Slow economy means fewer supply chain bottlenecks: Conference Board

A forecasted five-year low in profits in 2009 for Canada’s computer and electronic equipment manufacturing industry might impact how IT departments maintain their hardware inventory, said an executive with Ottawa-based Conference Board of Canada.

According to the Board, slowing production growth and declining prices in this industry will drive profits to fall by 22 per cent in 2008 to a little more than $1.1 billion, and suffer a further 4.6 per cent decline in 2009. And while 2010 will see modestly improved profit levels, they won’t experience the 2007 peak for another three years.

Michael Burt, associate director with industrial outlook at the Board, said that from a hardware inventory perspective, IT departments can take advantage of this slower industry growth because “bottlenecks in the supply chain should be smaller so there should be fewer problems with shortages of particular components which would make carrying inventory maybe not as necessary as it was recently.”

It’s also possible, he said, that some hardware vendors that are feeling the pressure of the slowing profits will be more susceptible to bargaining on purchases by IT departments. However, Burt added that he doesn’t expect this will be “a big factor” due to the weakening Canadian dollar that will firm up of product prices.

Burt said that despite the profit decline, demand for computers and electronic equipment is expected to hold up better compared to other products.

The reason, said Burt, is products that this industry sells tend to have a lifespan of just a few years resulting in a fairly quick product turnover. “Whereas companies might be able to put off a new machine of one sort or another for an extra year, they’re less able to do that sometimes with their computer and electronic equipment,” he said.

Certain segments that continue to experience “healthy growth,” like the wireless communications equipment, will help support growth in the industry, said Burt.

The weakened Canadian dollar will play a role in this very trade-dependent industry, said Burt. Given the fact that exports are equivalent to about 90 per cent of sales, the dollar will “help to make their products more cost competitive on world markets.”

But the largest impact of the dollar, said Burt, will be more stable prices for computer and electronic equipment, following years of declining prices. “This is really an unusual event. We’ve had falling prices for six or seven years in this industry.”

El Segundo, Calif.-based research firm iSuppli Corp. last week adjusted its predictions of global PC shipments to a 4.3 per cent increase in 2009 compared to a previously forecasted 11.9 per cent increase. “The result of the financial turmoil is less money to spend,” said Matthew Wilkins, a principal analyst with iSuppli. “With less money to spend, application markets, like PCs, have been impacted.”

–with files from IDG News Wire

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