Analyst Insight: The global recession of 2008 and 2009 hit the high-tech and electronics industry hard, with many companies experiencing double-digit sales declines and profit erosion. Yet, in discussions with these companies, they remain highly optimistic for the future and believe they have used the global recession to retrench, drive out cost inefficiencies and better position themselves for the future.

-Simon Ellis, Supply Chain Strategies practice director, IDC Manufacturing Insights

High-tech and electronics companies, those we refer to as Technology-Oriented Value Chain (TOVC) manufacturers at IDC Manufacturing Insights, have had a tough couple of years. They operate in a complex supply chain environment where fragile inventory, complicated products, rapid product lifecycles and narrow margins put constant pressure on market share and financial performance. Given an inability, at least in the short to medium term, to materially affect demand and sales growth, companies have focused on successfully preserving the bottom line with aggressive cost containment and capital preservation efforts. At the same time, however, high-tech companies have done what they can to keep an eye on the customer with efforts to improve service levels and be more responsive to volatile demand fluctuations.

However, the segments that make up the technology-oriented value chain - high-tech equipment, consumer electronics, semiconductor, electronic manufacturing services - may have had the most uneven recovery.  Sustained demand for new consumer devices continues to be hampered by critical part shortages and supply chain snags.  For this value chain, it may be as much about control as cadence when it comes to further growth, and IDC Manufacturing Insights expects companies will look to create capabilities that better link demand signals to supply position.  This links to the development of new capabilities, where high tech and electronics companies see improved visibility and supply chain responsiveness as ways to drive enhanced business value and manage demand volatility.  Overall, IT investments for TOVC companies look to bounce back somewhat in 2011, with spending growth of 4.3 percent versus 2010.

Interestingly, high-tech and electronics companies are also the segment of manufacturers most interested in variable cost structures as a way to hedge, at the design level, against business fluctuations.  We see this, certainly, in the outsourcing of operations, but also in the approach to IT systems with SaaS and cloud applications, and with people through contracting and skills outsourcing.  High-tech companies, for example, have long been the most collaborative manufacturing segment in terms of new product design with suppliers and contractors.

The Outlook

Expect to see a continued choppy recovery for high-tech and electronics manufacturers in 2011 but with a sense of clarity for the future in things like visibility and supply chain responsiveness.  IT investment levels are growing, with a healthy focus on both capability building and servicing the customer.