Wednesday, March 30, 2011

Potential nuclear fallout in the laser market

I’m getting more concerned about the nuclear accident situation in Japan than I was when I wrote last week’s blog. At that point I could envision a sooner rather than later return to normalcy at Fukushima, but now, as this is written, it’s beginning to look more like Chernobyl.

Setting aside the human misery connected to this event is difficult; here in my home state we are already measuring increased, but said to be safe, radiation levels in our drinking water, and the neighboring state of Vermont reports measureable radiation level increases in the snowpack on the mountains.

I’m far from being knowledgeable about nuclear power plant meltdowns, but many years ago, a good friend, Professor Vladimir Kovalenko of Kiev Polytechnical University, shared his observations on the Chernobyl solution with me. He had asked my assistance in soliciting funding from the U.S. Department of Energy to work on a solution to dismantling the Chernobyl reactor. It turns out we couldn’t get anyone interested in his approach, but in the doing I learned a little about sealing off reactors. Thus, I have a hard time seeing Fukushima’s three reactors being sealed as successfully as Chernobyl. I certainly hope they will.

Thursday at midnight is the end of Japan’s fiscal year. In the past, this was “hell week” as companies worked 24 hours a day to ship every billable order in their plants to insure a healthy end of year revenue report. It’s too late for many of the companies this year as it will be nearly impossible to get enough product shipped to influence the numbers.

I don’t have the facts, just reports here in the U.S. media about no shipments of parts, for example in the automotive industry, from Japan. At the very least, this lack of billable shipments has to hurt the last quarter and year end numbers. I estimate that Japan accounted for more than a $1 billon of industrial lasers and systems last year, and at 15% of world share any change in sales will be noted in the total global number for 2011.

I am currently working on a Mid-Year Report on the Industrial Laser Market that will be presented as a Webcast on June 30. I am going to delay making my final PowerPoint slides as long as possible so that I can get the Japan numbers right. The total impact of the Fukushima accident won’t likely be known until the end of the first half year here in the U.S. when public companies report their 6 month revenues.

Tuesday, March 22, 2011

Indicators point to disruption in Japan market -- maybe

As this is written, the disaster in Japan is 10 days old and the initial shock and awe is past. We are now coping with the recovery from the earthquake and tsunami and living in dread that more bad news will emanate from the nuclear power plant in distress.

Fortunately, to the best of my knowledge, my friends and associates in Japan are all accounted for and safe, and for that we are extremely thankful, even while we share the sadness of the Japanese people for those dead and missing.

To talk about the economic condition of the country and specifically the situation in the manufacturing sector almost seems blasphemous since there is so much personal suffering to get past. But our attention has been diverted by events in Libya where once again our armed forces are involved in another political action so we can view global things more dispassionately

Several querists have asked my opinion of the Japan disaster's effects on the industrial laser industry. Since the issue is far from settled, it is hard to project the impact that a nuclear event might have because the situation, as they are wont to say, is fluid.

Already we have heard about the impact in the semiconductor and microelectronics industries and today’s Web alerts spoke of auto plant shut downs here in the U.S. as plants are coming up short on component inventory. At breakfast this morning, my wife, commenting on TV news about a shortage affecting GM, said that it “wouldn’t have happened if they placed orders here in the U.S.” I think that was a sarcastic remark, not typical of her.

According to my records, Japanese suppliers were planning to ship mot=re than 900 laser sheet metal cutters, 500 via hole drilling machines, and a couple of thousand laser markers along with assorted industrial lasers products. Word is that many of the suppliers are on a short work schedule or closed. So shipments will be affected; the questions are for how long and can the companies recover?

It is the end of the Fiscal Year in Japan and the last quarter revenues will be seriously impacted. I guess I'll have to put an asterisk against the Japanese numbers in my report this year, signifying that the numbers must be read in light of the earthquake and tsunami disaster.

Monday, March 14, 2011

Japan tested by earthquake and tsunami

Along with countless others who have travelled in Japan, I am watching the news showing the results of the horrible earthquake and tsunami that struck the coast of Japan last week.

I made the first of many trips to Japan in 1978, and I still recall the thrill of landing in Asia for the first time at- Narita airport, which had just opened and was being besieged by protesters because local farmers objected to the government’s eminent domain policies. I spent three weeks and traveled many hundreds of miles visiting companies and touring most of the major cities. On that trip I met and/or was introduced to hundreds of Japanese citizens as I made presentations at the US Embassy and several major companies and universities involved in laser material processing. Many of the people I met remain among my valued acquaintances. They welcomed me to their country, gave freely of their time and knowledge to see that I was educated about their country, and made to feel at home.

A most memorable visit on the first trip was an unescorted walk through the Hiroshima Peace Memorial Park one Friday afternoon. I was one of the day’s last visitors and the only Westerner at that late hour. When you are all alone on such hallowed ground, you have the opportunity to think about the destruction and disruptions the atomic bomb caused. That visit was one of the most poignant I have ever made to memorials around the world. I left with a deeper appreciation for the resilience and dignity of the people of Japan who had suffered from the event.

