Far East hardware makers fear a pause in recovery

THE BIG MANUFACTURERS in the Far East are drawing a breath and expecting some pain to arrive soon.

After clawing their way out of the recession a little better than expected, the tin men are starting to realise that all is not completely well yet in the IT industry.

First the major Taiwan-based DRAM chipmakers including Powerchip Semiconductor, Nanya and Inotera Memories are likely to see their February 2010 revenues decrease. This is perfectly normal for this time of year. There are lots of holidays, not least the week-long Chinese New Year celebration, so things get slowed down a bit.

However the Chinese-language Commercial Times report thinks that things will be worse than a normal seasonal adjustment and DRAM makers will probably slip back into the red. PSC and Nanya returned to profitability in the fourth quarter of 2009 following losses over the previous 10 quarters, while Inotera Memories posted its first profits in nine quarters.

Other hardware makers are also not that happy. Acer had to revise its belief that its notebook shipments would be up by 10 per cent and cut that back to just five per cent. Acer chairman JT Wang initially thought that the ten per cent figure was viable because he believed that the Americans and Europeans were buying again. However things are not looking as good as they thought. The bond crisis in Greece, Portugal, Spain and Italy has dashed many Eurozone expectations of a swift business recovery. Wang thinks that this will only slightly affect PC industries and these are still heading toward positive growth.

However a slight dampening of the expected demand is probably more welcome as the industry is having a few problems on the supplier side. The Chinese government recently decided to shift incentive spending from the coastal and southern regions and start spending in the interior. This means that more than 2 million inland workers who would otherwise have signed up for work at the end of the holidays stayed closer to home where the money is, and has caused huge problems particularly in the South of China where the booming high tech industry has suddenly found itself short of workers.

Components are also in short supply. This has not been helped by the fact that new technology fabs had faults last year that resulted in shortages of the latest material. The problems were fixed but there is still a shortage now.

Apple's buying up of huge amounts of gear for its forthcoming Ipad keyboardless netbook have also left rivals scrabbling for components.

The danger is that with labour difficult to find, components in short supply and demand good, then there is likely to be a rise in costs. To keep or recruit staff the manufacturers will have to pay them more, fighting over limited components will mean that what is available will be more expensive.

If prices do rise that could lead IT buyers coming out of the recession to change their minds about upgrades until things have settled down a bit. This would have a knock on effect for the rest of the IT industry, despite the fact that the Vole is desperate to get people buying its Windows 7 product again.

It is unlikely that a downturn will be as major or as long as the last one. Rather than a fall we expect any slowdown will be more of a slip on the way up again. However with everything so jittery at the moment it would not take much for such a pause in growth to become more serious. µ