U.S. production of computers and peripheral equipment was expanding rapidly before the recent recession hit, and if current trends hold, it will be one of the fastest-growing segments coming out of the recession.

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U.S. production of computers and peripheral equipment was expanding rapidly before the recent recession hit, and if current trends hold, it will be one of the fastest-growing segments coming out of the recession. Output of these products declined by a startling 20% in 2009, but production activity is currently on pace to return to its pre-recession peak in less than two years. Our latest forecast calls for an increase of at least 10% in production of computers and peripherals in 2010 over 2009. This is twice the rate of growth expected for the total U.S. industrial sector.

This sector grew very rapidly in the second half of the 1990s, but after the recession in 2001, growth slowed to a crawl. A lot of new information-processing equipment was installed prior to 2000, and so the recovery from that recession took a while to catch up to all the under-utilized capacity. Also, a lot of computer manufacturing was offshored to low-cost producers in Asia. That all started to change in 2004, when the rush to overseas outsourcing was slowed by rising energy prices and worries about protecting intellectual property, among other factors.

The recent revival of computer production is largely the result of an increase in business spending. The latest figures from the Commerce Dept. show that nonresidential investment in computers increased by 11% in the fourth quarter of 2009 vs. the same quarter in ’08. This is a sharp contrast to the 23% drop in investment in industrial equipment and the 16% drop in spending for transportation equipment during the same period. In fact, spending on computers was the only major category of business spending to increase in the fourth quarter of last year.

These factors are evidence that computers and electronics in general are still growth industries. Speed to market and product life cycle are dominant factors in the success of these products, which means that there is a strong incentive to manufacture them near the point of consumption.

 

WHAT THIS MEANS TO YOU

If you’re making parts for computers and peripherals, you may be in better shape than most processors. In fact, you might want to consider shifting processing capacity to capitalize on projected growth.

Keep your eye on the issue of sustainability. “Big box” retailers are already launching ads extolling their efforts to recycle major appliances. That will surely trickle down to computers, and could impact design, material selection, and even processing if the movement pushes molders to add more reclaim in their products.