industry monitor · pdf file · 2013-05-10consumers curtail purchases of capital...

BBTTMMUU UUSS IInndduussttrryy MMoonniittoorr

2008 Second Half Issue 19 December 08

【Overview】 The effects of economic downturn after the fourth quarter of 2007 and the outbreak of financial crisis in September 2008 on U.S. industries are far and wide, slowing growth further for many sectors. Since the end of 2007, plummeting housing and stock prices led to decline in consumer confidence, and as a result of tightening credit for home and auto loans, housing and automotive industries are already undergoing a correction phase. After the outbreak of financial crisis, upswing in unemployment rate and further fall in stock prices induced greater drop in consumer confidence. With a credit crunch now applicable to credit cards, negative impact is apparent on all consumer goods/services sector (with the exception of some consumer staple goods) such as household durables, apparel and restaurants. Bankruptcy filings are on the rise in these sectors. After the outbreak of financial crisis, previously healthy appetite for capital investment including IT investment has quickly decreased. Further, international demand supporting revenue and profitability growth of U.S. companies is beginning to wane. As a result, negative effects of above factors are manifesting themselves as declining corporate revenues and profitability in capital goods such as chemicals and machinery as well as some segment of IT sector. On the other hand, crude oil prices plummeted since late July, and steel prices started to fall after mid-September. Together with receding demand, revenue decline may be inevitable for energy related companies such as oil as well as steel/nonferrous metal companies that previously enjoyed healthy results. Looking forward, recovery of housing prices (considered a key to economic recovery) may take a while, tightening of consumer credit is expected to continue for the near future, and early rebound of consumer spending is unlikely to expect. Further, as economic downturn continues to spread worldwide, prospect for international demand to provide lifeline grows dimmer. Therefore, it may take some time for business conditions for the U.S. industries to recover.

Contents

Industry Key Indicators of US Economy Latest Data page

Steel 1.Steel Price / Production, Import 2008/9 2

Chemical 2.Ethylene Price 2008/9 2

Paper 3.Paper Price 2008/9 2

Pharmaseutical 4.Pharmaceutical Shipment 2008/8 3

Automobile 5.Automobile Sales 2008/10 3

Machinery 6.Machinery New Order 2008/9 3

Electronics 7.PC Shipment 8.Semiconductor Shipment

2008/2Q 2008/9

4 4

Real Estate 9.Housing Starts/ Permit, 30yrs Mortgage Rate 2008/9 4

Retail 10.Retail Sales 2008/10 5

Advertisement 11.Ad Revenue 2008/2Q 5

Transportation 12.Railroad Traffc 13.Airline Revenue Passenger Miles

2008/2Q 2008/7

5 6

Telecommunication 14.Wireless Subscription 2008/1H 6

Utilities 15.Electricity Wholesale Price 2008/9 6

Company Financial Performance 7

Macro Indicators 12

BTMU Corporate Research Division (New York)

Ryuta Nagai +1-212-782- 5703 [email protected] Philip Mangieri 5704 [email protected] Vera Kalina-Levine 5705 [email protected] Gerardus Wynkoop 5551 [email protected] Mayuko Hiramatsu 5707 [email protected] Yukiko Otteson 5700 [email protected]

Note: The “Forecast” period added in this edition is a short-term outlook (6 months). This bulletin is

issued semi-annually.

The information herein is provided for information purposes only, and is not to be used or considered as an offer or the solicitation of an offer to sell or to buy or subscribe for securities or other financialinstruments. Neither this nor any other communication prepared by The Bank of Tokyo-Mitsubishi UFJ, Ltd. (collectively with its various offices and affiliates, "BTMU") is or should be construed asinvestment advice, a recommendation to enter into a particular transaction or pursue a particular strategy, or any statement as to the likelihood that a particular transaction or strategy will be effective inlight of your business objectives or operations. Before entering into any particular transaction, you are advised to obtain such independent financial, legal, accounting and other advice as may beappropriate under the circumstances. In any event, any decision to enter into a transaction will be yours alone, not based on information prepared or provided by BTMU. BTMU hereby disclaims anyresponsibility to you concerning the characterization or identification of terms, conditions, and legal or accounting or other issues or risks that may arise in connection with any particular transaction orbusiness strategy. Note that BTMU may have issued, and may in the future issue, other reports that are inconsistent with or that reach conclusions different from the information set forth herein. Suchother reports, if any, reflect the different assumptions, views and/or analytical methods of the analysts who prepared them, and BTMU is under no obligation to ensure that such other reports arebrought to your attention

