As major electronics and blue-chip companies report job cuts and dwindling sales, the effect on the industrial gas sector is uncertain.
In the latter part of 2001, a sharp downturn in the semiconductor industry resulted in a loss of revenue for a number of industrial gas companies.
As the global economic crisis grips the world in 2009, it seems that once again, the semiconductor industry is facing a substantial downturn, sparking renewed concerns for the gas providers.
In January, Intel, Microsoft and IBM - all of whom use semiconductor technology - announced major job cuts.
Samsung Electronics has also made its struggle public, announcing major re-structuring, and pay-cuts of up to 20% for its top executives.
According to George Scalise, Semiconductor Industry Association (SIA) President, the fortunes of the semiconductor industry are increasingly tied to consumer spending on electronic products – as consumer purchases now drive well over half of worldwide semiconductor sales.
The massive job cuts in these major electronics and blue-chip companies have been directly attributed to a slump in consumer spending as a result of the economic crisis, suggesting the semiconductor industry is facing a difficult 2009.
In December 2008, Chartered Semiconductor Manufacturing Ltd published updated guidance for its fourth quarter.
George Thomas, Senior Vice President and CFO of Chartered, said, “As the quarter is progressing, we are seeing some of our customers postponing their deliveries due to, what we believe are, weaker market conditions and their intent to keep inventories low.”
Similarly, when Intel’s rival Taiwan Semiconductor Manufacturing Company Ltd published its fourth quarter earnings, the press release read, “Triggered by a deepening economic recession worldwide and customers’ inventory adjustment, fourth quarter saw a sharp decline in the demand for semiconductors across all applications.”
At present, it is unclear just how affected the industrial gas industry will be by a decrease in trade for electronics and blue-chip companies, but with semiconductors being the major consumption market for electronic gases, it’s likely it will feel the impact in one way or another.What happened in 2001?
Back in 2001, the implosion of ‘dot.com’ industries resulted in a huge inventory overhang, which caused the semiconductor industry to collapse.
Worryingly for the industrial gases companies of 2009, in 2001 when the semiconductor industry fell, it took many of its suppliers down with it.
In a press release published by Praxair on 24th October 2001, the company reported a weak performance in Praxair Surface Technologies, due to a slowdown in the semiconductor industry.
Similarly, in an Air Liquide financial report publishing figures for the first quarter 2002, the company noted that sales to the electronics industry were down 15% (excluding equipment) compared to the first quarter of 2001.On a positive note
Those who have dared to predict the effects the industrial gas companies may suffer, have in fact come up with some pleasing conclusions.
The general consensus seems to be that although the gas companies are suffering the effects of a failing semiconductor industry, their struggle will be brief.
George Scalise (SIA President) said that unlike 2001, excess inventory is not a problem today. He added, “The industry is well positioned to resume growth quickly once the current worldwide economic uncertainty subsides.”
It’s thought that as long as the gas company is well positioned within its industry, it will be able to emerge from the downturn relatively unscathed.
It has even been suggested that the downturn may provide key opportunities for the gas companies in the long term.
In the January 2009 issue of Japan’s KK Gas Review, an article reviewing Semicon Japan 2008, an exhibition of semiconductor equipment and materials, confirms the semiconductor slump and noted a reduced number of both exhibitors and visitors.
It does however touch on an interesting element of semiconductor manufacturing, suggesting a re-structuring of the fabrication industry will open up a new market for the industrial gas companies to embrace.
“The market has entered into a new phase whereby for the sake of the environment and energy saving, it requires the capability to develop new products and technology, as well as the ability to adjust supervision and product.”
“Especially regarding electronics gas which so easily shows policies involved with the concept of the environment, most of the producers of this gas and its related equipment are putting effort into approaching the market with new products which are focused on the environment and energy saving.”
Matheson Tri-Gas, Inc. (MTG), the largest subsidiary of the Taiyo Nippon Sanso Corporation Group, is a leading electronics gas supplier.
Throughout the downturn, the company has continued to make substantial investments to support semiconductor manufacturing, and has so far shown no sign of financial difficulty.
Speaking to gasworld, Kevin Finn, Executive Vice President and General Manager for Electronic Gases Group at the company, commented on the current situation and said, $quot;The market is clearly in a severe down turn, but it also provides significant opportunity for companies that are properly positioned.”
“We are hearing from the large manufacturers that their winning strategies are based on overall cost management and improved technology. In the last few years, MTG has made new investments such as our partnership with Albany Nanotech, an expansion of our Electronics Advanced Technology Centre in Colorado, and multiple new products at our factories in Asan, Korea & New Johnsonville, Tennessee. These improvements and other investments we have made are helping our customers stay competitive and continue to drive our growth.$quot;
It seems those companies who have maintained a cool head in the crisis, continued to invest at a steady rate and managed their costs well, will be winners despite the bleak outlook.