Monday, October 31, 2011

Thailand Floods Take Toll on PC Makers

Following up on last week's post about the impact the Thai floods are having on the HD market, EE Times serves up this piece:

Thailand floods take toll on PC makers.

A quote from iSupply:
“Beyond Thailand itself, the worst-impacted country is Japan, which maintains extensive manufacturing operations in areas affected by the disaster,” said iSuppli in a statement.

“Overall, the Thailand flooding represents the second major natural disaster to affect Japan this year, after the March earthquake. Thailand plays a key role in the manufacturing operations of Japanese companies, with an estimated 1,800 Japanese manufacturers operating in that country and 450 Japanese businesses located in seven flood-hit industrial parks,” the company added.

Here are some photos of what has happened in Japan six months after the tsunami:

Japan Marks Six Months Since Earthquake, Tsunami

You have to hand it to them for their resilience.

Second Energy Department-backed Company Goes Bankrupt

In another showing of brilliant due diligence a second alt+energy company, funded with your tax dollars, bites the dust:

Second Energy Department-backed company goes bankrupt - The Hill's E2-Wire.

Beacon Power Corp., which develops energy storage systems, filed for bankruptcy protection in the U.S. Bankruptcy Court in Delaware.

Beacon Power had received a federal loan guarantee to help build an energy storage plant in Stephentown, N.Y., that began operating in January. The Treasury Department’s Federal Financing Bank provided the loan.

Beacon sought bankruptcy protection two days after the White House ordered an independent 60-day evaluation of the Energy Department's loan programs aimed at ensuring effective management and monitoring.

The review, conducted by a former Treasury Department official, will include examination of how Beacon’s project is performing going forward, and whether there are additional steps that can be taken to protect taxpayers, according to the Obama administration.

Beacon is a publicly traded company. At one time, early in this century, the shares fetched over $90. The company has never made any money. Grab a stiff drink and check out the Beacon website if you would like to run through their annual financial performance. ahem

Business Week and Bloomberg have even more on the story:
Beacon Power, Backed by US Guarantee, Files for Bankruptcy

Beacon plunged 33 cents, or 73 percent, to 12 cents at 2:23 p.m. New York time in Nasdaq trading, after dropping as much as 76 percent. Before today, the shares had declined 80 percent this year, prompting Nasdaq to warn Beacon that its stock might be delisted because the price had fallen below the $1 minimum.

The stock closed today's trading session at $0.11 per share - well on its way to doughnut land.

This is far from the end. I fear we will be hearing about a lot of troubles with these alt+energy loans.

Leading Econ Bloggers 3rd Quarter Outlook 2011

Years ago a press release like this would have been the perfect contrary indicator. Leading economic bloggers are pessimistic on the economy:

Kauffman Economic Outlook: A Quarterly Survey of Leading Economic Bloggers, Third Quarter 2011.
Optimism is out; pessimism is in among the country's top economics bloggers as they look to 2012 and beyond, particularly regarding jobs. A new Ewing Marion Kauffman Foundation survey released today shows that only 50 percent of respondents anticipate employment growth, a decrease of 20 percent from second quarter.

Fully 95 percent of respondents view current economic conditions as "mixed" or "facing recession," an increase of 10 percent from second quarter, and a third predict a double-dip recession during 2012. "Uncertain" is once again the top adjective economics bloggers use to describe the economy, and respondents shared expectations of higher annual deficits and the top marginal tax rate.

From Slide 11 of the Full Survey:
In every category of business, conditions right now are rated as “fair, bad, or very bad” by more than 69 percent of respondents, with venture and angel capital being the least bad of them all at only 69 percent, while bank lending to individuals is rated 90 percent negative.

Well, one thing is for sure, they don't call it the "dismal science" for nothing.

Wait a second - perhaps stuff like this is still a good contrarian play? After all, the stock market, as measured by the Wilshire 5000, just had its biggest up month in 24 years.

Friday, October 28, 2011

Inside WD's Flooded Thai Factory

Earlier today Samsung and Acer noted the impact the Thai floods will have on their business. Here are some pictures from inside Western Digital's Thai Factory:

Inside WD's flooded Thai factory • Channel Register.

I sent this to a few of my friends in the industry. One industry exec had this to say:
It turns out that Bang Pa in facility was submerged with 2 meters of water. This is the old Read- Write facility and I have been in it many times. The first floor is where most of the slider processing equipment was located. Most of the equipment was lost to the flood. They last saws, grinders, sorters, cleaners, steppers, alignment tool etc. It's a real mess. This situation for WD is pretty bad because they had all their slider fabrication in one basket. It will take at least 4 months to start the recovery and a year to get back to where they were pre-flood. It looks like the high water will not recede for at least 3 weeks.

The issue that is affecting all the drive companies has to do with the supply chain. Hutchinson, Magnecomp, Nidec, On Semiconductor, MicroSemi. All facilities are in similar industrial parks that have been flooded or closed by the flood.

Two Fabrinet facilities are down hard. These two facilities make a large percentatage of optical devices for JDS Uniphase, OCLARO, Finisar and Emcore. On Semi's fab for power and signal management, logic, discrete and custom devices has also taken a hit.

In a follow-up conversation we talked about the equipment and how it would take a long time to replace - perhaps as long as 6 months. One of the reasons for this is that low capital investment rates in disk drive manufacturing pushed many of the companies supplying tools to the manufacturers to down-size or, worse yet, leave the industry. It's not going to be easy for WD to ramp back up.

