What's Happening in High-Tech Supply Chains
By Staff -- Purchasing, 2/21/2002
- The semiconductor supply chain may be on the verge of eliminating its massive inventory glut. Insiders suggest the value of excess chip inventories will end this quarter at $1.6 billion, down from $13 billion one year ago. When stocks will meet or fall below industry requirements is unclear, though, since they are falling at a slower pace than analysts had expected.
- Semiconductor equipment sales will fall again in 2002, according to market forecasters. Purchases from domestic manufacturers fell 35% last year to $17.9 billion from $27.6 billion in 2000. Analysts say 2002 purchases from U.S. producers will drop at least 25% to around $13 billion.
- Watch for more mergers among wireless semiconductor suppliers now that Alpha Industries and Conexant are blending wireless chip operations. As growth in wireless handset sales remains slow, smaller wireless chip firms will be looking to march down the aisle to compete against top tier players, says analyst Dale Pfau at CIBC Capital Markets. "It was a brutal 2001. Too many players added factory capacity just as demand slowed," Pfau says.
- Whether a new upgrade cycle for personal computers will occur in 2002 is a major question for the hardware segment. The last major business upgrade cycle occurred from late 1998 through early 1999, meaning that 30% of business desktops and 25% of laptops in use are three or more years old. Typically, companies replace PCs every three years, so a buying cycle should be commencing. Still, Jim Schneider, Dell Computer's chief financial officer says it's difficult to predict when pent-up demand will translate into orders because curbed technology budgets may be pushing business customers to extend the lives of their old PCs.
- Demand growth for fiber optic cable slowed dramatically in mid-2001, creating an inventory surplus that is depressing 2002 prices, according to KMI Research of Providence, R.I. Analyst Patrick Fay says purchasing will remain weak through 2002, which will force fiber optic cable makers to cut production if they want to put a floor under prices. His analysis shows that North America use of fiber optic cable slipped from 40 million kilometers in 2000 to 30 million km in 2001. Fay forecasts further slippage to 25 million km this year.
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