2001 Outlook
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2001 OUTLOOK FOR USED EQUIPMENT MARKETS Independent
Equipment Company (“IEC”) annually compiles outlooks for
selected equipment categories which are commonly financed by
leasing and asset-based lending companies.
Overall, the outlook for used equipment markets in
2001 is not good. In
fact, the average score for this year’s outlook finished
for the first time in eight years in negative territory
(below satisfactory). For
2001 the 14 equipment types surveyed had an average score of
4.86 (below satisfactory).
By way of contrast, the average score in 2000 was
5.07(satisfactory), in 1999 5.21, in 1998 5.50,
in 1997 5.71, in 1996 5.86 and in 1995 6.42.
IEC views 1994 as the peak year in equipment value
cycles with 1995 being a transition year and 1996 the start
of a slow decline. 2001
is expected to be a year during which most used equipment prices will tend to
decline from 2000 levels.
Likewise, this year is forecast to be a year during
which the U.S. economy is expected to expand for it’s 9th
straight year, but at a much slower rate than in 2000.
A recently published Outlook by the National Association of Business Economics shows a
consensus opinion that 2001 will register a significant slow
down in the economy with the GDP expected to grow at about
3.1% (range 1.1% to 3.8%) for the year.
In another blue ribbon poll conducted by The Wall
Street Journal, 54 economists surveyed predicted GDP for
2001 will expand by 2.9% for the year.
These forecasts are believed to be based on
assumptions that the economy will continue to weaken in the
face of one or more the following: a further deterioration
of U.S. equity markets; a corresponding drop in consumer
confidence; a slow down in consumer spending; a continuation
of high fuel costs; a deterioration of the U.S. trade
balance; “high” interest rates, etc.
Although the high interest rate concern was recently
addressed by a “surprise” cut in the Fed funds rate and
two ”surprise” cuts in the discount rate it is never the
less expected to take about 6 months for the effects to be
felt. Therefore,
the economy may languish for sometime, most likely during
the first half of 2001.
This will put additional downward pressure on new and
used equipment prices. Based
on the foregoing and on first-hand knowledge of equipment
secondary markets, IEC has compiled the following outlook
for selected equipment types which are frequently financed
by the leasing and asset-based lending companies.
For comparative purposes, a rating is given to each
equipment type that is reflective of its expected secondary
market conditions compared to historical conditions.
These rating range from 10 (outstanding), 5
(satisfactory) to 1 (very poor). 2001 USED EQUIPMENT OUTLOOK
Automobiles
(4) - 2000 was a record year for the industry, which
saw new car and light truck sales of approximately 17.4
million units, a 2.6% increase over last year's total, which
itself was a record that tied a previous mark set in 1986.
In spite of the record year, it ended on a
significant down note.
Industry sales plunged in the 4th quarter.
Major losses were taken by DaimlerChrysler, Ford, and
GM. All of the
majors announced plant closings, layoffs, and not- so-optimistic outlooks for 2001. In addition, the automotive ripple effect is affecting
supplier companies, which have likewise started layoffs and
restructurings. Some
of these include Delphi Automotive Systems, Dana
Corporation, Eaton, Federal-Mogul, and Rockwell.
This ripple extends further to overseas
companies such as Valeo, Michelin, Britain's T.I.
Group (which withdrew from the auto components sector
altogether). Likewise,
many of the larger suppliers such as TRW and Lear have been
forced to accept lower prices from carmakers while facing
steady or rising raw materials cost. A
deteriorating market has caused larger-than-expected vehicle
discounts -- particularly in the lucrative mini-van market,
once dominated by Chrysler, which now competes with the
likes of Ford, GM, Toyota, Honda, etc.
Discounts which had previously averaged $650 per unit
are now $2,500 and more.
Profit margins for mini-vans have been at least cut
in half. In
addition, the global industry is plagued with over-capacity. This has been made worse by Nissan's recent announcement to
build a new production plant in Mississippi for large pickup
trucks and SUV's, after truck plant expansions were
previously announced by Honda and Toyota in North America.
These additions to capacity will likely add another
1.5 million units of light truck capacity in North America
by 2005. A blue ribbon panel of (30) of the nation's top economists predict that sales will drop by 5% in 2001. Many others are predicting a 10% drop. In spite of this gloom and doom, leasing remains a formidable financing tool for the automotive industry. In fact, about 38% of all new cars leaving dealer showrooms are leased. This is up from only 19% in 1989. In addition, many dealers are also reporting that over 1/3 of their used car sales are leases. It is anticipated that by the end of 2001, 4.2 million leased cars will be returned to dealers compared with just 470,000 in 1994. The effect of this increase is expected to lead to a continued deterioration in near term used car prices. Industry sources predict used car demand to remain constant this year at about 17.8 million units. In addition, the automotive industry remains quite concerned about relatively high interest rates, high fuel costs, and most importantly -- a deterioration of consumer confidence, which seems to be linked to the evaporation of the "wealth effect" caused by the sharp fall in the U.S. equities market. For comparative purposes, this category rated a 5 in 2000. Aircraft
(5) - 2000 was a mixed year for the airline and
aircraft manufacturers.
In spite of airlines increasing passenger revenue
miles and load factors, profits came under substantial
pressure from 1999 levels.
According to recent statistics, the industry reported
$2 billion in operating income, down from about $2.3 billion
from the same period in 2000.
The current shortfall is partially attributable to a
$1.2 billion increase in fuel, and a $1.2 billion increase
in labor expenses. In
spite of decreased operating incomes, revenues actually
increased $2.4 billion, reflecting a 7˝% increase in system
revenue, which offset the higher fuel and labor costs.
For 2001, the industry is expected to remain under
intense cost pressure which some analysts feel could cause
another downturn in the industry.
Some feel that the next downturn will be caused by a
combination of high fuel costs, increased labor costs and a
high U.S. dollar exchange rate overseas.
There is also a feeling that the industry is now
getting close to the "surplus fleet" trigger,
caused whenever the surplus fleet grows to about 8% of the
entire fleet. However,
recent forecasts suggest that this is not likely to happen
in the near future. Also,
the recent move of the IACO to establish Stage 4 standards
has caused additional uncertainty in the market.
This is further compounded by the IACO’s
considering aging aircraft (aircraft over 25 years old) as
being linked to Stage 4 guidelines.
All of this poses uncertainty and potential downward
pressure on future values.
Already, several large U.S. aircraft leasing
companies have been heavily impacted by problems associated
with compliance problems related to aging aircraft.
In
spite of all of the foregoing, Airbus' 2000 Global Market
Forecast has predicted that about 15,400 new airlines and
freighters valued at about $1.3 trillion will be required by
passenger and cargo airlines during the next 20 years.
Airbus further estimates that passenger traffic will
increase at an average of 4.9% over the next 20 years, with
5.2% annual growth over the next ten years alone.
