Outlook is brighter in 1999
By James Carbone -- Purchasing, 12/10/1998
Nineteen-ninety-eight was a tough year for many electronics distributors. Falling prices for electronic components resulted in flat to down years for many resellers. While lower prices are good news for buyers, it has caused much hand wringing among distributors.However, Distributors got some encouraging words about 1999 at the recent National Electronics Distributor Association Executive Conference in Chicago. Joseph Grenier, vice president of market researcher Dataquest, forecasts that semiconductors will rebound to positive growth in 1999.
He says while the semiconductor market fell 5.9% in 1998. The decline was due to lower growth in electronic demand and downward pressure on chip prices. Semiconductor tags fell because of overcapacity in the industry resulting in intense competition. In addition, prices for end equipment such as PCs also fell.
Grenier says that electronic-equipment demand should pick up in 1999 and supply and demand will be more in line although there will still be overcapacity for much of the year. He forecasts that the semiconductor industry will grow nearly 12% in 1999. Longer term, the outlook is even better. In the year 2000, the chip market will grow 22% and 23.5% in 2001.
Next year will also mark the first year when the dram market posts positive growth. In 1998, the dram market fell to just $14 billion from about $20 billion in 1997. In 1995 the dram market was $42 billion. Grenier says that dram prices will firm in 1999 and the market will grow 30% to $19 billion. Again, the long-term outlook for drams is bright. Grenier forecasts the dram market will grow 72% in the year 2000 and 62% in 2001.
He says restructuring that has occurred in the memory industry will bring supply more in line with demand. TI sold its dram business; LG Semicon, and Hyundai merged; and Motorola has left the market altogether. However, even with the restructuring and a pickup in demand for computers, there will be overcapacity for most of 1999, but not as much as in 1997 and 1998. Grenier forecasts undercapacity for the year 2000 and 2001 with shortages occurring. Overall semiconductor growth will be slower than in previous growth cycles.
Distributors also heard a presentation on the growth in importance of electronic commerce and how it will affect their businesses. Resellers were told that the Internet will soon become a necessity in order to do business and be successful. Most distributors have Web sites and many have the capability to do online purchasing. But actual sales are very low.
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