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Concerning News Emulating Across Consumer and High Tech Electronics Supply Chains

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These past couple weeks have not provided positive news across consumer electronics supply chains.  This week, the latest quarterly earnings and financial advisories from key players provide a common picture of declining demand and concerning outlooks.

Panasonic Corp. forecasted its biggest annual loss in ten years, not only attributed to the continued effects of a strong yen, but declining sales in its television and semiconductor chip operations. Panasonic is cutting its annual television sales target to 19 million units, from a previous 25 million, and has included a whopping 404 billion yen ($5.2 billion) restructuring charge to re-structure its TV and semiconductor businesses.

Sony Corp., which has occurred seven consecutive annual losses in television manufacturing, finally announced its major restructuring.  Sony’s TV businesses will be divided into three groups, LCD operations, high volume contract manufacturing, and development of next-generation smart televisions. Also noted in the Bloomberg article is that rival Toshiba has had a 10 billion yen operating loss in its TV business for the six months ended in September.

Our previous Supply Chain Matters commentaryconcerning Sony reflected on how that company’s supply chains remain in turmoil not only from the continuing decline in its television unit, but also the disruption caused by the March earthquake and tsunami in Japan.   Sony recorded a $66 million charge for incremental expenses directly related to earthquake damage, repair and inventory write-off.  Thus far, it is unclear as to whether Sony’s other consumer electronics businesses such as digital imaging will be impacted by the flooding that occurred in Thailand. In our August commentary we speculated that difficult decisions and further dramatic announcements would be forthcoming, and this week, they came for the TV unit.

Another significant participant in consumer electronics value chains is contract design and manufacturer, Hon Hai Precision Industry.  Hon Hai indicated earlier this week that while total revenues marginally improved, its Q3 earnings dropped 9 percent fueled by further investment in expansion of operations to more interior parts of China.  However, the company noted that visibility to new orders remains poor, indicating trouble among its OEM clients. The company’s liquid crystal display unit, Chimei Innolux Corp. reported a Q3 loss due to severe LCD price erosion brought about by slowing television unit demand.

Finally we call readers attention to an insightful analysis performed by Mark Gomes of Pipeline Data LLC, featured on Seeking Alpha. Analyzing the early signs of the supply chain impacts resonating across consumer electronics as a result of the floods occurring in Thailand, along with the implication for long recovery times, Mark warns of a deluge of more impacts and earnings warnings.  Mark notes: “ ..my company (Pipeline Data LLC) forecasts that the implications will be very damaging for most of the tech sector.” Mark’s analysis point to pending 60 million unit shortfall of hard disk drives in the coming months, as existing inventories is exhausted. This is projected to impact large computer and data storage vendors such as Apple, Dell, EMC, IBM and HP, along with other providers who rely on PC and storage sales.

These are troubling times in consumer electronics, and supply chain planning and fulfillment teams need to be diligent to ongoing industry and component developments since the picture of demand and disruption is changing dramatically.

Bob Ferrari

© The Ferrari Consulting and Research Group LLC and Supply Chain Matters. All rights reserved.

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