The State of the Industry: No One Is Really Sure

Apr 1, 2002 12:00 PM
Sam Davis, Editor

The Applied Power Electronics Conference (APEC) held March 10-14 in Dallas brought together many of the component and system manufacturers in the power electronics industry. It presented a good opportunity to sample the assembled executives to determine the industry's health. The prognosis: while the industry has seen better days, there's hope for a rebound — the only question is when? The consensus is that the worst is probably past, but it's difficult to tell when the industry will return to normality, whatever that is. Most of those interviewed said that business is beginning to ramp up, but the ramp may have a one-year time constant.

As near as we can tell, the business downturn began when one dot-com company after another went out of business toward the end of 2000. This cut the demand for telecommunications equipment and propagated through the industry like a deck of cards. At the same time, the telecom companies built up component inventories in expectation of continuing equipment sales. Some cancelled component orders, but many of the companies ended up with bloated component inventories.

The bankruptcy of dot-com companies forced them to auction off their telecom equipment for much less than its original price, which further cut into new equipment sales. The end result was many component manufacturers had excessive production capacity and had to lay off employees. This hit magnetics, capacitor, and semiconductor companies particularly hard. In some cases, their anticipated business for 2001 turned out to be one-half of projected figures. The events of September 11^th also contributed to poorer business conditions.

J.P. Rossome of STMicroelectronics, Phoenix, has seen improvements in business for 2002. There are more requests for quotes, and the telephones are ringing more frequently, but he says that his crystal ball is cloudy. He's not willing to make any predictions, but does see some encouraging signs.

At Datatronic, Romoland, Calif., Randy Eller is seeing more orders for transformers and inductors and more interest in lower-profile, higher-density magnetics. However, he's hesitant to proclaim an end to the business downturn.

At the higher power end of the industry, Powerex and Fuji Semiconductor have increased interest in power semiconductors. Applications people continue working with potential customers; however, there's always a delay between quotes and actual sales.

ITW Paktron, Lynchburg, Va., is waiting for telecom companies to work off their inventory. In the meantime, the company reduced production capacity. To ensure experienced people are available, the company extended its medical insurance and keeps in periodic contact with them.

Component Orders Grow 30%

A positive sign is that February electronic component orders were up by more than 30% compared with February 2001, according to the monthly index from the Electronic Components, Assemblies & Materials Association (ECA). The 12-month index average was also positive for the second consecutive month.

“Reports from most sectors in the economy indicate recovery has begun,” says Bob Willis, ECA president. “It's still early in the recovery cycle to predict when and how much — but the data at the beginning of this quarter indicates revenue growth will reach manufacturers around midsummer.”

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