Ghosts past, present and future: why disasters (natural and otherwise) can promise future opportunities.

2005 was a relatively good year. Off to a slow start, the industry ended with capacity fully utilized for a multitude of packaging and assembly operations including gold bumping, wafer level packaging, laminate substrates and component assembly of all types. Driven by a multitude of factors including rising energy prices and supply shortages from capacity losses, prices for assembly, materials and substrates increased.

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Natural disasters shocked us, but also promise opportunities. ASE's May Day facility fire destroyed 100 testers (7% of ASE's total), 500 wire bonders (10% of ASE's total assembly capacity) and 100% of the company's flip-chip substrate production. In addition approximately 42% of the laminate PBGA and CSP substrate capacity was destroyed. On the bright side, the limited capacity provided a good reason to reverse the ruinous price competition that almost crippled the industry. (See "Fanning the Flames," November 2005, p. 28.)

As I drove 700 miles of highway between Houston and Mobile, AL, I was struck by the sheer amount of devastation wrought by Hurricanes Katrina and Rita. Trees snapped in half like toothpicks. Huge roadside billboards bent almost parallel to the ground. Piles of debris piled high and blue tarp covering roofs as far as the eye could see. Hurricane Wilma's damage in Florida, while less covered in the press, presents more devastation. What a rebuilding project!

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Yet, this too offers opportunity. A rebuilding effort, properly funded by government, could provide a boost in spending that will stimulate the economy. Rebuilding not only means job growth and sales of building materials, but also sales of appliances and electronics. If managed properly, a catastrophe could be turned into an opportunity.

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China outlook. China's economic growth continues, and industry infrastructure growth promises potential opportunities.

According to the head of China's High-Tech Industry Department of State Development and Reform Commission, China's high-tech sector generated a value-added output of $70.8 billion between January and September 2005 (year-on-year growth: 19%). China is now ranked first in the world in production of mobile phones, switches, PCs, monitors, color TV sets and laser disc players. Japan's economy continues to rebound, perhaps somewhat driven by exports to China. Even the U.S. economy was healthier than expected by the end of 2005.

The next "Killer Ap.' As 2005 came to a close, the holiday season pushed electronics product sales and made the season bright. Game machines were snapped up, new phone models with enhanced features pushed shipments volumes higher and stronger-than-expected PC sales surprised many. The hope is that the spending will continue.

One of the hottest new products, Apple's iPod, has the potential to drive component shipments and revolutionize the entertainment industry. In mid October, Apple announced it had sold more than 6.4 million iPods. More than 600 million songs have been purchased and downloaded worldwide. Twenty days after the video iPod was announced the company reported sales of one million videos. Popular applications such as these can drive both component sales and packaging technology development. In late November, Apple announced long-term supply agreements for NAND flash memory with prepaid purchases of $1.25 billion for flash memory components through February.

Hot and cold? The promise of a good 2006 could rest on what happens with oil prices. Will high heating bills for the winter dampen the consumer spending that is key to growth in the electronics industry? Reports for China indicate an inventory build in mobile phone handsets--at least 20 million units in the fall of 2005. Will an inventory build obliterate the happy days?

Enjoying the relative good times at the end of 2005, most companies still look with some caution into 2006.

E. Jan Vardaman is president of TechSearch International, Austin, TX; [e-mail]. Her column appears semimonthly.