General business conditions

Citation

Custer, W. (1999), "General business conditions", Circuit World, Vol. 25 No. 3. https://doi.org/10.1108/cw.1999.21725cab.021

General business conditions

USA

General business conditions

Factory orders jumped 2.3 percent in December ­ their biggest gain since November 1997 ­ to a seasonally adjusted $343.5 billion after a meager 0.4 percent gain in November. But for all 1998, orders for manufactured goods rose 2.1 percent to $4.03 trillion after a 5.4 percent rise in 1997. Last year's increase was the smallest since recession year 1991, when orders actually declined 2.3 percent. Electronic equipment orders were stronger ­ up 10.6 percent for the year and up 2.9 percent for the month (December 1998 versus November 1998).

The Electronic Buyers' Index (EBI) registered 48.0 in January, up from 46.9 in December.

Although the latest EBI reading was sub par, the rate of contraction stabilized in January ­ a seasonally weaker month versus December. Analysts believe that market conditions bode well for the industry in 1999. The EBI leading index, whose readings have preceded the EBI by three to four months since the report's inception in 1988, read 59.8, down slightly from 60.3 in December. An index value greater than 50 indicates growth.

Electronic equipment

Bill Gates told world economic experts that personal computers will continue to drive the globalization trend in businesses. Gates highlighted strong PC penetration and rapid Internet adoption as the key forces spurring the expansion of international business. Gates pointed out that PC shipments to many European markets are currently outpacing demand in the USA, with some markets seeing a greater than 20 percent increase in shipments last year. The executive pointed in particular to an initiative in Sweden where the government and several participating companies are offering PCs for home use to employees at a discount. As incentives for this program, employees are offered a combination of pre-tax deductions from earnings and the ability to spread payments for their computer over a three-year period. As a result, home PC penetration in Sweden has jumped from 31 to 45 percent, Gates said. He also pointed to the worldwide trend of falling PC prices and the growth in Internet shopping this past holiday season as indications of the continued momentum of the PC industry.

The disk drive industry should rebound in 1999 from a terrible 1998 that saw industrywide revenues drop by almost $2 billion, according to Paul Fox of NationsBanc Montgomery Securities. "Last year was one of the worst years in the history of the disk drive industry with demand shocks and excess supply leading to dramatic product declines. In 1999, I expect to see robust revenue growth of more than 20 percent compared to last year's decline," Fox said. Fox noted that while total shipments of disk drives rose 14 percent to 139 million in 1998, total revenues fell 7 percent to $25 billion, reflecting the intense pricing pressure that affected the industry last year. In 1999, Fox is forecasting unit growth of 25 percent to 174 million units and revenue growth of 21 percent to $30.3 billion.

The worldwide personal computer industry grew 15 percent last year, led by strong demand in the USA, where 37 percent of all households are now connected to the Internet, according to Dataquest. Worldwide, Compaq remains the No. 1 seller of PCs, shipping 12.8 million computers in 1998 to gain 14 percent of the market. IBM kept the No. 2 position with 8.2 percent of the market, but Dell Computer decreased the gap, growing 65 percent in 1998 to account for 7.9 percent of all PCs shipped. Hewlett-Packard finished the year as the fourth-largest shipper of personal computers, with 5.8 percent of the market, and Packard Bell NEC was fifth with 4.3 percent.

Motorola revised the fourth quarter order increase for its cellular-products segment to 17 percent from 13 percent saying it has experienced a rise in cellular-subscriber orders for the quarter. Motorola said such orders were "significantly higher in the Americas, higher in Europe and higher in Asia" than orders placed during the same period a year earlier.

Printed circuit boards

Merix sold its Soladyne facility in San Diego, California to Tyco Printed Circuit Group, a subsidiary of Tyco International. The sale of Soladyne is part of Merix's restructuring plan announced in August 1998, which was undertaken to improve capacity utilization and lower the Company's cost structure. Merix accounted for the sale or closure of Soladyne as part of the $30 million restructuring charge taken in the first quarter of fiscal 1999. The financial terms of this transaction are not being disclosed. "We are very pleased with the successful divestiture of the Soladyne facility", stated Debi Coleman, Merix chair and chief executive officer. "We believe Tyco is an excellent choice for both the customers of Soladyne and for the employees of the facility." Soladyne operations will continue in its leased 37,000 square foot fabrication facility.

Assembly

Solectron completed its acquisition of IBM's Electronic Card Assembly and Test (ECAT) operations located in Austin, Texas. Financial details were not disclosed. As part of the transaction, Solectron will lease a manufacturing facility on IBM's Austin campus and within three years, merge the operations into Solectron's newly expanded Austin campus. In addition to gaining 405,000 square feet of manufacturing capacity, Solectron assumed certain assets, including equipment and inventory, and offered employment to approximately 1,300 IBM design, test and manufacturing associates. With this agreement, Solectron will be IBM's exclusive provider for printed circuit board assembly for motherboards used in IBM's mobile products manufactured worldwide for the next three years. The companies have also signed agreements governing intellectual property rights and Solectron will gain access to more than 100 of IBM's patents covering a wide spectrum of technologies and capabilities included in the design and manufacture of notebook motherboards.

SCI Systems will consolidate its Watsonville, California activity with those of its Rapid City, South Dakota and San Jose, California plants during April of this year. The Watsonville operation, one of the Company's smaller plants, was acquired several years ago from the former Tandem Computers.

C-MAC reorganized its activities into two major divisions: C-MAC Interconnect Products Division which includes the former Interconnect Division, the Assembly Division and some recently acquired facilities; and C-MAC Microcircuits & Frequency Products Division which includes the activities of the former Microcircuits Division and Frequency Products Division.

Semiconductors

After a severe 18-month downturn, the semiconductor industry has rebounded and is in the early stages of a two-to-three year recovery, according to Jonathan Joseph, senior semiconductor analyst for NationsBanc Montgomery Securities LLC. Joseph said that at this stage of the cycle, semiconductor companies are shipping products faster than they are adding new production capacity, which is a "very good sign" of the industry's health. The growing markets for personal computers and network communications equipment are driving the rebound in the semiconductor industry, Joseph said. PCs account for 55 percent of semiconductor shipments, while demand for communications components is expected to grow at a 20 percent compound annual pace.

In the memory market, where most of the over-capacity problems have occurred, prices have been firming, Joseph said. While increasing demand is absorbing current production capacity, Joseph believes that the industry may actually be headed for a production shortfall as another aftershock of the Asian financial crisis. "We could have a severe shortage of memory in 2000 if the Japanese and Koreans don't start spending on new fabrication facilities", Joseph said. However, the Japanese and Korean companies will have a hard time financing the new facilities, which typically cost several hundred million dollars each, and there are no other new players coming into the market to pick up the slack.

Intel's 4Q'98 profits rose 18 percent helped by strong demand for its pricier microprocessors. However, it cautioned that revenue in the current quarter should drop from fourth-quarter levels due to a seasonal slump in sales of personal computers that typically follows the holiday buying season.

Walt CusterMorton Electronic Materials. Tel: +1 714 730-4369; E-mail: America Online waltcuster@aol.com; Compuserve 72431,2361; Internet wcuster@mindspring.com or wcuster@dynachem.mortonintl.com