More on Capacity

After reading my post last week about how bottom line growth hasn’t necessarily been tracking with topline growth, a friend of mine points out:

Remember that costs are out of control: during the past 12 months gold is up 30%, laminate about 10%, copper, tin, chemicals also 8-10%. The dollar is down (a whammy for multinational companies). So, I would just guess, depending on mix, etc., that a 15-20% sales increase is needed to just stay even with the blended increase in costs on a static year-over-year volume/mix. The more gold (cost) or bleeding-edge technologies (scrap) products produced the top line number needs to go even higher just to stay even. And we have not even discussed the cost of capital that for weak balance sheets is most likely higher. Meanwhile, the market is demanding price concessions – especially from the high volume tech consumer OEMs (read: Dell, Apple, HP, etc.). My guess is that as an industry our gross margin has decreased during the past year, and if costs continue to escalate without commensurate price increases it will do so again this year as well.  

All true, of course. And all the more reason to control capacity, because fabricators can’t dictate gold prices, currency ratios, or market demand. All we can do is to (try to) make sure our industry as a whole moves in tandem so that a handful of companies don’t wreck the pricing for the entire market.

And yes, much easier said than done.

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About Mike

Mike Buetow is editor-in-chief of Circuits Assembly magazine, the leading publication for electronics manufacturing, and PCD&F, the leading publication for printed circuit design and fabrication. He is also vice president and editorial director of UP Media Group, for which he oversees all editorial and production aspects. He has more than 20 years' experience in the electronics industry, including six years at IPC, an electronics trade association, at which he was a technical projects manager and communications director. He has also held editorial positions at SMT Magazine, community newspapers and in book publishing. He is a graduate of the University of Illinois. Follow Mike on Twitter: @mikebuetow