The passenger aircraft fleet is expected to increase
by 85% from 10,349 units to 19,173 aircraft over the
forecast period. Airbus
further estimates some 9,011 aircraft will be replacements. During the same period, freight aircraft will more than
double to 3,449 units.
Trends in the industry can also be seen in sectors
which Airbus sees new airliners being manufactured.
According to its latest forecast, approximately 4.7%
of new aircraft will be in the 70-85 seat category; 49.7% in
the 100-175 seat category; 20.7% in the 210-250 seat
category; 14% in the 300-400 seat category; and 10.9% in the
top end market. Meanwhile,
Boeing, which just captured the market share lead back from
Airbus, estimates for the next 20 years an addition of
22,300 airplanes, based on an average forecast air travel
growth rate of 4.8% over the next 20 years.
Furthermore, due to Boeing's intense competition with
Airbus, actual prices for new aircraft have become heavily
discounted from list. Recent
transactions show that typical discounts for new aircraft
range from about 20% to 35%, depending on conditions. Also,
the US/EU hush kit deadlock has eased somewhat due to
renewed talks, following the filing of dispute settlement
Article 84 with IACO by the U.S. government.
Primary changes are set only to postpone certain
enforcement dates. Recently,
there has been a trend towards a softening in operating
lease rates. This
has been primarily due to increased aircraft availability
and competition. During
the year, rates have fallen for such staple aircraft as
737's, A320, and others.
Wide bodies have also suffered the same fate as
narrow-bodies with great softening in the A340 market,
A330's, and even Boeing 747-300's.
Even the value of Boeing 747-400's has softened due
to competition from the A340-600 and the A3XX super jumbo.
Several wide-body aircraft are currently near death,
including the Boeing 747-100, which has a non-existent
market, and the 747-200, which now has a market only as a
freighter. Other
older aircraft, such as DC-9s are all but dead, and even the
MD-80 is expected to suffer from a negative impact due to
Stage 4 noise restrictions.
Also, the 727-200 market is expected to collapse, due
to compliance costs, high fuel consumption (cost), and
increased operating expenses. Engine
lease rentals remained firm for 2000, and are expected to
remain about same in 2001.
Demand for Stage 3 engines is now very strong, with
the CFM family continuing to dominate the leased market.
Prices for many types of used jet engines have
actually increased over the year.
There is much growth in the engine pool, and
competition is expected to increase in 2001.
This may put downward pressure on lease rates. Overall,
their continues to be a reasonable, but somewhat softer
resale market for used Stage 3 equipment, while Stage 2
equipment continues to approach the end of its useful life. The
cargo market remains buoyant, thanks to overall global
economic conditions. Recent
cargo market forecasts show revenue ton miles increasing at
a rate of 5.3% to 7.0% annually over the next 20 years.
Top growth rates are found in Asian routes between
North America, Europe, and even inter-Asia, as well as North
America-Europe, all exceeding a 6% growth rate for the
20-year period analyzed. In other developments, the (19) seat turbo-prop market has
largely given way to the 30-50 seat jet replacement market.
In addition, the executive aircraft market, which had a very
good year in 2000, is expected to contract somewhat in 2001,
as private owners and corporations succumb to pressure on
corporate earnings and losses taken in the stock market.
For comparative purposes, Aircraft scored a 6 in 2000. Marine
(6) - Opportunities in the Marine sector for 2001
appear to be excellent, but once again subject to cyclical
downturns. During
2000, the industry reacted to sharp increases in demand
brought about by increased oil prices.
This brought positive changes to almost every segment
of the industry. For
instance, in the oil patch, activity in Gulf waters
increased dramatically.
Premiums paid for jack-ups with 3,000-ft. or greater
of water depth capability which were working at $40,000 per
day are currently working at $60,000 to $70,000 per day, and
by year-end 2001 are expected to be earning near-replacement
rate pricing at $80,000 to $90,000 per day.
Also, supply boat demand has increased sharply.
Utilization has been at or near 100%, and day rates
have drifted from $3,000 to $6,500.
Likewise, crude carriers came under intense demand,
as rates for VLCC's ranged from $45,000 to $60,000 per day
for east and west bound discharge, while older ships built
in the 1970's earned $28,000 to $35,000 per day.
In addition, owners of double-hull Suezmax tankers
believe they can enjoy even higher rates, as the IMO
phase-out schedule for single-hull tankers has been advanced
from 2025 to 2015. This
is felt to have a significant impact for owners of all
single-hull and double-hull tankers.
For example, 53% of this fleet is subject to an
accelerated phase-out.
This could seriously impact supply in the industry.
Even worse is that shipyard capacity does not seem
adequate to handle any kind of incremental demand over the
next few years, and there may be a severe shipbuilding
restraint problem after 2010, as large numbers of
single-hulled tankers start heading towards the scrap heap.
Ship building capacity is now at 96% -- the highest
in 20 years. This
demand is being supported by approximately 25% of today's
tankers, which were built from 1975 to 1977. On
the intercostal waterways, barge demand remains good, thanks
to increased retirements, leaving the dry cargo barge fleet
at just over 20,000 units, and about 2,900 liquid barges.
As expected, demand for double-hulled liquid barges
remains strong. Also,
the outlook for tugboats, tow/push boats, ferries, even some
cruise lines, etc., all look to be good for 2001. Over the recent past, financial institutions providing financings to the industry have fallen by over 50% to approximately 60. Meanwhile, the cost of completing a transaction has risen over the period. Because of current conditions, the demand for marine financings is expected to increase sharply, and perhaps the industry is ready to respond in a favorable manner. However, this industry remains linked to the global economy. When times are good and consumer demand is strong, trade flourishes, and so does the marine industry. Conversely, during global slowdowns, trade flounders, prices fall, and the industry suffers. In this industry, it all seems to be a matter of timing and economic forecasting. It is clear that only the best will survive here. For comparative purposes, Marine scored a 5 in 2000. Trucks/Trailers
(4) - 2000 was a very poor year for the
truck/trailer industry, as higher interest rates, combined
with sharply increased fuel costs, and a slowing economy,
led to what some industry experts called a disaster.
For 2000, Class 8 truck production fell to
approximately 220,000, down from last year's peak of 262,000
units. The 1999
figure broke a previous record of 210,000 units set in 1998. Doom and gloom has shrouded the industry for almost the
entire year. What
went wrong? Part
of the problem was aggressive production and sales over the
past several years that saturated the market with new and late
model used trucks, driving trade-in values down as much as
50%. These
problems were compounded by a driver shortage.
In addition, higher interest rates made it more
expensive for buyers to finance new trucks and for dealers
to keep them in inventory.
Fuel price increases seem to have damaged the
remaining market, and many think it could get worse.
Current “Heavy Truck”
market leaders include Freightliner, International
Truck & Engine, Peterbilt, Mack, Volvo, Kenworth, and
Sterling. According
to the ATA, diesel prices have increased from less than
$1.00 per gallon in 1999 to over $1.60 per gallon in 2000.
