Rita Glover, EDA Today, L.C.
September 2001
In mid-September, the U.S. was hit by tragic and inexplicable events of
destruction when two planes hit the twin towers of the World Trade Center in
New York City, a third rammed into the Pentagon in Washington, D.C., and a
fourth crashed in western Pennsylvania on its way to an unknown target.
Many are trying to assess the effects that these unprecedented political
events will have on the world, and specifically on high tech. While
this overview of news is being written at a very early stage in the
developing story, we shall risk a few guesses as to where path will lead.
The Downside
New air travel restrictions are expected to hinder high tech, and several
small airlines may go bankrupt in the face of shutdowns in the early days of
the U.S. crisis. Air freight will be faced with much tougher security
procedures, raising costs for an electronics industry that is already under
financial pressure.
Right now, air cargo represents about 40 percent of world trade revenue.
It is a key element in the global supply chains which have been put into
place by high-tech and multinational companies. But the risk now is
that global businesses operating on a just-in-time basis will have their
production halted if the supply chain is interrupted for even a few days.
In other news, printed circuit board manufacturing prices have fallen by
14 to 27 percent compared to last year. Asian manufacturers’ revenues
have fallen by up to 50 percent in 2001, and some suppliers are now
operating at 50 percent capacity. This down market has been expected
to continue into the first quarter of 2002. But the September events
may change all that.
Indications from the commodity telecommunications sector were also
reflecting a slowdown. Finnish telecommunications giant Nokia reported
an earnings shortfall this quarter. The company says that on the
network infrastructure side of its business, an ongoing technology
transition from mobile voice to mobile data capabilities has increased its
financial uncertainty along with weaker economic conditions. While
some wireless network operators are reviewing the timing of their investment
in GSM, the delays are lowering sales and profitability for Nokia and other
telecom suppliers.
The Shift
The semiconductor market was expected by forecasters to rebound in 2002
after the latest downturn. But since the terrorist attacks in the
U.S., defense and intelligence systems could drive a faster recovery, said a
report by The Information Networks, a market research firm in New Tripoli,
PA. According to this report, the next driver that the industry has
been seeking to spark a recovery may not be a consumer product.
Instead, the research firm expects an upsurge in electronic warfare and
intelligence systems to compensate for years of reduced U.S. military
spending.
News from Washington concurs: the slumping high tech industry is
expected to get a huge boost as a result of a $40 billion anti-terrorism
emergency funding bill which is now moving rapidly through the U.S.
Congress. President Bush and Congressional leaders have agreed on
legislation to make billions of dollars available for a wide range of
intelligence, security, and technology development projects to fight
terrorism. This money will be focused in the security area, but if the
measure passes, funds will also be available for a large number of other
stalled military/industrial programs.
This will have an effect on new design starts, the major driving force
for the EDA market. For example, in contrast to the rest of the
wireless industry, RF Micro Devices upgraded its sales forecasts for its
second quarter ending September 30 and expects the trend to continue.
The improvement is due primarily to increased orders for microwave
monolithic IC and module products, likely targeted for high-end military
communication electronics.
Our Forecast
Consumer confidence will erode for non-essential items, so the new
economic climate will require companies to develop new product applications
to stimulate sales.
As transportation issues become more problematic for travelers and
freight, markets will shift from consumer products to high-tech security and
intelligence systems. New products that focus on these areas will reap
financial rewards as governments fund the development and installation of
these systems in airports and other passage points.
This series of events will stimulate the semiconductor downturn to
rebound more quickly than has been expected. Fab capacity is
available, and during the downturn, semiconductor equipment manufacturers
have been focusing their resources on improving production lines and
techniques.
An interesting side note is that for the first time in its history as a
public EDA company, Synopsys slightly missed its financial expectations in
Q2 2001, even considering the licensing model shift the company has been
undergoing as of July 2000. Financial analysts had been viewing this
as a key indicator of uncertainty in the sector, and had downgraded other
EDA companies in the wake of the Synopsys miss. But if design starts
do rise, it will have a positive effect on EDA tool sales, and we will
quickly see different results.
We wish we could consider these shifts to be happy news. High tech
should enhance our standard of living worldwide, not take away our privacy
and right to move freely. We pray that sanity and justice will
prevail.
Top
