Five ways manufacturers prepare for recession
The electronic component industry has grown accustomed to a period of heightened demand as shortages have plagued supply and driven up pricing. Now that inflation and the global economic downturn have begun to impact consumer behavior, the market is experiencing declines across numerous verticals. The changes in forecasts for the remainder of the year and predictions for Q1 of 2023 are pushing semiconductor manufacturers to brace for recession.
Author: Luke LeSaffre, Chief Revenue Office, Fusion Worldwide
Recessions usually mean less trade and industrial activity, which negatively affects revenue. However, the cyclical nature of the semiconductor business can aid in building successful strategies. The businesses that can fall back on tried-and-true techniques during times of decreased demand are better prepared to protect their revenue.
Examining and implementing the strategies of the industry’s biggest manufacturers can help prepare your business to weather reduced demand.
Market smarter, not harder
When consumers are buying cautiously, it's imperative to target the right marketing channels and not waste revenue on poorly placed ads. Keeping a laser focus on targeted audiences is the best use of your marketing dollars.
In Q3 of 2022, Allegro formed OEM-focused business development teams to work directly with customers to solve supply chain challenges. During this time, they noted Japan had particularly strong demand within the automotive OEM market.
Due to their market observations, Allegro announced that they would specifically focus on increasing Japanese customer engagement via a new go-to-market approach targeting the demographic directly. By implementing a deliberate marketing plan, Allegro hopes to increase demand for products in the area that will provide the most returns.
Make informed investments
Throughout the pandemic, manufacturers announced expansion plans aimed at easing pressure on production. Now that consumer behavior has shifted and revenue for Q3 failed to meet expectations, development plans and investments are being deferred or paused.
SK Hynix announced a 50% reduction in their 2023 capital expenditure budget. The cutbacks centered on infrastructure and equipment since ramp-up plans would be unnecessary in the current demand climate. The company also plans to somewhat reduce investments in wafer capacity and will delay tech migration until the budget can support new equipment purchases.
Restructure where possible
While some may advise against taking this time to experiment, there is a way to run trials that could translate to returns when consumer spending rebounds.
Seagate instituted a restructuring plan to lower costs, mainly through decreases in the global workforce, plus fab utilisation and production cuts.
Simultaneously, Seagate strategically planned to run small-scale experiments to test best practices for future acceleration. The main goal of this project was to see how they could efficiently increase production on 30-terabyte platforms, as Seagate has forecasted significant growth within this market.
When demand softens, it’s important to focus on market hot spots to maximise profit and pull back production in areas with weaker demand.
Intel announced it would make portfolio cuts to eliminate redundancy with legacy products and would reallocate manufacturing capacity to commodities with higher returns and growth potential.
Similarly, onsemi has opted for a fab-lighter strategy to reduce overhead costs and bring in additional revenue. In Q3 2022, onsemi completed the sale of an 8-inch fab in Idaho and planned to finalise the sale of a 6-inch fab in Niigata, Japan. onsemi was able to forecast where demand was highest and pivot production to better serve their customers, plus the revenue earned from the sales helped offset losses.
Don’t panic, prepare
Recessions are an inherent part of the supply and demand cycle, which is why every business should have a plan in place so they can prepare, not panic. By taking notes from semiconductor manufacturers, those in the electronic component industry can be better prepared to ride waves of downturn.
Luke LeSaffre joined Fusion Worldwide in 2011 as a Sales Representative and assumed the role of Sales Manager in 2018 after several consecutive years of steady sales growth. In 2021, he was named the Vice President of Sales of the Americas region and has since been promoted to Chief Revenue Officer.