This alone caused a sharp increase in trucking
bankruptcies. For
example, in the 4th quarter of 1999, 280 trucking companies
failed. However,
during the first three months of 2000, 620 bankruptcies
occurred. During
the second quarter another 745, and the number keeps
increasing. “Normal”
fuel costs burn up 12% to 14% of revenue for the truckload
sector. The
market has become so depressed that some major leasing
companies have introduced "skip-a-payment"
programs. Others have moved to extending leases for additional months.
Current repossession rates for trucks have been
running at about 2,000 per month since spring. According to sources at Truck and Trailer Bluebook,
"..the depreciation rate has accelerated by about 1-2
percentage points per month over what it had been.."
For example, wholesale prices used to depreciate
about 3% per quarter. Now
they can change that much in a single month.
This problem seems to be particularly acute among
Class 8 tractors. An
analysis of the secondary market shows that in 1998 the
market was under-supplied, as only some 170,000 Class 8 used
trucks entered the market.
Approximately 100,000 trucks and tractors were traded
or sold by first owners, 60,000 from second owners, and
10,000 from third owners.
However, an over-supply occurred in 1999, where some
225,000 Class 8 trucks became available as used equipment,
145,000 from first resales, 70,000 from second resales, and
10,000 from third resales. Current estimates are that the Class 8 available pool will
increase to about 270,000 to 300,000 units, which is about
60,000 to 90,000 units above the average of 210,000 units
that the “average” market can absorb.
Approximately 200,000 of the 300,000 will come from
first resales, 70,000 from second resales, and 30,000 from
third resales. According to one market analyst, "The
growing glut probably will not be resolved for at least
three years." This is because the purchasing characteristics and demands of
many Class 8 buyers will not change significantly in the
short-term. Analysts
estimate that the glut will continue to grow in 2002 to
about 330,000 units, and finally in 2003 will see supply
declining somewhat to about 250,000 to 270,000 units.
In addition, numerous leasing companies have taken
losses and write-downs during 2000.
One expert was quoted as saying that truck
manufacturers and dealers will have to write off about $1
billion on Class 8 residual values between late 2000 and
2002. All of
this has led forecasters to predict a sharp decline in new
heavy truck sales in the range of 25% to 45% for 2001,
bringing the total number of unit sales to be approximately
165,000 to 130,000. Besides
all of the foregoing , regulators seem to be adding to the
problems with proposals to limit the number of hours a
driver can drive per day, creating a potential shortage of
tens of thousands of drivers.
Also, just recently California adopted a 2005-2006
engine rule, which requires a sharp reduction in diesel
engine nitrogen oxide emissions.
Manufacturers have said it would be difficult to
create such an engine so quickly.
Some operators have speculated that specially
formulated diesel fuel will be required at a cost premium of
+30%. Thus, the
primary and secondary market outlook for the trucking
industry look bleak for the coming year. Trailer shipments also fell sharply during 2000 and trailed 1999's total of approximately 280,000 units by about 17%. 1995 had recorded the highest trailer sales total in history, until it was shattered in 1998 with a sales mark of 344,000 units. Demand for used trailers is expected to decrease in 2001, due to falling shipments and over-supply problems. Prices for most used dry van and reefer trailers are expected to fall. Flats and tankers will fare better. For comparative purposes, Truck/Trailers rated a 6 in 2000. Machine
Tools (5) -
The machine tool industry experienced a bit of a
rebound in 2000, as domestic demand increased about 3% to
approximately $7.3 billion.
All of this occurring after demand plummeted in 1999
by almost 20%. Historically,
1998 demand increased by 20% over 1997 which was 26% over
1996 sales. In
the U.S., there are approximately 1.5 million machine tools,
of which approximately 15% are less than four years old.
It is interesting to note that approximately 35% are
10 to 19 years old, and 25% are 20+ years old.
The aging characteristics of this industry continue
to show room for growth, both in new and used equipment.
CNC equipment has been attractive to end-users, which
consist of about 50,000 plants with 10 million employees.
The hot bed of the machine tool industry continues to
be the Northeast and Midwest, which collectively account for
72% of the domestic machine tool demand. One
of the reasons for the rebound in sales last year was the
return of industries whose earnings increased after a tough
time in 1998 and much of 1999, when big machine tool
purchases in the automotive, aerospace, and general
engineering sectors delayed buying.
Globally, the market showed a 5% increase over 1999
sales numbers. Even
in the automotive industry and other sectors suffering from
overcapacity, the need to boost productivity still points
towards healthier demand for machine tools. The secondary market for machine tools, which has been almost recession-proof, experienced a dramatic downturn in 1999. Specifically, machine tools in the 7 to 10 year age group (even CNC equipment) were hard hit. Based on large auctions held throughout the country, used machine tool prices fell from the expected "norm" by 20% to 50%. This number held during 2000 and is expected to remain the same during 2001. IEC believes some of the reasons for the fall off in the secondary market are related to easier credit standards in the past, which gave many secondary market buyers the opportunity to participate in the primary market; large productivity gains received from the purchase of new equipment (making economic assumptions much more favorable towards the purchasing of new equipment rather than used); a continued hangover from the Asian meltdown of 1998, which saw an expanded "grey" market and discounting of over-produced new machine tools; and a general consolidation within the industry. With the exception of easy credit, these trends are expected to continue. This could have a significant impact on the machine tool segment of any lessor's portfolio. In the meantime, if the global economy slows in 2001 -- led by the United States -- then the outlook for the machine tool industry, which is estimated to expand at a rate of 1% to 2% for 2001 can rapidly turn negative. Already, storm clouds are gathering for many machine tool operators who supply the automotive, and truck/trailer industry with parts. Many have been put under intense profit pressure and some may fail. Such a scenario could cause an over-supply in the secondary market, which would push values in the secondary market lower. For comparative purposes, the used machine tool equipment market was rated a 5 in 2000. Mining ( 5 ) -- Domestic mining activity started 2000 with a bang but ended with a whimper. Overall, for coal, production numbers for 2000 about 1.235 billion short tons; in 1999 1.2 short tons; in 1998 1.11 billion short tons; and in 1997 totaled 1.09 billion short tons. The coal industry is expected to increase at a rate of 1% to 1˝% per year. Since January, 1999, consolidations have hit the industry, including Alcoa/Reynolds (aluminum), Alcan/Algroup (aluminum), Alcoa/Cordant (aluminum); Phelps Dodge/Cypress Amax (copper); Grupo Mexico/Asarco (U.S.) (copper), and so on. These consolidations led to positive economics within their related industries. Recently however, the US Geological Survey Primary Metals Index has reversed itself and dropped sharply in the fourth quarter, after rebounding in the third quarter from four straight monthly declines. Specifically, the Primary Metals Leading Index plunged 3.2% in the fourth quarter of 2000, signaling the largest decline in a Preliminary Leading Index in over four years. Normally a growth rate below -1.0% signals a downward near-term for future growth in metals activity, while a growth rate of +1.0% signals an upward trend. Therefore, although primary metals recovered somewhat in early 2000, the outlook for 2001 looks to be negative, primarily due to national and global economic conditions as well as perceived supplies. On the other hand, coal may benefit if gas and oil pricing continues to increase during 2001 and copper looks to be somewhat stable due to a sharply lower stock pile, although a reversal in the Automotive industry could cut demand for the metal. Overall, in spite of the mixed outlook, sales for mining equipment are expected to remain stable. Used equipment prices have held up for above ground mining equipment, including loaders, tractor dozers, and small or very large capacity off-highway trucks. The underground equipment market remains soft, and mid-size capacity off-highway trucks, shovels, and drag lines continue to experience soft market conditions. For comparative purposes, mining scored a 5 in 2000. Telecommunications
(5) - 2000 started off to be a good year for the
telecommunications industry until the full effects of the
dot-com collapse were felt.