This story is bound to get more coverage in the coming weeks because it is going to have a significant impact on a host of companies

Tech to Super Committee: Seize The Opportunity to Spur Innovation!

Are they listening? They better be. Folks are lining up at the door. This release came out yesterday:

Tech Industry Urges Congressional Supercommittee to Seize Opportunity to Spur Innovation as Key
Six of America's leading technology trade organizations and their members urged the bipartisan Joint Committee on Deficit Reduction to embrace a series of proposals that would help America's economy and debt stabilization by supporting innovation. The recommendations were part of a letter sent to the Joint Committee today sponsored by TechNet, Business Software Alliance, Consumer Electronics Association, Information Technology Industry Council, Silicon Valley Leadership Group and TechAmerica. The letter included recommendations on tax reform, research and development, spectrum, smart deployment of information technology to reduce waste, high-skilled immigration reform, deployment, among others.

The letter was signed by 50 prominent members of the tech community. Here's the gist of their message:
We write as American business leaders concerned by the direction, substance, and tone of our nation's policies and politics. We are hopeful that your work will help the nation emerge from this period of economic uncertainty stronger, more competitive, and with a clear window of prosperity for all Americans.

As leaders within companies that collectively employ millions of Americans and operate and compete around the globe, we know this country can do better. Thus we offer below our ideas for (a) addressing the nation's structural challenges in a fashion that will stimulate growth and job creation and (b) stabilizing the U.S. debt:

Create Jobs and Ensure U.S. Competitiveness -- Tax Reform

First and foremost, America's corporate tax system is globally uncompetitive and is woefully out of step with the world in which we currently live. Many of the companies that are signatories to this letter and the innovations that drive their businesses simply did not exist when the code was last revised in 1986. While the code has remained largely static over time (with piecemeal patches), the environment in which our companies operate has changed dramatically.

To attract – rather than lock out – capital and create jobs here at home, we must act in our short- and long-term interest. With regard to the first, we should take immediate steps to encourage U.S. businesses to repatriate the approximate $1 trillion in accumulated foreign earnings that are locked outside of our country because of an antiquated and punitive tax code. As a nation, we are much better off with those dollars being invested here rather than elsewhere.

In the long term, we must reduce the rate, simplify the code, and strengthen incentives for job-creating activities such as R&D, and transition to a competitive territorial tax system.

Globally, in just the past four years, most of the major markets with which we compete have reduced corporate tax rates and transitioned to a competitive territorial tax system. In fact, our largest trading partners—Canada, Great Britain, and Japan—have all done so to become more competitive. Further, this exact approach to tax reform has been urged by many who have closely studied the issue including the National Commission on Fiscal Responsibility and Reform, and the "Gang of Six" U.S. Senators who proposed a solution to the debt ceiling crisis this summer.

Stimulate Growth - -Targeted Investments

Second, there are other important steps that the select committee can take to stimulate growth, including making targeted investments. Not every dollar spent has the same effect on the economy. Thus, we recommend reducing or eliminating low-impact spending in order to create the fiscal space to focus on pro-growth investments. Within our companies we continue to invest in research and development even in tough times because that investment provides a rate of return that is a multiple of the expenditure. It is important that our government does the same. Thus, we recommend greater investments in those activities with clear economic benefits because of their transformative potential. Programs that support basic scientific research, improve our infrastructure, protect our intellectual property and create a 21st century workforce are smart investments.

Stabilize Debt

Finally, government spending is unsustainable. We all face difficult decisions within our companies and making cuts is often the most difficult but also the most necessary. That is the case for the U.S. Thus, as the committee works to identify the best deficit reduction approach, avoiding the hard decisions, such as entitlement reform, would be a mistake. There are steps the select committee can take that will contribute significantly to deficit reduction, and provide long-term growth opportunities for our economy. Those steps include:

  • Spurring Innovation and Job Creation through Spectrum Sales: The Congressional Budget Office estimates new authority expanding the Federal Communications Commission's spectrum auction authority to conduct voluntary incentive auctions (as included in S.911) could generate more than $24.5 billion. Making more spectrum available for mobile broadband, including recognizing the benefits of unlicensed uses, is a win-win-win-win, creating jobs, benefitting consumers, fostering innovation, and reducing the deficit.

  • Strengthening the U.S. workforce to raise direct revenue: Studies across the political spectrum confirm that increasing the number of employment-based visas for highly educated workers will not only strengthen our nation's workforce and competitiveness, but could also generate direct revenues for the Treasury. Simple fixes such as awarding permanent visas to foreign-born students who earn doctorates and repealing the annual limit on the number of applicants per country who receive visas is simply good economics.

  • Reducing spending through information technology: The Federal Government uses information technology to great effect. As has been made clear, however, there is a gap in power and productivity between Government IT and IT across the private sector. The federal government can reduce spending by more than $1 trillion over the next 10 years by adopting the latest technology-fueled private sector best practices in key areas, such as consolidating IT infrastructure, streamlining government supply-chains, encouraging adoption of cloud computing technologies, and reducing government energy use.

As markets lose faith in America's ability to meet its challenges and lead the world, investors look elsewhere and entrepreneurs fail to dare. We can do better. We humbly offer our thoughts on a few viable, but near-term and practical solutions. More importantly, we offer our commitment to working with you to move this great nation forward towards greater prosperity."

You can read a full copy of the letter here.

The winds of change are howling. Support these initiatives - write your Congressman and tell them to buck up and take some action.