As I watched the news reports flooding in, I was struck by the similarity of my feelings. Here was another sudden disaster visited on the peoples of Japan. My first thoughts went to many friends, associates, and acquaintances I am privileged to have in Japan. I contacted my closest acquaintances to ascertain their situation. One, my colleague who manages Industrial Laser Solutions – Japan, responded to my e-mail with a message that she and her family who live in Hokkaido were all OK. She ended her message by saying “I would like to say thank you to the US government that sent a big support to the afflicted area. It encouraged us a lot.”

As the weeks go by, we will follow the recovery in Japan. I am scheduled to be in Yokohama late in September; by that time, some level of stability should have been reached, but the lingering effects will be as indelible as the Hiroshima Memorial.

Thursday, March 10, 2011

Fuel costs dampening rising economy

I was pumping $3.39 per gallon gas into my car and thinking that this fill was going to cost me about $2.00 more than last week and $4.00 more than the last week in February. I don’t use my car as much as many who pile up the business miles each week and consequently feel the pain more. A friend takes a $60 load every week and, since he is a practicing psychologist, the only way he can cover the fuel cost is to slip an extra hour per week of consulting time into his schedule.

The company that picks up my trash weekly bills me for fuel adjustment and if I hadn’t already booked an overseas flight a month ago I would be paying a fuel surcharge. Those who can pass it on will do so now that the weekly changes are in the double digits. Those who can’t will see their cost of doing business increase with an attendant drop in profits.

I’ve been touting the end of the recession and, like many analysts, qualified my forecast by stating that it assumed a status quo in the world economy. Current events in certain oil producing states have slammed the cost of doing business, and some pundits are raising the specter of another recession. Some of these forecasters stubbornly refused to acknowledge the recovery, and, as the weeks went by this year, they railed against the good news with a series of qualifiers, none of which by the way included double digit weekly hikes in the cost of fuel.

The rising cost of a barrel of petroleum, manifested at the world’s gasoline pumps, is one of those few costs of doing business that transcends national interests. The cost of fuel passed on to consumers directly or indirectly eventually impacts everyone.

Talking with an executive of a laser product manufacturer the other day, he was commenting on the power of the Asian manufacturing market to recover from the recession, while here in the U.S. it looked like his manufacturing customers were not recovering at the speed and rate of their offshore competition. He speculated the projected further increases in fuel costs might prove to be the death knell for many marginal suppliers located in the U.S. just when business was beginning to look up.

I countered that all global manufacturers may be forced to pass on the fuel cost increase effects to customers since it is a common global problem and that should level the playing fields somewhat.

Even in a service oriented economy like the U.S., these fuel cost increases will have an impact along the lines of my psycologist friend who ramps up his chargeable hours to offset the rise. So, whether U.S. manufacturers compete or not, the economy here is in for a jolt, and it may be so widespread that spending will drop just when the consumer was bailing us out of the recession. Not a pretty picture.

Tuesday, March 1, 2011

Manufacturing sector, thus laser industry, on the rise

Manufacturing is on the rise around the globe except in China. The March 1st Institute for Supply Management’s February factory index rose to 61.4 from 60.8 in January, the highest since May 2004 (readings greater than 50 signal growth). In the Euro region, manufacturing grew to 59 last month, the highest since June 2000. In the UK report, Markit Economics, the index held at 61.5 last month, the highest since 1992.The PMI in Japan was up to 52.9 in February from 51.4 in January. But in China the HSBC China Manufacturing PMI fell to 51.7, a seven month low as that country’s central bank raised interest rates three times in four months in an effort to cool-off inflation.

These statistics, even including those from China, are good news for the world’s industrial laser equipment suppliers. First it supports the very positive news generated by pubic company’s quarterly and annual reports. And for those counting on sustained manufacturing health to meet the guidance they issued for the next quarter, it produces an overall sigh of relief. The only tempering news is the price of oil rising to record heights as a consequence of the political turmoil in several oil-producing nations.

Industrial lasers are, for the most part, tied to the fortunes of the world’s manufacturing economy; proof of this is aptly shown by the speed with which the industrial laser revenues tanked at about the same time as manufacturing did. This is a dramatic change from the days when laser sales lagged manufacturing cycles by about six months. Part of this can be attributed to the side effects of today’s lean manufacturing practices where scheduling is tight and buying decisions are made on much shorter lead times.

The message is that laser equipment suppliers need to be paying closer attention to the MPI numbers so they do not get sandbagged as they did in December 2008 when order cancelations flowed in at an alarming rate, not allowing the suppliers time to reorganize and adapt.

Except for any lingering effects of the sky-high oil prices, it looks like clear sailing for the laser industry through the first half off this year. Several key suppliers have backlogs booked well into the second half from industries that made it through the recession in relatively good shape and therefore are well positioned to continue in that mode for several months.