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Electronics Production | March 17, 2009

Is the downturn being underforecast for the EMS industry?

You might remember that after the post Y2K industry recession, there was a lot of agonizing about inventory. The downturn caught OEMs off-guard, and inventory piled up because most supply chains were run under a forecast model, which was focused on leadtimes.
Since then, the focus has changed, and with more sophisticated ERP tools, OEMs have become more opportunity focused, meaning they have better and more responsive supply chains. This will result in a different outcome now that demand has fallen off a cliff in the three C's of electronics end markets: consumer, communications, and computer.

Remember, inventory is not an asset, in spite of the way it is reported by the accountants. Electronic components do not age well.

Bottom line: I'm not sure we're anywhere near the bottom in terms of the net impact of this downturn on the supply chain. It won't be as bad for the OEM this time, but it could be bad downstream for those suppliers that are not prepared, said Mr. Charlie Barnhart.

I also believe the downturn is being underforecast. Numbers like -9.9% or -10% seem to me to fall short of what we are really seeing. Some OEMs are announcing they are down 50% over the same quarter a year ago. One company said it's off 80%. These are big numbers. Overall, the industry is bound to be down more than 10%. And that impact will be further downstream. We should be prepared for some less publicized agony, some quiet catastrophes as the EMS industry grapples with these challenges.

Image Source: Elcoteq

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