Orders decline

Staff -- Purchasing, 2/17/2005

Business is usually weak in the electronics industry in the first quarter. Last year was a rare exception when strong fourth-quarter demand from 2003 carried over through the first quarter and into the second quarter.

But in 2005, the first quarter looks like it will follow the historical pattern, according to PURCHASING magazine's monthly survey of business conditions.

The Business Activity index for electronics fell to 52.6 in January. That's more than five points lower than the 58.3 index level of December and substantially lower than in November when the index registered a robust 66.9.

The seasonal slowdown is also affecting inventory levels. Only 28% of buyers polled say they are building inventory levels. In December, 42% said they were increasing stockpiles.

Weak demand for end equipment in the first quarter will mean that prices will be flat. A hefty 69% of survey respondents forecast that semiconductor prices will be stable over the next 30 days. Only 9% said prices will rise and 22% believe tags will decline.

However, in the longer term, buyers expect prices to increase as demand picks up in the second quarter. Thirty-nine percent say chip prices will increase in 90 days, while only 36% believe prices will be stable.

However, while there may be some price increases, they will be minimal.