The telcom equipment grouping is used to describe
several different industries.
For instance, in the U.S. today there are
approximately 126 million phone lines, 7.5 million cellular
phone users, 5,000 AM radio stations, 5,000 FM radio
stations, 1,000 TV broadcast stations, 9,000 cable TV
systems, 530 million radios, 193 million TV sets, 24
undersea cable systems, and a growing number of satellite
communications systems.
However, most people narrow the segment into three
(3) fields -- namely the traditional land-line phone
providers; wireless companies; and optical networking
components which make fiber-optic parts.
For 2000, sales for the telecommunications market
increased approximately 30%.
However, due to the dot-com crash, as well as
mergers, acquisitions, and consolidations within the
telecommunications market itself, industry experts are
looking for the market to expand by 20% to 21% next year,
with total spending estimated to be approximately $108.5
billion. During
the year, deferring marketing strategies caused some
companies to excel while others sputtered.
One success story was Nortel's grasping the peak
opportunity in optical transport and in the optical
switching markets. The
first being the 10 gigabit OC-192, which has given Nortel
over 90% market share in the 10 gigabit system sector.
Conversely, Lucent's optical sales declined 26% year
over year. Furthermore,
Lucent has failed thus far to realize when most of the world
was going to move from circuit-switch to packet-switch type
equipment, so the company became overly-reliant on its
existing 5ESS architecture. Worldwide tech spending is at about $2.5 trillion.
Its expansion continues to provide growth areas for
the telcom equipment industry.
Some areas which will be developed in the very near
future include optical space, generation switching (the
transmission from circuit switching to packet switching).
This will be a transitional process.
There are approximately 30,000 Class 5 switches in
the market, and some 6,000 Class 4 and Tandem switches.
The third growth area will be related to the
video-on-demand aspect of cable equipment.
Competition within the industry continues to expand
for companies such as Lucent, Nortel, ADC
Telecommunications, Tellabs, Corning, Scientific-Atlanta,
ANTEC Corp., CommScope, Harmonic, C-Cor.Net, Aeroflex,
Agilent, Cabletron Systems, Inc., Cisco Systems,
Extreme Networks, Exodus Communications, Internap
Network Services, Metro One Telecommunications, Newport
Corporation, Packeteer Inc., Veeco Instruments, etc. Technological
issues related to this industry make Moore's Law
(semiconductors) look like a slow-poke. Moore's Law is the principle that the chip industry doubles
performance every 18 months.
However, the capacity of a single strand of fiber
doubles every nine months.
Thus, technology changes very quickly in the
telecommunications industry, and product cycles are quite
short. Based
on the latest statistics, spending on telecommunications
infrastructure is broken down into the following elements:
wireless 8.8%; "outside plant" 21.2%; data
infrastructure 10.6%; voice 11.9%; transport 18.5%; access
13.6%; and other 15.4%. In the secondary market, systems with backbone continue to recognize residuals than those without. Sales of used office systems continues to be good for those manufactured by Nortel, Lucent Technologies, and Toshiba. Systems manufactured by Rolm, Executone, and Fujitsu, fare well, but not as well as the top tier. Other manufacturers such as Iwatsu, Comdial, Premier, Cohort, Trillium, NEC, NEX, etc., are classed as slow-niche sellers. For 2001, IEC expects the telecommunication equipment demand growth rate to slow, due to reasons previously expressed, which would bring about less spending on infrastructure for expansion. IEC expects the best residual results to come from resellers who specialize in Nortel, AT&T, and Toshiba equipment. For comparative purposes, the used telecommunications equipment market rated 5 in 2000. Semiconductor
(4) - Sales volume for the semiconductor
manufacturing industry increased sharply by 37%, to $205
billion in 2000. This
is in comparison to an 18% increase in 1999 to $149 billion.
That contrasts to an 8% decline in 1998, when sales
fell to $126 billion from $137 billion in 1997.
Due to a slowdown in PC demand and some types of
cellular communications equipment, the semiconductor
industry is expected to only increase 15% to 18% in 2001,
unless there is a recession, which would cause the rate to
slow further. A
slowdown in late 2000 was related to the high volume
production of semiconductor chips confined to PC dominant
applications, and some wireless communications equipment.
PC type demand accounts for about 50% of the chip
industry's output. Thus,
the industry's output isn't expected to increase much during
the first half of 2001, until manufacturers have disposed of
unsold product. Recently,
several large chip manufacturers have announced delayed
start-up dates for new fabrication facilities.
Some have been pushed back one to two years.
One bright spot in the industry has been flash
memory, or chips that continue to hold data when power is
turned off. This
type of chip is typically used in cell phones, cars, and
many other devices. These
chips have been in short supply all year, and as a result
represent the fastest growing part of the industry.
Sales of flash memory more than doubled in 2000, and
are expected to increase 44% this year to about $14.5
billion. Based
on the latest available information, a list of top
semiconductor capital equipment manufacturers, as ranked by
sales, includes Applied Materials (which has over 2.5 times
the sales of its next closest competitor), Tokyo Electron,
ASML, Nikon, Lam Research, Novellus, ASM International,
Silicon Valley Group, Canon, and Varian Associates.
Meanwhile, according to the SEMI Equipment Consensus
Forecast, equipment producers in the U.S., Europe, and Japan
expect 2000 equipment sales for the industry to total
approximately $27 billion, also DataQuest recently estimated
$26.6 billion, a 49% increase over 1999 equipment sales.
1998 sales totaled approximately $14 billion. Over
the past two years, the secondary market for used
semiconductor equipment has begun to firm up. Several professional trade associations related to sales of
such equipment have also sprung up.
Remarketers continue to look for ways to sell
equipment to the more than 1,800 semiconductor fabrication
facilities around the world.
The technology node for 2001 shows the industry having a "state-of-the-art" leading-edge generation requiring about 150nm lithography, falling to 100nm in 2005 - 06. Presently, there are no known solutions for some 100nm generation processes relating to back-side particles, photoresist, in-gate CD controls. However, the industry is expected to find solutions to these in the near term. For 2001, various opportunities are expected to exist for leasing and finance companies, particularly related to vendor finance programs, fab expansions, and various joint ventures scheduled to start up. Financing for individual items tend to range from $150K to $14 million; and for entire wafer fab lines from $250 million to $750 million. Lease terms for most of this equipment range from 2˝ to 6 years, depending on the type of semiconductor tool leased. For comparative purposes, the used semiconductor market rated a 4 in 2000. Construction
Equipment (6) - 2000 was another good year for
the industry, which experienced its 8th straight increase.
