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EPTE Newsletter from Japan: When Did The Recession Begin?
Thursday, January 22, 2009 | Dominique K. Numakura - DKN Research

The Japanese Government recently announced that the country is in the midst of an economic downturn that began during the fourth quarter of 2007. No kidding! The skid started more than a year ago and no value comes to the industry through this bit of information. All of us in the industry are well aware that business has been off for more than a year and a half for global electronics manufacturers. Most can pinpoint the beginning of the slide to September 2007, when the U.S. media was at full throttle reporting about the financial meltdown in the housing market.
History repeats itself and, unfortunately, most of us pay no attention to mistakes made in the past. The economy has its ups and downs and we sometimes forget about the risks looming around the corner during strong economic times. Take, for instance, the IT bubble crash in 2001. Many electronics manufacturers disappeared from North America and Western Europe. A few years later, things were on the upswing, and manufacturing shifted to EMS companies in the Far East and Eastern Europe. 

Electronics companies embraced outsourcing manufacturing to EMS companies to free themselves from the day to day manufacturing operations. Instead of reinvesting into plant and other fixed assets, electronics companies moved their proceeds to money and material markets, and created virtual markets with strong buying powers. Hedge funds promised high returns, but with the returns came high risks. The exchange of information is a valuable commodity for stock brokers, and the Internet provides instant information to a global audience. Hedge fund brokers were no longer the sole group to acquire information and trade on it. Once things went bad, it snowballed very quickly and gained strength as it moved downhill. Stocks with over inflated values came tumbling down, and this "paper wealth," shared by all, was worthless. Companies who acquired no tangible assets during this economic upswing were devastated.

I have been ringing the warning bell since the summer of 2007. Not only did market indices trigger my warning, but also the actual business trends from electronics companies. I am on the firing line with most of these companies, and rub elbows with them on a regular basis. The growth for electronic products are too big compared to the reasonable demands in the global market--and most of this business comes from the U.S. (officially in a recession). Another concern I had was the activity from hedge funds. Speculative monies increase the virtual demands in the market. Market prices for oil and raw materials increased rapidly even though demand remained relatively flat and shortages were not a problem. Several reports indicated that China and other developing countries are using up more materials, and this further accelerated inflation. However, their increased material usage has diminished; prices declined sharply and are now at their lowest levels. 

Some predict this could be the worst recession in history. I am not sure if the financial institutions will fully recover; but I do have faith that management teams from manufacturing companies will steady their ships, lighten their loads and set a course for safer waters.

Dominique K. Numakura

DKN Research,


Headlines of the Week

(Please contact for further information on the news.)

1. Asahi Kasei (Major chemical company in Japan) 1/7
The company has agreed to acquire the semiconductor business from Toko, a major component supplier, as the subsidiary of Asahi Kasei Electronics.

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