Lack of investment means ‘allocation is inevitable’
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Given the significant cutbacks in cap expenditure since mid 2007, says Malcolm Penn, chairman of market watcher Future Horizons, utilisation rates are expected to exceed the 90% 'full capacity' threshold in Q3 2009.
Breaking through this threshold, says Penn, will herald a capacity shortage that is set to extend through at least 2011. "For utilisation rates to be so high at the beginning of a recovery cycle has no historic precedent," he claimed.
According to Future Horizons, the level of capital expenditure in 2009 – around $1billion per month, or 5% of sales – is 'ludicrously low'. "No amount of capital efficiency can compensate for this drought," said Penn. "That means 2010's capacity cannot meet demand, even though the market will be then be booming. We have said it before and we say it again: there will not be enough manufacturing capacity in place in 2010 to meet demand. This is a fab shortage waiting to happen and is now too late to do anything about it."
The bottom line, in Penn's view, is that 'allocation is inevitable'.