According to a recent forecast by F.W. Dodge Division
of McGraw Hill Companies, Dodge predicts that the value of
total construction contract awards it tracks, including
residential, will increase about 1.4% to $468.4 billion.
Preliminary totals for 2000 are $461.7 billion, which
showed a 3.4% increase over 1999's total.
This makes contract awards volume for the year over
86% greater than the total market was at the beginning of
the expansion in 1992.
Next year's anemic 1% growth for the industry,
predicted by Dodge, masks a high rate of non-residential and
public works construction.
Fresh with federal funds, highway and airport
construction should lead the public works sector to a 6%
annual growth rate in 2001, says Dodge.
Also, both institutional buildings and income
properties will experience growth above the national
average. However,
the effect of the stronger growth rate on the overall
construction market will be dampened by a predicted 2%
decline in the contract value of single-family homes, as
higher interest rates and the falling economy have cooled
off the market. The housing market accounts for about 36% of Dodge's total
contract awards. According
to Dodge, the construction market is slowing from about a
10% annual average rate of expansion from 1992 to 1999, to
about 3% in 2000, but there is nothing to suggest a sharp
downturn. However,
forecast data depends a lot on how successfully the
anticipated "soft landing" is. It
is expected that increases in interest rates which occurred
in 2000, combined with a current trend towards more
restrictive bank lending, will lead to slower business
conditions in 2001. This
is in spite of the January 3, 2001 “Surprise” interest
rate cut by the Fed, which may take up to 6 months for
it’s effects to be felt. According
to the Dodge
forecast, the hottest construction markets are expected to
be: multi-family building which is expected to increase 7.3%
during 2001; manufacturing +8.6%; educational building
+5.8%; highways and bridges +7.6%; sewers and water supply
+4.7%; and other public works +5.5%.
Leading under-performers include hotels and motels,
which are expected to show a decrease of (-4.5%) during
2001, stores and shopping centers (-2.7%); single family
residential construction (-1.7%); healthcare facilities
(-1.7%); and utilities (-1.9%). Demographically, construction awards in the Western United
States are expected to increase by about 5%, due to
institutional and other heavy works projects, which are
expected to jump 11%, as the market grows to $117 billion.
This will be the only region where an increase in
housing is expected. The
north central is expected to increase about 1% over 2000,
primarily due to apartment building work, which is expected
to increase 8%, and construction of public buildings, which
is expected to increase 6% as the market reaches $99
billion. The
Northeast is expected to decrease about 1% from 2000 levels. This is the first region that will see a real downturn, as
commercial, industrial, and institutional building markets
are all expected to decline during the year.
The South Atlantic region is expected to increase
about 2% during 2001, after an increase of 6% in 2000, and
12% in 1999. The
2001 increase is expected to be primarily due to heavy works
and highway projects in the region, which will be one of the
nation's hottest markets, with volume projected to increase
in this sector 8% during the year.
Finally, the Southeast is expected to decrease 1%
from 2000 levels. This
is primarily due to an expected 5% decline in the housing
market, and a slight dip in some commercial work.
Meanwhile, the U.S. Department of Commerce predicts
that inflation will eat away real gains, leaving
the 2001 market virtually unchanged from last year. Commerce predicts the total construction put in place will
increase 0.3%, after adjusting for inflation, which follows
a 2.1% net increase in 2000. Commerce
does not believe 2001 will be the start of a big slide.
Its five-year forecast in the construction industry
is expected to average a 1% annual growth rate through the
year 2005. Commerce
also predicts there will be major shifts in where the growth
will be coming from. For instance, it predicts that office
building construction will remain one of the industry's
hottest markets next year, increasing around 7%, however, it
expects this market will quickly peak, and then average no
real growth through 2005.
On the other hand, Commerce expects industrial work
(construction) to gradually pick up momentum after lagging
behind much of the recent expansion. In
spite of the recent presidential election turmoil, fiscal
2001 funding for most major federal construction programs is
already assured. Thanks
largely to the continued effects of 1998's Transportation
Equity Act for the 21st Century (TEA-21), highway and
mass-transit spending are still climbing.
In fact, the 2001 total for the Federal Aid Highway
program is even higher than TEA-21 indicated. Lawmakers this year included additional funds to reimburse
states for repairs after
natural disasters, and to help build a new Woodrow
Wilson Bridge near Washington, D.C. The Federal construction
budget from FY99 to FY00 showed a 31.2% increase, while FY00
to FY01 is expected to show a 45.6% increase. Used equipment prices have remained relatively high, after rebounding from the impact of the 1998 global financial crisis. However, recently, there has been some cooling-off in prices, as the final number of units tracked and sold at auction in 2000 is expected to increase by almost 30% over 1999's totals. Used equipment sales have been particularly strong in hydraulic excavators, crawler tractors, wheel loaders, backhoes, off-highway trucks, motor graders, compaction equipment, and scrapers. Most new construction equipment was sold at or about the same price as a year earlier, with the industry recording an overall inflation rate of less than 1% for the year. However, IEC believes if the volume of used construction equipment sold at auction continues to increase as it has recently, there could be a fall in used construction equipment values in the near future. This could also lead to a lengthening of time to sell construction assets. For comparative purposes, the used construction equipment market was rated 6 in 2000. Rail
(4) - The used Rail equipment market experienced a
continuation of the down turn which was started in 1999.
For 2000, total car loadings showed a decrease of
about 3% from 1999. Estimated
revenue ton miles for U.S. Class 1 railroads also decreased
by over 2.5% from 1999 levels.
Major contributors to the fall in loadings include a
decrease in the shipment of agricultural products,
chemicals, and metallic ores and minerals.
Meanwhile new rail car deliveries totaled 56,750
units on a preliminary basis for 2000.
For 2001 that number is expected to fall to
approximately 50,500 units.
Overall IEC sees a continuation of a weak used
equipment market in the rail segment.
Car types that have been particularly hard hit
include covered hopper grain and plastic pellet cars, open
top coal cars, gondolas and some box cars.
