February 17, 2010

Merger mania buzzes the LCD market

Converge LCD Update.

Hon Hai's (Foxconn) upward integration strategy to acquire CMO has moved along since the merger between CMO and Innolux was announced in November. To have the merger make sense, the new company, Chimei Innolux Corporation (CIC), is planning to take several cost-cutting measures on its future LCD production. One strategy to drive the costs down is to modify the mechanical design so that future products will be strategically configured to work with Foxconn's display applications across the line. This potentially will make CIC's future products less comparable with the mainstream offerings from other panel makers. Meanwhile, the new design will likely allow CIC to enter a niche market with improved profit margin. This also means that the open market will start seeing less liquidity on the CIC panels as a major portion of the new company's production output is allocated to its mother company, Foxconn.

In other areas of the market, the shortages on polarizer, driver IC and mother glass continue to hinder LCD productions globally. Many production plants throughout Asia are suffering from lowered capacities in February because of the weeklong Chinese New Year holiday. The shortage on desktop panels worsened because most panel makers underestimated the strength of the economic rebound. Stronger-than-expected demands from corporate clientele, in combination with those from various industries, have exceeded the overall production capacities allocated to desktop LCD by approximately 30% in the first quarter. In response, factory pricing rose again in February by 4%-6% (or around $4-$5) for mainstream sizes. Factory lead time stays at four to six weeks with deliveries often getting pushed back.

Television panel pricing stabilized this month with the only exception being 32", which goes up another $5, with an eight-week lead time quoted by the factories. The Chinese market remains an important consideration for panel makers when strategizing future pricing. The sales numbers during the Chinese New Year are expected to be relatively strong but not too strong. Many customers are taking a wait-and-see approach. This results in high inventory levels in the distribution channel despite the material shortage. It seems that TV panel pricing could be due for correction as we move into the second quarter.

Notebook panel pricing is again up by $3-$5, particularly for sizes between 14" and 17.3", with 17.1" and 17.3" being the most allocated. The 10.1" panels are also showing signs of shortage as manufacturers allocate some of the capacities to 15.6" and 17.3", where demand is among the highest. Production planning for notebook panels seems in line with actual demand. Panels featuring CCFL backlight are still among the most sought in the market, especially the 15.4" with matte polarizer. Of the most allocated, LG-Philips LP171WP4 and AUO B173RW series are two of the models in high demand in today's market.

The industrial panel market fluctuates little due to diverse usages and applications. Converge sees demand persist for STN models such as Sharp 6.4" and 8.4".

Expect HDD prices to increase along with shortages

Converge Storage Update.

The storage market pauses before anticipated race
In the January edition of our Market Insights Storage Update we projected a positive long-term outlook for the HDD market with some near-term uncertainty as we emerged from the holiday period. At the midway mark of Q1 CY10, we expected a clearer picture of the current status of the market. However, presently this is not the case.

Recent HDD market analyst reports continue to predict year-over-year unit volumes to increase by 15%, with some stating that sales levels have recovered to pre-recession levels. Further, analysts expect prices to increase as supply remains tight vs. demand. Meanwhile, the shortages on 750 GB and 1 TB drives seen during the holiday run-up have subsided, at least temporarily, with pricing softening at this time. We also expected the shortage to broaden to the 1.5 TB capacity. Not only has this not occurred yet, we have actually seen a drop in pricing from the $105-$110 range to sub-$100 levels with little secondary market activity.

There has been little change in the 2.5" SATA HDD market over the past three months. Demand remains strong for the 160 GB thru 500 GB capacities in the 5400 RPM speed. It appears that supply is adequate and most manufacturers are shopping for cost savings. However, there is steady part-number-specific service demand that commands premium pricing.

Last, there is growing demand for IDE interface HDDs in both the 2.5" and 3.5" form factors. This is not a product of increased consumption but rather of decreased production coupled with continued service requirements as well as refurbishment of older technology to support trailing-edge markets. The demand has been stable month over month, but supply is diminishing. The result is an uptick in pricing for 80 GB through 250 GB in the desktop segment and, to a greater extent, the 40 GB through 120 GB capacities in the mobile segment.