BTMU US INDUSTRY MONITOR

2

1.Steel Price / Production, Import Forecast : Buyers expect further price declines ahead

According to AISI, raw steel production in the US in the week ending Nov 22 declined 36.2% from the same period last year. Aggregate production for 2008 is now falling behind last year’s pace, lagging by 2.1%. The credit crisis appear to have exacerbated the situation leading to a freeze in steel buying activity, as businesses rethink capital investment projects and consumers curtail purchases of capital goods. US mills are now operating at around 57% capacity, down from 89% a year ago. Steel production cuts have led to a drop in scrap prices, which further weighed on steel prices. Hot-rolled sheet, considered the industry’s benchmark product, is continuing a downfall that began in mid-September. Industry experts now expect hot-rolled prices for 2009 to fall in the neighbourhood of $500/t. Despite the lower steel prices, steel imports was up 1% MoM in October, with Chinese imports set a new all time record (up 26% MoM), reversing the downward trend earlier this year. According to AISI, much of the increase was in high-value products still receiving government tax rebates.

2.Ethylene Price Forecast: Plummeting global demand, coupled with overcapacity will lead to further price declines.

The deepening global recession and financial crisis are rapidly destroying demand for ethylene. Although about 10% of North American ethylene capacity remains offline due to damages related to this year’s hurricanes, supply remains ample, even with a 16% decline in North American production from Q2 to Q3. The strengthening dollar and product shipments from recently commissioned plants in the Middle East have reduced U.S. export opportunities. The supply/demand imbalance, along with lower feedstock costs, have led to a fourth consecutive month of price declines. U.S. spot ethylene prices plummeted to 30cents-31 cents/lb at the end of October from a mid-July peak of 69cents-70 cent/lb. Prices will continue to plummet in the months ahead, as additional Middle East capacity comes onstream against an anticipated 5% decline in demand in 1H09.

3.Paper Price Forecast: Paper prices to fall. Fragmented containerboard sector most vulnerable to emerging pricing weakness.

Demand for major paper grades continues to fall. Year-to-date (through September) uncoated free sheet demand is down 6%, newsprint consumption has contracted 9% and containerboard usage is 2% lower. Aggressive capacity cuts by producers – reflecting both downtime and permanent capacity reductions – have enabled the industry to avoid serious inventory accumulation. The resulting supply/demand balance has provided a springboard for price increases, although most of the rise in recent years has been eaten up by higher energy and input (pulp and recycled fiber) costs. Paper demand will continue to decline and more capacity rationalization will be needed. Even if producers are able to keep supply in balance with falling demand, paper prices should fall as energy and fiber costs move lower. The containerboard sector, which is more highly fragmented than newsprint and uncoated free sheet, is most vulnerable to price declines.

0

10

20

30

40

50

60

70

80

01/1 03/1 05/1 07/1

E thy lene P rice (Deliv ered pipeline, G ulf)

(S ourc e: B loom berg) (U nit: U S $ / P ound)

300

400

500

600

700

800

900

1,000

98/1 00/1 02/1 04/1 06/1 08/1

N ew sprint U ncoated FreesheetLinerboard

(Sourc e: Pulp & Paper Week ) T rans ac tion P ric e($ / T on)

0

2

4

6

8

10

12

98/1 00/1 02/1 04/1 06/1 08/1

0

200

400

600

800

1000

1200Production(left)Imports(left)Hot Rolled Prices(right)

(Source: AISI, Purchasing) (Unit: Million Tonne, US$/t)


3

4.Pharmaceutical Shipment Forecast : Shipments will continue to decline due to generics, the stronger dollar, and global recession.

Against the background of a 0.8% YTD growth in prescription volumes, and an average 1% increase in prices by major pharma companies, the pace of decline in the value of pharmaceutical shipments has moderated in recent months. The main factor behind the past two year’s negative growth has been the proliferation of lower-priced generics, which are produced largely offshore. The growth of generics will continue to pressure U.S. shipments going forward. However, the economic crisis will cause delays in the new administration’s efforts to reform healthcare, while also containing costs, thus making it likely that the generic threat will not worsen in the near term. On the other hand, the deepening recession will curtail drug consumption, as it will prompt consumers to avoid visits to doctors and filling their prescriptions. An appreciating dollar will dampen exports and overseas sales, which account for over 50% of total industry revenues. As a result, shipment will continue to decline for the next 6 months.