Cement cars, PD cars, center beam flat cars and tank
car prices have held up over time. For many car types current short term lease rates are at a
level of around 40% of former rates for newer cars. Demand for older locomotives is also falling due to the replacement of much of the fleet by new high horse power alternatives. In addition, day rates for many units are about 50% of former norms. Many units such as EMD-SD40's and the GE-dash7 series are being scrapped in large numbers. Also older models such as the GE “U” series have almost exclusively been relegated to the scrap heap. To make matters worse recent U.S. Environmental Protection Agency standards relating to diesel emissions that go into effect January 1, 2002 setup rigid emissions standards for locomotives. Locomotives which do not meet the standards are required to have special retrofits (kits) installed when the units are rebuilt/re-manufactured. The EPA standard that most effects locomotives is referred to as “Tier 0". This applies to locomotives built between 1973 and 2001. Prices for retrofit kits have been quoted as lying largely between $50,000 and $200,000 per unit. This added expense for some older units which have little remaining value is sure to increase scrap rates within the power segment. Also older power units in the low horse power range which had been priced at a premium due to scarcity have now been impacted by EMD’s production of the first low horse power switching locomotives in more than a decade namely the GP15D (1500 horse power) and GP20D (2000 horse power). Currently the Class1 railroad locomotive fleet stands at over 20,000 units with an aggregate of 63 million horse power. Deliveries for a 2001 are expected to remain at about the 800 unit mark. For comparative purpose, the used rail equipment market was rated a 4 in 2000. Printing
(5) – The Printing industry showed solid sales
growth for the first half of 2000 which turned negative for
the remainder of the year. Print analysts stated that the
fourth quarter advertising market for 2000 was very soft as
a result of the dot- com flame outs and weak financial
markets, and may not improve until the middle of 2001.
Some notables which experienced reversals include Dow
Jones & Co. whose fall in advertising revenues were
blamed on a sharp decline in the initial public offering
market. Knight Ridder has scheduled a reduction in it’s
work force of 1.5 % to 2% in 2001 and expects revenues to be
about the same this year as last. The Tribune Company has trimmed it’s profit estimates due
to flat advertising revenues in it’s publishing unit.
Meanwhile the Wall Street Journal surprised some
analysis by stating that on a per issue basis advertising
linage at The Journal was down 12% in November of 2000 and
estimated down 20% in December. Despite
the less than rosie news, few people are predicting a long
term recession in newspaper advertising at least not yet
anyway. One
media expert predicts that newspaper advertising revenues
will rise 7% in 2001 and 6.8% in 2002.
The Gannett Company expects national advertising
linage to be flat to up 1% at it’s U.S. newspapers
excluding USA Today. The
printing industry is quite diverse, with the top 5
metropolitan areas (Chicago, Los Angeles, New York,
Philadelphia, Minneapolis, and Boston) employing over
200,000. In addition, the top 5 metropolitan areas account for just
under 10,000 printing establishments.
The industry product is equally broad anything from
books to newspapers to bank notes, labels and postage
stamps. The likely global sales total for the printing
industry for 2000 has been estimated to be about $500
billion making it among the worlds largest manufacturing
businesses. Major market leaders in the printing equipment industry (high
end, non-office printing systems and pre press suppliers)
include Heidelberg with a global market share of about 20%
followed by Xerox at 15%, MAN Roland 9%, KBA 5%, Komori 4%,
Goss 4% and others. According
to data published by the Graphic Arts Information Network
the printing industry as a whole typically generates
revenues slightly below GDP figures. For example, when the
GDP was growing at 5-6% per year the printing revenues were
growing at 4-5% per year (commercial printing figures).
Thus the overall GDP is considered an important
leading indicator for the overall health of the industry.
Various printing segments are predicted to grow at
differing rates. For
example, the general commercial and quick printing areas are
expected to increase at a 4.7% annual rate over the near
term, direct marketing +4.5%, catalogs and directories
+5.3%, business forms -5.7% (electronic substitution has
presented a viable option here) and books +4.2%. Printing
equipment has been evolving at an ever increasing speed.
The pace of evolution has quickened and options have
also increased. Technologies
to watch include “Direct-To” technologies of
Computer-To-Plate (CDP), Direct Imaging (DI) and Toner-Base
production. As
prices fall more print houses will become familiar with
these technologies. Overall
printing economics are concerned with reducing job turn
around times, shortening press makeready, and cutting down
on waste. Lithography
is felt to remain viable but must continue to evolve and
printers will have to supplement it with digitally based
printing capabilities in order to compete. Thus because of the dot-com flame outs and slow down in the U.S. economy IEC expects a complimentary slow down in the printing industry for 2001. Demand will soften for 2 and 4 color presses while demand for 6,7&8 color presses should remain somewhat stable. Also demand for late model (<3 years old), used digital pre-press equipment will tend to soften. For comparison purposes, the used printing equipment market rated a 6 in 2000. Containers
(6) The market for new ISO (marine cargo) and domestic containers
increased dramatically in 2000 and is expected to do the
same for 2001. After several years of chronic price
deflation and almost static production the global container
manufacturing industry experienced a dramatic recovery in
it’s fortunes. In fact almost all of the global capacity
to build containers is being fully utilized. This is caused
the first increases for container prices in many years.
Specifically, the cost for a 20 foot standard rose
10% to $1550 (ex-works for most locations in China).
This same unit cost around $1400 a year ago.
By way of comparison in 1995 the price of this box
peaked at $2400. Prospects for continued growth in 2001 have
manufacturers hinting at a further price increase to be
beyond $1600 per 20 foot. Likewise, reefer containers have
increased over the past year from $17,500 to about $20,000
for the average 40 foot (steel clad), inclusive of
machinery. 2000
set a production record at 1,885,000 TEUs (twenty foot
equivalent units). This
compares to total output of 1.49 million in 1999; 1.7
million in 1998; 1.45 million in 1997 and 1.3 million in
1996. Total
output per container type for 2000 included dry freight 1.69
million TEUs, integral reefer 100,000 TEUs, tanks 12,300
TEUs, swap bodies 46,700 TEUs and U.S. domestic containers
36,000 TEUs. Yielding the total of 1.885 million. Note, total global container manufacturing capacity,
including working two shifts at every plant, equals 2.34
million TEUs. China alone has a capacity of 1.75 million.
Top manufacturers for 2000 included CIMC Group-
producing 640,000 TEU, Sigamas- producing 240,000 units;
Jindo Corp-at 163,000 units and Hyundai- at 154,000 units.
Shipping companies as well as lessors lined up to
purchase new containers.
Many of the largest operators including
Maersk-Sealand, P&O Nedllyod, Hapag-LLoyd, Hanjin, APL-NOL,
Yangming, Evergreen Group and MSC have all committed to very
substantial purchases for additions to their own fleets.
Meanwhile in 2000, the most active lessors included
Triton Container Intl. with estimated purchases of 160,000
TEU followed by Textainer Group at 95,000 TEU and Interpool
at 90,000 TEU. In
spite of this rapid fleet build up, some analysis are
concerned with the possibility of over supplying the market
which could perhaps risk a reversal of the gains made over
the past year. Lessors
are now indicating that the market has weakened in parts of
Asia resulting in a slight fall in utilization for their
fleet as a whole and an increase in return of equipment to
depots across the far east.
This contrasts with the second and third quarter of
2000 when average utilization was recovering strongly, most
equipment surpluses were in decline and new containers were
often being leased out ahead of delivery.