In conclusion, we believe the current state of the HDD market is not indicative of the long-term outlook. This is historically a slow quarter for storage space, and there are too many opposing variables to sustain this course. Looking forward, we expect prices to tick up moderately as we shift back to more of a shortage environment across the mainstream capacities in both segments and interfaces.

Semiconductors and ICs as hard to find as a clean car in snowy New England

Converge Semiconductors and Integrated Circuits Update.

Expanding lead times fuel market
The market is settling into a fairly consistent pattern of shortages and extended lead times, which is being driven by the following factors:

  • Standard Logic shortages are continuing with no near-term end in sight. Texas Instruments (TI) is on allocation, while NXP, Fairchild and ST Micro are all running lead times of 12 to 20 weeks.
  • Microcontroller shortages are not easing, with Atmel now joining Freescale, TI and Infineon in having some lines out to 20+ weeks. Freescale's Coldfire and TI's MSP430s are the tightest of the bunch.
  • Altera and TI programmable logic and Altera and Freescale DSP lead times have not changed over the last eight to 10 weeks, while over that same time period Broadcom's networking devices (Ethernet switches, transceivers and controllers) have tightened.
  • Lead times on optoelectronics (couplers and LEDs) have risen steadily over the last two months with some lead times stretched out to 28 weeks on Vishay couplers and 16 weeks on Osram LEDs, with several lines on allocation.
  • The most highly visible shortages right now are in the analog arena, with data converters, op amps and voltage regulators. ST Micro is on allocation with its op amps and voltage regulators, while lead times on TI data converters are in the mid-20s and pressure to increase some prices is increasing.

Supply remains stable for new Intel I9, I7, I5 and I3 families

Converge CPU Update.

Supply and demand balance the spot market
In January, the new Intel I9, I7, I5 and I3 families began to flow through the open market. Supply appears stable, and the shortages that had made the start to 2009 so memorable did not materialize this year.

Otherwise, January was stable, with respectable demand across all of the niche markets. Lead time offers, beyond the Chinese New Year holiday, indicated that pricing on the new models would soften in the coming months. However, there are neither large shortages issues nor price gaps with the new product lines.

New off-road parts and the spot market.
T6400, T6500 and T6600 are part numbers in great demand in the open market. These parts are sold directly by Intel to only a select few OEMs, meaning the direct channel is the only place to locate a significant quantity of material. P7, T42, T3 and T5 are all parts following the same principle. Seventy percent of CPU sales are now in this area, with market prices ranging from $40-$170. Intel prefers to guide smaller laptop OEMs toward the higher end of the CPU market, and they run from $200 upward. This places the spot market into the center stage as a solution for the smaller OEMs.

For new off-road parts, Converge has been tracking spot market offers, but pricing does not currently interest OEMs. For example, the new $100 model i3/330m is offered in the spot market at $110-120+; however, the T6600 is priced at far less and the bare bones are still in stock. We have also seen that the part is being offered in a bundle with chipset i3/330 +hm55, but so far the quantities available remain elusive. The post-Chinese New Year market will reveal opportunities as pricing and supply settle down into definable patterns.

Indications point to an early uptick in the memory market

Converge Memory Update.

DDR3 demand expected to strain supply channel
Activity in the DDR3 market has shown signs of slowing down during the last two to three weeks. Converge attributes the slowdown to the time of the year and the arrival of the Chinese New Year holiday. Generally, February can be a slow month for activity as the box builders begin to get an idea of how their upcoming forecasts are going to materialize. Due to the slowdown, pricing has retreated a bit, especially in the notebook market. The 2 GB DDR3 SO-DIMM has dropped to the $47-$48 range for the first time in three months. Also, 2 GB DDR3 desktop modules have dropped to the high $40s as product has become available in the spot market. Converge believes DDR3 activity will resume in the first half of March and pricing will begin to climb back into the $50+ range for all 2 GB modules.

