Tag Archives: Supply Chain

Sales Up, Profits Down

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Another round of EMS quarterly reports came out today, as LaBarge and SMTC provided their numbers. Now that the bulk of the major EMS companies have reported, the picture is pretty clear that first quarter revenues were up fairly broadly but profits took a hit.

This is unfortunate, of course, because the margin-sensitive EMS industry relies on leveraging higher sales to drive incremental profit gains.

Based on the consensus forecasts, expect second-quarter revenues to be generally flat, with pressure on margins because of higher component costs due to supply constraints.

Time to Panic?

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Anecdotal reports indicate some manufacturers are purchasing larger-than-needed amounts of raw materials and certain components out of concern for supply availability in coming months. This is all tied to the shortages brought on by the earthquake and tsunami in Japan.

In the near-term, I expect analysts will be a bit confused as to what’s real demand and what’s over-ordering. Something to watch.

 

A Sad Cure for Inventory Glut?

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If there is a silver lining from last week’s devastating earthquake in Japan, it could be that component inventories will be dwindled, thus relieving the industry of a possible oversupply problem.

Many chipmakers and others are saying the quake will hurt their ability to produce and supply parts for one to two quarters. TI, Freescale and Toshiba are among those who have closed or reduced production at their Japanese factories.

Research firm iSuppli of late has been warning of possible overinventory situation, and no one needs reminding of the pain involved to drain an oversupply glut. As of Dec. 31, semiconductor suppliers held 83.6 days worth of inventory (DOI), up 5.5 days sequentially. The last time the DOI was this high was June 30, 2008, or just before the last semiconductor downturn, iSuppli says.

It’s just possible, however, that the forced shutdowns could ease some pricing pressure and concerns for a correction as assemblers burn through existing inventories.

This much is clear: spot prices for memory and certain other parts are bound to rise in the near-term. If Japan can’t bring its factories back online soon, they may even stay there.

 

 

Good Fiction

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Ian Fletcher (not to be confused with the scribe behind the James Bond novels) yesterday wrote about the problems with American manufacturing.

Whereas I agree with his larger points — manufacturing output does not necessarily measure manufacturing health — there’s a couple of problems with some of his supporting evidence.

For one, there’s his contention that because Japan supplies “over 70 percent of the world’s nickel-metal hydride batteries and 60-70 percent of the world’s lithium-ion batteries,” it give the country “a key advantage in electric cars.”

Well, maybe. Being a supplier of a critical commodity or technology does not, history shows time and again, necessarily translate to ownership over the end-market. Labor and other ancillary costs have a tremendous affect on the procurement decision tree. China, of course, had no real technological advantage over Japan, Taiwan or the US in printed circuit boards. It just had loads of cheap manpower, and a government so eager to build its tech base that it moved land and sea (sometimes literally) to make it possible.

Which brings us to nit No. 2. Says Fletcher: “The Obama administration shows no awareness of any of this, despite scratching a hole in its head over why job creation has stalled. (Hint: it hasn’t stalled in the nations, from China to Germany, running trade surpluses with us in manufactured goods.)” No, unemployment hasn’t stalled in either country, but for reasons other than what Fletcher asserts. China, of course, has an abundance of cheap labor that no country save India can match. In Germany, on the other hand, the unemployment rate is 6.8%, which is better than in the US, but hardly great relative to classical standards. As recently as 2004, it was 9.7%, after which Germany enacted a series of financial reforms. The nation now stands as the financial bedrock upon which lies much of the rest of the beleaguered European Union. Given that, I would argue that Germany ability to position itself financially, rather than any politically driven manufacturing strategy, is at the core of its current export success and employment stability.

Finally, Fletcher ignores a far more significant data point: Japan. Japan’s economy is some 60% larger than Germany’s, and its internal manufacturing supply chains are legendary. Its unemployment rate was 4.9% in December, which appears stellar, until one realizes that figure is 188% higher than the nation’s average from 1953 through 2010. Its GDP is on a roller coaster, having contracted in the December quarter. Yet it runs a $45 billion trade surplus with the US. Here, Fletcher’s contention that trade surpluses and manufacturing supply chains go hand in hand with job creation falls on its face.

Fletcher is on the right track, but some of his supporting details are closer to the James Bond series: good fiction.

Gartner Survey Says CIOs Finally Get Cloud

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Gartner just released a survey of over 2,000 CIOs representing more than $160 billion in spending, across 50 countries and 38 industries. Cloud computing was a leader on the list of CIO’s 2011 technical priorities. Why cloud? For trust, money, and a whole bunch of other reasons. (See our previous post that identifies 7 benefits of SaaS.)

Supply chain data management by cloud is not a new concept. It makes sense, because a supply chain involves different locations, different timezones and uniquely permissioned auditors. Since almost everything in a company that makes anything at all has a complicated supply chain, it was only a matter of time before the average enterprise Information Officer would catch onto the cloud. Why now?

Trust. In addition to selecting cloud computing as a top priority, CIOs responding to the Gartner survey expected to adopt new cloud services quickly, reported the esteemed tech journal CMSWire. Currently, only 3% of organizations operate most of their IT in the cloud or on a software as a service (SaaS) platform. Over the next four years, 43% of CIOs want to transition to a cloud dominated infrastructure.

Look out, cloud technology providers!

The Gartner survey indicates that cloud computing is moving into the mainstream. Cost savings and rapid technology adoption that cloud offers are two very compelling motivations for this. Also, most people are using the cloud now in their private lives (banking, social networks, remote desktop access, email accounts, SaaS services…) which has boosted general trust in the paradigm and product lines.

Money. CIOs expect cloud technologies to liberate 35% to 50% of infrastructure and operational resources.Fifty percent  is a very high number. Heck, 35% is a high number. According the the Gartner IT survey, CIOs’ 2011 business priorities include:

  • Reducing enterprise costs
  • Improving business processes
  • Improving operations
  • * Attracting and retaining new customers.

Cloud technology surely empowers three out of four initiatives listed there. (As for the other, an argument could be made that cloud technology helps with attracting and retaining new customers, but it would be an argument, not a fact.)

Adoption. As CMSWire aptly reported in its story on cloud technology: The Gartner survey suggests that IT will be changing dramatically over the next few years. IT changes will be driven by technology that was recently considered “too cutting edge” for wide-spread adoption. CIOs will be consistently challenged with supporting growth while reducing cost and improving operational efficiency. Cloud technology answers the challenge.

Cloud, ASP, SaaS, on-demand, Web-based and Online. Cloud solutions for supply-chain management are usually called SaaS, some are still called ASP. Other terms include on-demand, web-based, and online applications. While a die-hard IT director will argue that all these things are not actually, pedantically “cloud,” for all intents and purposes, they are.

Any application served up over the Internet is what people and journalists mean when they say “cloud.” And we all have to get used to it. And here at this blog, we’re okay with that. Apparently CIOs talking to Gartner are too.

To keep up, we’ll spend more time watching the clouds.

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