Lessons Learned And Lessons Not Learned

June 4, 2001
The economic ups and (recent) downs keep us constantly on our toes, forever fending off challenges to lower a product's cost, develop a new generation of products, or just make a product more attractive in a tough market. Over the past 30 years or...

The economic ups and (recent) downs keep us constantly on our toes, forever fending off challenges to lower a product's cost, develop a new generation of products, or just make a product more attractive in a tough market. Over the past 30 years or so, the electronics industry has gone through a number of feast and famine cycles.

Some of these cycles were the industry's own fault. Component shortages led system manufacturers to double-, triple-, and quadruple-book orders for key components. This overbooking caused the component suppliers to add more manufacturing capacity and overproduce the desired components.

When supply came close to the actual demand, the overbookings were cancelled. The component suppliers were left with overstocks and more manufacturing capacity than they needed. Component prices then tumbled in an effort to get the industry to absorb the oversupply.

To prevent the major debacles of the 1970s and 1980s from happening again, manufacturing associations formed to share information. Today's swings are less severe than those of past years. However, changing consumer demands or misprojected market acceptance of a new product can result in major industry hiccups, too.

For example, the recent slowdown in cell-phone sales affected not only cell-phone manufacturers, but also many of the component suppliers that provide everything from batteries to memory chips to small-area LCD panels. Similarly, a misprojected demand of a few million units in the PC market can push some of the system and component vendors into precarious positions as they become strapped for cash.

The recent problems in the telecommunications infrastructure market for DSL services is another good instance of a mis-estimate of demand or the industry's inability to meet the de-mand. The lack of DSL customers at the going rate of about $40 to $50 per month has provoked many telecom and service providers to cut back installation plans and cancel orders for DSL line cards and other equipment to support the infrastructure. In a few cases, several service providers have even closed their doors.

Somewhere in these examples are some additional lessons we can learn. Market economics is probably one area where we may have become too complacent, overestimating the number of consumers who would be interested in adding DSL services or who could afford to add the services at the going rate. The limited area availability of such services also frustrates consumers, as they request the service only to find that it may be weeks or months before they can actually get it.

Are there more information sources we can use to better predict demand? Or will there always be unpredictable market conditions that will prevent us from fully learning all the lessons?

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