 to $18 depending on the size, package and type of core.
Look for sram prices to rise slightly over the next quarter. Overall tags increased $0.05 to $0.25 between the second and third quarters. Expect the 1-Mb sram with 25 ns access time to rise from $2.30 to $2.35 between now and the first of the year.
Bad news for eprom buyers. Prices are rising. Example: The 16-Mb eprom is in the $8-$8.40 range and should rise to $9 by the third quarter of next year. Reason: Supply is limited because many suppliers have dropped out to make more lucrative flash memory.
Personal computer prices continue to fall. Unit PC sales are expected to rise 13% to 16.8 million in 2000 from 14.9 million in 1999, according to the Consumer Electronics Association. But that will trigger only a 2.4% rise in sales to $16.8 billion in 2000 from $16.4 billion in 1999. Reason: The average price for a desktop PC has been falling steadily, and is expected to hit $1,000 this year compared to $1,500 in 1995. Internet appliances, which are expected to cost half as much as PCs, could force PC prices even lower.
After 18 months of inflation and unstable availability, prices for future deliveries of some key computer components are weakening, observes Kevin Rollins, vice chairman of Dell Computer. "We're seeing some component prices soften," he told a Boston technology conference hosted by SG Cowen Securities. "As we look forward in the next quarter or two, we see this as a trend." Rollins did not specify the component categories to which he was referring, however.
Spot prices for desktop personal computer disk drives are rising because of backlog problems caused by strong demand and low inventory levels, says market analyst Dave Nebbia at necx. "Pricing on gig capacities from 4.3 all the way to 20 have gone up," he says, predicting that drives "will be under severe price pressure for some time to come."
Average spot prices for low end microprocessors have been volatile on the down side all year, ranging from a low of $71 to a high of $90, creating a year-to-date average of around $81, which is 15% below the 1999 average, says Delano Data Insights.
Recent cuts in per-minute costs for wireless telecommunications services have boosted subscriptions and average per-user revenues, according to analyst Steven Yanis at Banc of America Securities. He projects continued growth of low-cost prepaid services and says look for introduction of calling party pays (CPP) cost-sharing systems thatwill further reduce costs for subscribers.
Expect high-flying semiconductor prices to fall back to earth as the decade progresses. Cost of some memory chips has more than doubled in recent months, and supply tightness is likely to continue through 2002 until new production plants come online. "The insatiable demand for electronics and enabling components will be strong, but not strong enough to outpace the rash of semiconductor capacity expected to come online by the end of 2002 and first half of 2003," says Cahners In-Stat Group analyst Grant Johnson.
Two hundred millimeter silicon wafers continue to sell at near-cost prices, but don't expect new 300mm wafers to be priced so generously, say sales execs. Following a huge investment in capacity to prepare for a wafer shortage that never occurred in the mid-1990s, 200mm wafer prices have dropped since the end of 1996. In 1999, sales prices actually fell below cost. They've recovered only slightly this year. As semiconductor industry demand for 300mm wafers grows, producers will be reluctant to add capacity. "Unless chipmakers address the problems inherent in the wafer industry and help make it profitable to add capacity, a 300mm wafer shortage could occur, warns Jim Ellis, president of Wacker Siltronic's operations in Portland, Ore.
Commodity and components buyers will increasingly use e-marketplaces to control costs of their raw materials in years ahead, says a new study from Forrester Research. "These buyers are eager to move online," says analyst Jim Walker at Forrester Research. "Buyers will intensify competition for their existing contracts. As pricing indexes emerge, firms will adopt shorter-term, flexible contracts and will use financial products like swaps and options to control volatility." Walker says raw materials purchasers will use online venues to increase their control over upstream suppliers by intensifying competition, unbundling supply chains, transitioning to spot markets, and managing price volatility.
In the past year, prices for the aluminum sheet metal foil used to make capacitors have been rising steadily, observes industry cost researcher Elizabeth Baatz of Thinking Cap Solutions in Port Angeles, Wash. However, tags may have peaked at $1.58/lb this past summer, and now look to remain in the $1.50-$1.55 range for the next several quarters.
Prices for solid state relays will keep rising next year because of continuing strong demand from makers of telecommunications equipment, especially handheld mobile devices. Electromechanical relays are cheaper and remain the standard in the industry, but they are approaching limitations in their abilities to be downsized for ever-smaller wireless phones and appliances, says Frost & Sullivan analyst Matthew Saltz.
