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In a little over a week, significant announcements have precipitated large amounts of uncertainty among PC related supply chains. The speculation continues as to whether the high tech and consumer electronics industry supply chain will undergo a different equilibrium of changes in the months ahead.

The first was the bomb thrown by Hewlett Packard announcing its intent to spin-off its Personal Systems Group (PSG). The other, of course, was the announcement by Steve Jobs of Apple indicating that he was relinquishing his CEO position to Tim Cook. Perhaps unnoticed in the shadow of the other two was the announcement from Taiwan based PC manufacturer Acer that it experienced its first quarterly loss in the company’s history, and that it was highly unlikely that the company would break-even for the full year.

The HP announcement was the most significant because it raises questions as to whether the PC industry has seen its best days and will be subsumed by product demand for tablets and smartphones as the new wave of mobile computing.  HP, by its sudden announcement, in essence sent a signal that it was shedding a significant revenue source as well as well as high tech component volume buying leverage to explore more strategic options in business software and services.  It was, by our view, a statement of financial engineering vs. value or supply chain reengineering, swapping lower margin for higher margin business.

Acer, another force in the PC global markets, with its unprecedented quarterly loss, sent another message of uncertainty as to long-term industry growth.  Acer has admittedly had some senior management problems with the controversial departure of its CEO in April, which was speculated to be over business strategy disagreements. Chairman and acting CEO J.T Wang indicated at an investor conference that the recent quarter was a “correction period” and its loss was worse than expected because of a $150 million write-off of excessive inventory in Europe. Asia based financial analysts now speculate whether Acer has lost market momentum.

Last Friday, an article in the Wall Street Journal, Asian Tech Firms Brace for New Landscape (paid subscription or metered view required) speculated that some of the biggest effects of Steve Jobs resignation are likely to be felt by Asian suppliers and PC competitors. The article cites industry analysts concerned as to whether suppliers such as Wintek Corp. and Hon Hai Precision Industry Co. will experience a void in the creative product forces precipitated by Steve Jobs departure. Noted was that Steve Jobs was the catalyst for sweeping change in the smartphone and tablet segments. Not surprisingly, stock prices of multiple contract manufacturers have dropped since the announcement. Also noted in the WSJ article was that any future falloff in Apple’s marketing or product innovation prowess could spell opportunity for competitors such as HTC Corporation, Samsung Electronics and LG Electronics.

In our view, we do not anticipate any significant loss of momentum for Apple. As we noted in our Supply Chain Matters initial commentary relative to the Steve Jobs announcement, we view Apple as being in the catbird seat.  After all, which company was the primary catalyst for the current PC industry disruption with its announcement of the iPad? Most of the world now knows that Apple’s new CEO, Tim Cook is the mastermind behind Apple’s current world class and enviable supply chain capabilities. Apple remains  numero uno on anyone’s ranking of the best global supply chain for capabilities in product innovation, strategic procurement, fulfillment and B2C retailing.

However, the rest of the PC industry and its associated supply chains could see a changed landscape over the coming months.  What if one of the current value chain vertical players, one that supplies both PC and tablet components, makes a move for HP’s PC business? That would send a clear sign of longer-term vertical integration of the high tech supply chain.

Which of the existing players will benefit from consumer uncertainties over the long-term direction of HP?  Will it be Acer? Dell? Lenovo? Some other company?

What’s your view?

In the course of a week, a series of cascading announcements has turned the entire industry into turmoil.  Meanwhile, existing teams need to move forward with innovation, ship product and deal with a very uncertain global economy.

That’s why we love the high tech industry. In just a week, the equilibrium of the supply chain presents a whole different set of circumstances and outlook. Very few industries can deal with this level of change.

Bob Ferrari

If you have been following recent news related to Sony Corporation, it should be evident that this company is embarking on a number of significant challenges, one of which includes a re-structuring of its global supply chain. A recent Business Week article.  reports that Sony recently announced its first annual loss in 14 years ($1 billion) with a forecast of another losing year.  Upwards of 16,000 people are in the process of losing their jobs at Sony, which is a shock to a company that prides itself on lifetime employment.

The backdrop leading-up to the current situation is a rather long one, one which will probably play out in a number of existing and future business case studies.  In consumer electronics, the company was slow to respond to the vastly popular digital music product entries from Apple, such as the iPod and iPhone. In televisions, Sony has a stellar reputation for innovation and quality, but has lost volume market leadership to Samsung Electronics Company. A New York Times article indicates that Sony has lost money in its television manufacturing unit for the last five consecutive years.  In gaming devices, Nintendo‘s Wii and the Xbox360 from Microsoft have been outselling the Playstation 3.  As an industry analyst, I penned a number of research insights that pointed to Sony’s decision to initially include the newer BluRay disc technology as a key distracter in gaining initial market and volume producer acceptance.  And the list goes on, leading to today’s current situation.

Chairmen and CEO Howard Stringer, who was brought on four years ago to transform the company, has now taken more direct day-to-day control.  In late February, Sony announced a massive management re-structuring with Mr. Stringer taking on operational CEO responsibilities, along with a revised management team tasked with turnaround profitability.  While Business Week reports that Stringer has promoted four relatively young Japanese executives into his managerial team, the situation for supply chain is slightly different.

Included in this restructuring was the announcement of Yutaka Nakagawa, Executive Deputy President, to lead a combined manufacturing, logistics, and procurement organization. Mr. Nakagawa joined Sony in 1968, and has had a number of senior and executive management responsibilities primarily in Sony’s product businesses.  His former tenure at Semiconductor and Component Group, along with other businesses provides a well-grounded understanding of supply-chain strategy and operational needs.  But Sony’s supply chain challenge remains daunting.

Business Week reports that Sony is closing three plants in Japan by the end of December, and the number of plants around the world will be reduced to 49 from a current 57. A posting in The Deal indicates that the company will slash material costs by 20% ($5.3 billion USD), and cut total suppliers to 1200 from the current 2500 by March of 2011.

Taking on a challenge to reduce overall material costs by 20% in two years has proven to be challenge for companies in profitable times, let alone in crisis situations.  But perhaps Sony’s current crisis can drive change at a faster pace.  With competitors such as Apple positioned in a virtual supply chain, with enormous flexibilities, Sony will have no choice but to move quickly.  Soft demand and a declining yen have had their toll.  But there is a positive aspect to this pending change.  Sony’s existing supply chin management team has the benefit of learning what has and has not worked well in high tech value-chains. Advanced technology will certainly help if applied smartly.  The Sony brand also has enormous power within the market, something which other companies have failed to learn in wholesale slashing of supply chain costs.

We certainly wish Sony the best in their supply chain transformation challenge.  It will be interesting to observe in the coming months how Sony approaches its supply chain transformation  challenge.

Bob Ferrari