However, shippers expect to see demands to stay
robust throughout 2001 and the recent slight weakening is as
much attributable to the action of shipping companies as to
any real change in the market.
Many lines that were caught with equipment short
falls earlier in 2000 have now secured all the production
space they need and thus have less requirements for extra
leased containers to top off inventories. During 2000, the strong dollar provided support for increased Asian output of goods, at “less expensive” prices than for U.S. domestically produced goods. This lead to a spot shortage of cargo containers during parts of the summer in Asia while creating an over supply in some western U.S. ports such as Long Beach. Today some U.S. ports such as Seattle/Tacoma and Portland, Oregon are now reporting spot shortages. On the eastern U.S. coast many ports are reporting an over supply due to the weak European demand. The strong dollar and until recently the declining Euro have weakened European demand for U.S. goods. South American trade is stable due to U.S. demand for fresh produce. Banana and textile exports to the U.S. from South America, Puerto Rico and Central America remain strong. Some eastern ports such as Boston are experiencing container shortages. This is due to size constraints for ships docked at Boston harbor. Meanwhile container pricing has stabilized throughout most of the world which has created some opportunities in the market particularly in view that the cost of a new container has been increasing significantly over just the past year. For comparative purposes, container scored a 5 in 2000. Medical
(4 ) - The pace of acquisitions and consolidations
among medical equipment vendors accelerated during 2000 over
the significant rate experienced in 1999. GE Medical Systems
added Lunar Corporation (bone densitometry), Sopha Medical
Vision (SMV, nuclear medicine systems), Access Medical
Equipment Group (used medical equipment), and indicated
intent to acquire Parallel Design Incorporated (ultrasound
transducers). Philips
Medical Systems is adding ADAC Laboratories (nuclear
medicine) and Agilent Technologies Healthcare Solutions
Group (previously HP’s medical equipment group, ultrasound
and patient monitoring). Siemens Medical Engineering Group
has acquired Acuson Corporation (ultrasound). The year 2000
continued the trend of aggressive pricing for medical
imaging capital equipment in both the primary and secondary
markets. Hospital
earnings continued to be depressed as a consequence of cuts
in Medicaid and Medicare reimbursements (which account for
approximately 50% of all healthcare payments in the U.S.)
resulting from the Balanced Budget Act of 1997. As reported in a recent survey conducted by Medical Imaging magazine (December, 2000), 31% of hospitals surveyed
increased their capital budget in 2000, down from 58% in
1999, while 29% decreased and 40% remained constant.
The most popular modalities/equipment being
considered for acquisition in 2001 includes picture archival
and communications systems (PACS), ultrasound, digital
radiology (x-ray), CT, MRI, dry laser imagers, mammography,
nuclear medicine and R&F; least popular are wet laser
imagers, lithotripsy, radiation therapy, and analog
radiology (x-ray) equipment.
Open systems continue to drive MRI sales, multislice,
subsecond scanners are driving CT sales, new applications
are assisting ultrasound sales, digital systems are driving
x-ray sales, and the implementation of PACS are bringing it
all together. As a general rule, new systems are smaller, more open and
permit much faster test times; the trend to digital is
accelerating. Over
50% of hospitals spent in excess of $1,000,000 each on
radiology-specific expenditures during 2000 and this is
expected to hold true for the year 2001.
In the U.S. marketplace, ultrasound, the most
commonly installed imaging modality found in healthcare
facilities, is expected to continue its healthy growth rate
in 2001. Worldwide,
the ultrasound market is currently about $3 Billion, and
this is expected to increase to about $4 Billion by 2004.
Digital mammography systems continue to move slowly toward
market. GE
Medical Systems currently has the only FDA approved system,
the Senographe 2000D. In the United States the secondary market for medical imaging equipment tends to mirror the primary market. The 1996 Health Insurance Portability and Accountability Act - HIPAA (patient privacy act) continues to move slowly toward implementation. Yet to be seen is the impact of this Act on both new and secondary equipment sales. In part, HIPAA governs computerized patient records and since computers are at the heart of all modern radiology, CT, MR, ultrasound x-ray and other imaging equipment, the systems will have to comply with the requirements of the Act. Facilities will have to ensure that equipment and systems (including software) are HIPAA-compliant. The HIPAA-compliant requirement may impact the secondary market within the U.S. more heavily than the primary market. IEC is of the opinion that the medical equipment market will remain active and moderately strong during 2001. For comparative purposes, the used medical equipment market was rated a 4 in 2000. Computers
(5) The PC industry began to stall in late 2000 and is expected
continue that trend into at least the first half of into
2001. The PC
landscape will continue
to change and over the coming year the PC itself could
become less of a focus than ever before.
The catalyst for these changes seems to be coming
from three primary sources.
First is the shake-up felt from the dot-com
meltdowns. In
addition, consumer confidence dropped dramatically during
late 2000 as investments in the stock market plunged.
Furthermore, 2000 saw the transformation of
e-commerce from businesses that were exclusively net based,
“bricks to clicks”, to businesses with actual stores as
well as an internet presence, “clicks to bricks”,
in the hopes of attracting more customers by actually
putting products out in front of their customers. The
second source of pressure on the PC market comes from the
developing market of specialized wireless devices which
include wireless phones with internet access, personal
digital assistants (PDAs), and Pocket PCs with wireless
modems. According
to Gartner Group by 2005 there will be an estimated 1
billion cell phones in use.
This number far exceeds the number PC-based internet
users in that same time frame.
Another
factor in the PC market’s decline is coming from “thin
clients” and the impact of network computers.
In this instance the change comes from the philosophy
of each person having his or her separate computer system
back to having a network of “dummy” terminals controlled
by a server (mainframe).
Computers using wireless technologies, such as Apple's
AirPort, also known as IEEE 802.11, and Bluetooth are in
increasing demand. The
growth of wireless applications and networking will make
this a desirable selling point to customers.
The Universal Serial Bus (USB) port now an industry
standard was upgraded in 2000 to USB 2.
USB 2 has transfer speeds of 480 Mbs, 40 times faster
than the previous generation.
USB continues to be the most popular way to connect
peripheral components including, scanners, digital cameras,
mice, and keyboards.
PC prices have plummeted throughout the second half of
2000 and will continue to do so well into 2001.
Disappointing holiday sales of personal computers,
exceedingly large mobile phone inventories, and the
continued slowing of the U.S. and global economies look to
make the beginning to 2001 a somber one.
Dell, Compaq, Gateway have all moved their marketing
focus to sub $1,000 machines. Chip
stocks, casualties of the dot-com debacle are down more than
60% from their year highs.
This combined with the fact that Intel Corp. and its
rival Advanced Micro Devices Inc. are saddled with as excess
inventory of microprocessors will likely keep CPU prices
low. Forecasters
however still point to solid chip demand for the second half
of 2001. The
Intel technology roadmap took many twists and turns in 2000.
In the last quarter of the year the Pentium IV was
released. This
generation of CPU has been plagued by chipset compatibility
problems and rumors of problems with graphical data being
processed through the chip.