Personal-computer manufacturer Gateway has cut prices on two Essential brand machines to boost the company presence in the sub-$1,000 PC market. Essential 633 PCs have been cut to $799 from $899 even though the model now has a faster Intel Celeron 633 MHz processor and twice the previous memory. Essential 733 PCs featuring Intel Pentium III 733 MHz processors, 64 megabits of memory and 17-inch monitors are priced at $999, down from $1,199.
Keep an eye on thin-film capacitor tags and leadtimes. Demand is growing because some tantalum capacitor users are migrating to thin-film caps. For now tags are about three-quarters of a cent, but could move up if demand builds.
MARKETS
Bluetooth-enabled equipment will surface by the end of 2000 and will proliferate in 2001, but it will be pricey, projects high-tech market research firm Cahners In-Stat Group. Current forecasts put the manufacture of Bluetooth-enabled equipment at one billion units by 2005. Bluetooth is a short-distance wireless technology that spans telecommunications, personal computing, networking, industrial, automotive and consumer electronic devices, allowing voice and data connections up to 30 feet, or 300 feet with an amplifier. Cahners In-Stat says innovation and R+D will be needed to cut the projected high costs of early Bluetooth solutions.
Global Net commerce-both B2B and B2C-will hit $6.8 trillion in five years, up from $657 billion this year. Forrester Research forecasts that the U.S., Canada and Mexico will continue to represent a majority of this trade ($3.5 trillion in 2004). However, the researchers see hypergrowth in the Asia-Pacific region (to $1.6 trillion), Western Europe (to $1.5 trillion) and South America ($82 billion). Firms already are investing as much as 20% of their total information technology spending on Internet-enabling services, personnel and solutions, according to high-tech research firm Cahners In-Stat Group.
Global personal computer sales will grow 15% in 2000, say marketing executives at Hewlett-Packard and Dell, despite a summer slowdown in European corporate demand. Research firms and analysts believe desktop, laptop and notebook PC revenues and unit sales will also show double-digit growth rates in the third and fourth quarters of this year and well into first half 2001. However, growth in world desktop computer shipments is slowing, says Thomas Chang, vice president of PC chip supplier Mosel Vitelic in Taiwan. Chang believes that desktop PC sales, which surged 22% last year, will slow to 16% in 2000 and 7%-8% in 2001.
Expect an explosion in Web purchasing by consortiums of brick-and-mortar companies (coBAMs) as early as next year. With significant funding, instant liquidity and unmatched domain knowledge, analysts see a significant level of transactions in coming months. Jon Ekoniak at U.S. Bancorp Piper Jaffray says, "CoBAMs are prepping to become a major Internet procurement presence very soon because they have spent this year forging supply partnerships, getting capital committed and building technology platforms."
The global semiconductor market will grow 35%-40% this year, says Jean-Philippe Dauvin, chief economist for STMicroelectronics, Europe's biggest chipmaker. Previously, Dauvin had projected 30%-34% growth in 2000 chip sales. He says his growth outlook for 2001 is unchanged at more than 30%. The economist raised his forecasts, he says, "because of` stronger-than-expected demand for digital consumer products and mobile phones." His estimate is higher than the Semiconductor Industry Association's consensus, which has global chip sales rising 30% to $195 billion this year.
Outsourced contract print services are estimated at $20 billion this year by consulting firm CAP Ventures, which projects a future compounded annual growth rate of 16%.
Cellular telephone sales worldwide will be 1.29 billion units/year by 2004, forecasts Cahners In-Stat Group, compared to 399 million this year. Analog phones and most early digital phones support only voice transmissions, notes analyst Allen Nogee. "Now, for millions, the mobile phone is their Internet access device. As phones, data will play a much greater role and some phones will incorporate personal digital assistant (PDA) functionality." Atop that, Nogee says customers are demanding smaller phones and are willing to pay price premiums. Upshot: In terms of sales revenues, the global wireless market will grow to $131.5 billion by 2004 from $38.4 billion in 1998.
Global market for liquid crystal display glass is expected to grow 40% per year through 2002 from around $1 billion in 2000 sales, says fiber optics firm Corning. The LCD glass is used in computers, Internet and communications appliances.
Direct materials procurement on the Web is being recognized as a larger, yet substantially more complex market than indirect procurement. According to the Gartner Group, B2B e-commerce within extranet and private marketplace environments will represent 50% of the total B2B market by 2004. Commerce One estimates that purchasing of production materials represents 60% of the overall future B2B market.
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