March has historically been a busy month for memory as box builders begin to fulfill their forecasts. Industry analysts are predicting the memory market to start taking off in the second half of 2010, but Converge believes the uptick in spot market activity will begin sooner. Many of the box builders are reporting an earlier-than-expected migration to DDR3, and that will put a bigger strain on the supply channel.

Another example of the early migration to DDR3 is the steep decline in DDR2 spot pricing. The spot price for 2 GB DDR2 modules has dropped from a high of $54 to $40 for both desktops and notebooks. There's plenty of supply, and we are seeing large quantities of excess for the first time in almost a year. We don't believe the DDR2 market will drop too much further as second-tier box builders take advantage of the low pricing.

The SDRAM market continues to experience serious shortages. Micron in particular is on the verge of allocation on most SDRAM product, and the spot market continues to rise at a rapid pace for all Micron SDRAM. For those using only Micron material, it may be a good time to start qualifying other manufacturers.

February 15, 2010

Unlimited Liability

I’m often asked by enterprises about unlimited liability, and how a corporation can set up their IT asset disposition process so that once they turn over their assets for disposal to another party, they are no longer held liable for any potential breaches.

The straight answer is that there is no such thing as unlimited liability. Companies are still very much accountable for what happens downstream with that asset. That’s why a proper ITAD process is so important.

A third party provider can sign a contract promising to absorb any and all liability arising from an incident but the reality is that the limit to that liability is maxed out at the value of that provider’s assets. If you have a claim that exceeds the value of the provider’s assets, the provider may go out of business covering what it can of the claim, but your organization will still be responsible for the balance of the claim.

An agreement for unlimited liability also doesn’t address the other costs borne by your organization such as damage to reputation and loss of customer goodwill, notifying affected individuals of the breach, and implementing corrective actions to ensure it doesn’t happen again.

The bottom line is that a third party ITAD provider will provide a layer of liability protection, but ultimate responsibility for your organization’s assets always remains with the organization. Make sure you investigate your provider thoroughly and have a complete and transparent understanding of their disposition process, reputation and fiscal health. If you can look under the rocks and still be glad you did, you’re on the right path.

February 4, 2010

Study shows organizations are taking more measures to increase data security

The Ponemon Institute issued their fifth annual Cost of a Data Breach Study in January. While none of the findings are exceptionally surprising, it is heartening to see that in 2009, organizations started paying more attention to and dedicating more resources to the prevention of data breaches than ever before.

The study focused on 45 organizations in 15 industries who experienced data breaches in 2009 and volunteered to share their information for the purpose of the study. The number of records lost or compromised in each incident ranged from 5,000 to over 101,000.

Here's a snapshot of some of the data from the study:

  • The average cost of a data breach increased from $6.65 million in 2008 to $6.75 million in 2009
  • The average cost per record compromised in 2009 was $204
  • Data breaches from malevolent attacks doubled between 2008 and 2009
  • Customer turnover from a data breach accounts for the majority of the cost
  • Healthcare, pharmaceutical, communications and financial services firms are those most likely to be affected by abnormal customer turnover
  • The average cost per compromised record is higher for companies who notify victims quickly
This last bullet affects me from two standpoints. First, as a businessperson, I understand the logic put forth by the Ponemon institute that rushing to notify customers of a data breach could end up costing more because of inefficiencies during discovery, notification and restitution. It makes sense that companies who methodically study the breach, wait to see the full extent of the damage, and carefully take action steps will be able to keep costs more contained.

But as a consumer whose personal information is in the care of hundreds, maybe thousands of companies around the U.S. and globally, I want to know immediately if my personal information has been lost or compromised. And I want the offending organization to take steps to protect my information without delay. In addition, state laws and the proposed federal Data Accountability and Trust Act require data breach victims to be notified immediately or within a specific time period.

I encourage you to download the study and consider its implications for your organization. And send me your thoughts about data security and data breaches too. Even though the topic is more commonplace than ever before, new ideas and process improvements are always called for.