The Pentium IV will start at 1.4GHz but is likely to
hit 2GHz by the end of 2001. The Pentium III is moving to a .13 micron process, furthering
its life span into 2001 with clock speeds of 1.26GHz and
beyond. Intel’s
Celeron processor will also continue into 2001 with clock
speeds starting at 800MHz. AMD
continues to take the offensive in the CPU market.
AMD met or exceeded Intel at every performance point
and price point.
These tactics helped AMD take 38% of the desktop
market. This
should be no surprise since an Athlon 1.2GHz CPU costs $200
less than a Pentium III 1GHz CPU.
2000 saw the launch of AMD’s new “Fab 30"
manufacturing facility in Dresden, Germany. This new plant, running at 50% capacity, produces processors
with copper interconnects on a .18 micron process.
For 2001, expect Athlon and Thunderbird processors
with clock speeds up to 1.4GHz and a release of a new
processor in the second quarter called Palomino with clock
speeds greater than 1.5GHz. The Duron line of processors will continue in 2001 with clock
speeds up to 700MHz. The battle between double-data-rate (DDR) SDRAM and the
proprietary Direct Rambus (RDRAM) has no clear winner.
A slight edge has been given to DDR SDRAM due to the
high costs and complexity involved in producing and
integrating RDRAM. Intel
was expected to move into Rambus technology in 2000 but has
yet do so, however Intel said it will be using this
technology in 2001.
Intel has also decided to hedge its bets by also
supporting DDR SDRAM.
DDR SDRAM has begun to find its way into sub-$1000
PCs and component systems such as graphics cards.
Rambus technology is utilized in high-end computer
systems where its cost can be more readily hidden.
Significant increases in data transfer to the processor (Bus
Speed), which enhance performance, will be seen from both
technologies. In 2001 it is likely to see front side bus speeds up to
400MHz on high end computers. Thus, by the fourth quarter of
2000 we can expect to see a typical high-end commercial
desktop system priced at $2,500 to be equipped with: flat
panel display, IEEE 1394 and/or IEEE 802.11, OS/Windows ME,
60 GB hard drive, high speed DVD and CD-RW drives, two USB
ports, 256 MB of RDRAM, 56K modem or network card, and a
2GHz processor. World
wide personal computer sales in 2000 were growing on average
at 19%. 2001's
growth rate is expected to be approximately 16%.
This is down considerably from 1999's rate of 24%.
2001's world wide PC consumption is expected to total
over 150 million units.
The demand for sub $1,000 PCs is expected to rise
from 11.6% (26.3 million units) in 2000 to 16% (30.5 million
units) in 2001. PC
sales can also be enhanced by improving the number and kinds
of bundles that combine PCs and services.
Meanwhile, Apple continues to take it on the chin.
Apple’s stock price is down about 80% from its
year’s high. Apple
also expects 2000 revenues to be between $1.85bn and $1.9bn,
well below forecasts of $2.06bn.
Disappointing sales of the PowerMac G4 Cube, the
slowing economy and the dot-com meltdown all added to
Apple’s troubles.
Also, Apple has recently announced heavy discounts,
up to $1,000 on its high-end computers.
Surprisingly, notebook computer sales are expected to
grow 32% in the last quarter of 2000 and continue this trend
into 2001. Also,
unit sales in the CMOS mainframe market will remain steady,
but revenues will continue to be slowed due to the declining
prices and competition among IBM, Amdahl (Fujitsu), and
Hitachi. In
addition, the 2000 global server and workstation hardware
markets recorded increases in shipments of 11% and 14%
respectively and are expected to continue on that track into
2001. 2001
is expected to bring no relief for the computer industry.
Lower prices, smaller margins, and slower growth
should be the expectations for the new year.
Most equipment prices continue to drop while
technology maintains steady growth.
Pentium III chips are currently between 650MHz and
1GHz. Hard
drives have increased in size from the standard in 2000 of
10 and 15 GB to 20 and 36 GB for 2001.
50x CD ROMs are now configured in low end systems
with DVDs and CD-RW units in found in upper end equipment.
Pricing on new units remains relatively stable.
The major differences year-over-year is that the
purchaser/consumer is receiving more equipment, i.e. better,
faster, bigger for the same dollar value. This
leads us to the conclusion that the secondary market will
suffer another slump. Pentium
equipment in the 200MHz and lower ranges will still be
salable when completely configured (CD/Sound/Modem).
These units will be used primarily in the
applications markets, over seas, and low end home units.
Pentium II processor units with speeds of 266MHz to
450MHz will command reasonable prices but have not yet found
their way to the secondary market in any significant
quantities. Monitors
and modems have held their prices throughout 2000 and will
have minor fluctuations in 2001.
Pricing on a new flat screen technology has not
dropped as quickly as expected, this has helped to hold the
secondary market prices steady.
New 17" monitor pricing will range between $150
for an off brand, low quality unit to an average of
$275/$295 for a name brand, high quality product.
Pricing
is not the only issue in the secondary market that needs to
be addressed. Funding
higher quality customers is becoming an issue.
With the rapid changes in current technology a new
problem has arose. Many
users do not have the need for the current state-of-the-art
equipment. Software
products do not require or need the power of today’s
latest systems. This is leading the user to fall behind the technology curve
and hold onto their current equipment.
The rate of new purchases is decreasing, leaving the
secondary market without equipment to recycle.
This will continue until software and applications
catch up with technology. In summary, 2001 will continue in the pattern of the past two years: lower prices; increased technology; fewer customers both in new and used equipment. For comparison purposes, this segment rated a 5 in 2000. As
can be seen from the various market summaries, the overall
outlook for used equipment markets in 2001 is not good.
This means that equipment managers will face a very
challenging year. In
fact, good job performance may be a function of loss
reduction for the year.
Lessors are advised to carefully weigh all options
available to them at lease termination or in the event
equipment is returned through default.
For 2001, an old lyric says it best “you’ll need
to know when to hold ‘em, know when to fold ‘em”. Happy
New Year! BIOGRAPHY CARL
C. CHRAPPA, A.S.A., C.R.A. Carl
C. Chrappa is President and CEO of Independent Equipment
Company, the nation's oldest equipment management
outsourcing firm, headquartered in Clearwater, Florida.
He is a registered auctioneer and tested and
certified appraiser with over 30 years of equipment
experience. He
is responsible for all company services, including equipment
remarketing, total plant liquidations, internet auctions,
portfolio management, appraisals, inspections, and residual
value analysis. Mr. Chrappa is a current and founding member of the Equipment Leasing Association's Equipment Management Committee. He also serves on the Board of Directors of the Commercial Finance Association and the American Association of Cost Engineers. He has co-authored a book entitled "A Leasing Company's Guide to Equipment Management" and is the author of a regular column devoted to equipment management. Mr. Chrappa is a graduate of the University of Massachusetts at Amherst and attended the Graduate School of Engineering at Harvard University.
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Updated
November 05, 2005
