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RF & Wireless Components and Macroeconomic Trends

by Chris Taylor | 6月 24, 2010

Profits in the RF / wireless component industry reported during Q1 ’10 strengthened to the highest level since 2005, marking a “V” shaped recovery from the worst of the global recession. Demand for cellphones and mobile PCs drove chip demand, which pushed sales up about 7 percent sequentially at the typical supplier. Of the 46 RF & wireless component suppliers that we examined in Q1 ’10, 78 percent reported profits, up from only 30 percent a year earlier. The results are still coming in, but the recovery appears to have continued into Q2 ’10. RF Industry Profits Q1-Q4′09 In spite of the apparent recovery, RF & wireless component industry managers remain at best cautiously optimistic, and even while profits have improved dramatically, VC funding for RF & wireless start-ups has remained severely depressed by historical standards. What is going on here? Maturing markets. Consumption of wireless devices such as cellphones in the developed world continues to grow, but these markets have matured and growth has slowed. Consolidation among radio chip suppliers has eliminated many of the less financially-viable suppliers, and the remaining suppliers have cut costs and pruned product lines to focus on core strengths, which probably explains much of the profit spike reported in Q1 ’10. Lack of confidence: Are we going to the PIGS? Policies in most of the developed world will lead to higher taxes or higher inflation and interest rates unless changed, and people know it. A sign of this is the unbridled debt that has destabilized Portugal, Ireland, Greece and Spain economically, driving up interest payments to foreign debt holders and stifling economic growth. Many of the world’s largest economies, including France, Japan, the UK, Germany and the US are headed in the same direction, and a general awareness of unemployment and the risks of ballooning public debt has taken a toll on confidence among citizens and business managers alike. The debt crisis in the EU worsened recently when the government debt to GDP (gross domestic product) ratio in Greece reached 125 percent, driving interest payments to an unsustainable 15.2 percent of tax revenues according to the Wall Street Journal. In the US, the Government continues to run ever bigger budget deficits in an effort to stimulate growth and jobs, and the government debt to GDP ratio will pass 76 percent this year. To make matters worse, government pension and medical obligations to aging baby-boomer retirees will generate additional demands on government funds in the world’s largest economies over the next twenty five years. Tight credit. Bailouts of the “too big to fail” banks have not helped small businesses and entrepreneurs. The US Federal Funds rate is near zero percent, which means that the Bank of America gets free money from the US Federal Reserve, however, money remains tight on main street. Apparently, the “too big to fail” banks are using cheap money to increase their reserves and pay the US Government back for last year’s bailouts instead of loaning money to small businesses. I believe that the situation is similar to the US in Western Europe and Japan. Risk-Averse VCs. By some reports, venture capital firms have more money than they know what to do with, yet investment in start-ups remains low in the West by historical standards. Apparently, VCs no longer have the time for due diligence and to help manage early-stage start-ups. Instead, VCs are investing primarily in lower-risk, later-stage start-ups nearing commercial success. VCs have also stampeded toward “clean tech,” avoiding most wireless chip start-ups. The rise of China. On top of the economic challenges facing the developed countries, China will soon emerge as the leading world economy. Whether this is good or bad depends on your perspective, but it will mean less ability to fund deficits in the West, and lower global market share for component suppliers in developed countries as China continues to promote indigenous suppliers. Spreadtrum, MStar Semi, and HiSilicon / Huawei are just three of the many radio chip suppliers well positioned to capture share in China. What all of this means for the wireless components industry, I believe, is continued uncertainty over the next several years, and consequently caution in terms of capital investment and hiring. On the positive side, many of the larger and higher-share companies, for example Qualcomm and Intel, appear to have plenty of cash, which gives them the ability to invest in China, start-ups and new technologies. Please feel free to post your own observations and views on the challenges facing the industry. In addition, you can find the latest information on RF & wireless industry profits, new products and market opportunities at the “Industry Review” section of the Strategic Technologies / RF & Wireless Components market research web site. If you are a subscriber to the RF & Wireless Components service, you can find an expanded Insight version of this blog here.

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