Crisis: what crisis?
14 November 2008
The character for both ‘crisis’ and ‘opportunity’ are exactly the same in the Chinese written language. With wall-to-wall reportage on how the financial crisis is hammering the electronics industry, it’s difficult, but not impossible, to find opportunities and positive news to report on right now, as Gordon Wong reports.
To some extent, we have come to rely on the fast-growth markets of China and the Asia Pacific to provide us with a lift during industry downturns. So, is it therefore fair to ask whether there is any good news or opportunities arising from these markets in today’s climate?
Market research group Gartner suggests that the Asia Pacific region is ‘cushioned, but not immune from impact of the economic slowdown’. In what the company describes as a worst case scenario, it forecasts regional IT spending to grow 8.3% in 2009 to reach $585.7 billion, compared to their previous forecast of 11% growth.
In turn, Global Insights’ market research has collected data that predicts that most APAC nations’ GDP growth rates will be down on 2007 levels but will still show reasonably healthy growth in 2009 compared to other parts of the world. GDP in China is tipped to grow by 8.9%, in India by 7.8%, and by 2.3% in Australia. In contrast, GDP in the US is expected to grow just 0.1% and only 0.2% in the UK.
With these levels of forecasted GDP growth from China and APAC, it seems reasonable to expect to see a reasonable level of continued demand from the region.
In addition, China’s economic performance has notably been further strengthened by the fast track development of Sino-Russia trade. Their two-way investment and technological co-operation has been booming thanks to their reciprocal and booming economies and the fact that both countries’ banking systems were less involved in the activities that led to the ‘credit crunch’.
Bilateral trade volume surged by 23% year on year in the first nine months of 2008 to hit US$43 billion, paving the way for reaching the set target of US$60-80 billion in 2010, according to Chinese official figures.
Closer to home, the China government has announced that the country will focus more on its domestic market amid global uncertainties to shore up its economy.
As part of this, the High Technology Industry Department of the National Development and Reform Commission of China reported that more than US$22 billion has been invested in China's electronics and communication equipment manufacturing industry, with investments in the computer and office equipment manufacturing industry topping US$2.8 billion for the period.
Prior to the financial crisis hitting, some very promising electronics sales data appeared for the first three quarters of 2008.
Revenue from TV sales in China increased more than 20% in the first three quarters of 2008, led by falling prices and rising demand especially from rural areas. About 27.04 million TV sets, including both foreign and domestic brands, were sold from January to September according to figures from the Ministry of Industry and Information Technology and the China Video Industry Association. Plasma TV sales increased a whopping 250% in the period, according to All View Consulting Ltd., a Chinese appliances market consulting organisation.
Some heavy hitters, including Warren E. Buffett, have identified opportunities and made significant investments in technology companies in China. The legendary investment guru has famously likened finding good investments and building wealth to making a snowball. "The important thing is to find wet snow and a really long hill," he has been reported as saying.
It could be viewed that Buffet’s “really long hill” is China and green technology is providing the “wet snow”. In September, he paid US$230 million for a nearly 10% stake in BYD, a Shenzhen-based battery producer and automaker. BYD, which is Buffet’s first investment in a company in China, has said that it will sell its first plug-in hybrid vehicle, F3DM, by the end of this year in China. Hybrid and all-electric vehicles are regarded as a ‘game changer’ for the automobile industry and will undoubtedly have a positive flow-on effect for the electronics industry.
Following a similar theme, in April of this year, Intel Capital, the investment arm of Intel Corp, established a US$500 million China technology fund and has so far invested in six mainland companies. The company has reported that it has not yet seen a slowdown in investment due to the global financial crisis.
It invested US$20 million in Trony Solar Holdings Co, a thin-film solar energy provider, and also took undisclosed stakes in electricity storage specialist NP Holdings Ltd, and Viewhigh, a healthcare software firm.
Cadol Cheung, the firm's Asia Pacific head, commented: "We think innovation is the way to help companies out of this financial crisis. We have no plan of slowing down our investment pace."
Intel Capital, which had a portfolio of US$2.3 billion as of June 2008, had less than 5% of its portfolio invested outside the United States 10 years ago. That figure had grown to 37% by 2007.
It’s undeniable that the electronics industry is facing a crisis at this time, but once again we can look to innovation and to China to provide new opportunities.
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