5.Automobile Sales Forecast : Tighter credit and falling consumer confidence will likely further depress new vehicle demand in 2009

US light vehicle sales in October plunged to the lowest level since March 1982, as a combination of evaporating consumer confidence and strangled credit markets offset the fall in gas prices to result in 34.5% YoY decline in October SAAR. This was the second month in a row that US vehicle sales dropped by more than 25% YoY, clearly reflecting the effect of the credit and liquidity crisis. However, the pain has spread beyond distressed Detroit automakers to healthy one like Toyota, which suffered 29.5% and 25.9% declines in September and October, despite the rollout of 0% financing. This suggests that the wider problem is not only the available credit but also weakening consumer confidence. The US light vehicle sales is expected to fall into the 11-12 million range next year, underscoring the financial pressures facing major automakers. Beyond 2009, we expect contraction in consumer spending, rising rates and tighter credit standards to keep a sales recovery to well below the 16-17 million levels seen at the beginning of the decade.

6.Machinery New Order Forecast: New machinery orders to contract in early 2009.

New machinery orders have risen nearly 9% year-to-date (through September), although growth decelerated in Q3 to 5%. Primary areas of strength have been mining equipment (+31%) and power generation machinery (+15%). Industrial equipment has been the weakest performer throughout 2008, as companies in the paper, forest products and printing segments have made substantial capacity cuts due to weak demand. Growth in machinery orders will likely move into negative territory over the next six months as capital spending plans are cut back further. Lower commodity prices will lead to reduced investment in the energy and mining sectors and the easing in electricity demand will cause power producers to postpone planned capacity increases. In addition, the weak economic environment will drive a general slowing in replacement orders across all sectors.

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

01/1 02/1 03/1 04/1 05/1 06/1 07/1 08/1

-15%-10%-5%0%5%10%

15%20%25%30%35%40%

Pharmaceutical ShipmentGrow th Rate (YoY)

(Source: U.S. Census Bureau) (Unit: Millions US$, %)

0

5

10

15

20

25

30

01/1 02/1 03/1 04/1 05/1 06/1 07/1 08/1

-40%

-30%

-20%

-10%

0%

10%

20%

30%Total LTTotal CarsGrow th Ratio (YoY)

(Source: Ward's AutoInfoBank) (Unit: Millions, %)

0

5000

10000

15000

20000

25000

30000

35000

01/1 02/1 03/1 04/1 05/1 06/1 07/1 08/1

-25%-20%

-15%-10%

-5%0%5%

10%15%

20%25%

New Order (SA) YoY % Change

(Source: U.S. Census Bureau) (Unit: Million US$, %)


4

7.PC Shipment Forecast : October reflects downward inflection

PC unit sales proved to be very resilient through 3Q08 driven by strong demand in emerging markets – proving that low cost PCs enjoyed price elasticity as: (1) people in less developed nations continue to join the information age in droves, and (2) domestic consumers stock-up on multiple units. However, global PC sales which expanded double digits over the first 3 quarters of 2008 are reversing course as consumers start to deleverage. Notably, the CEO of the US’ largest consumer electronics chain (Best Buy) recently was quoted as saying “since mid-September, rapid, seismic changes in consumer behavior have created the most difficult climate we’ve ever seen”. Resultantly, IDC very recently announced its intention to revise down its 4Q08 shipment estimate to –1% vs. its previous +6% estimate during this all important US holiday sales period. At this point, it seems unlikely that we will see PC shipment declines similar to the 2001 bubble level but, of course, this depends on how fast the economy recovers.

8.Semiconductor Shipment Forecast : Correction not as bad as 2001

Intel’s surprise forecast downgrade on 11/13 sent shivers down the back of investors as concerns mount that IT spending may be more economically sensitive than previously thought. Currently, Intel (which generates about 2/3’s of its revenue outside the US) expects 4Q08 revenue of between $8.7B - $9.3B vs. previous guidance of $10.1B - $10.9B and vs. 4Q:07 actual revenue of $10.7B (actual results will not be reported until January). Notably, the mid-point of Intel’s 4Q:08 guidance would represent a -16% y/y fall-off. According to the company, demand is significantly weaker in all geographies and market segments especially while the PC supply chain is aggressively reducing component inventories. Intel’s guidance squares-up with Gartner’s very recent downward revision of chip revenue from 4.2% for 2008 to 2% and from 7.8% during 2009 to 1%. While we believe actual results may come in lower than currently forecasted, we note that even the worse case scenario presently looks much better than dismal results posted post bubble 2001.

9.Housing Starts/Permit, 30 yrs Mortgage rate Forecast : The decline in housing starts and permits will moderate, before stabilizing.

Construction starts and housing permits plunged to record lows in October, as the economic and financial crises escalated. With many potential buyers having withdrawn from the market, sales of existing homes also fell in October by 3.1% MoM. Foreclosures accounted for about 45% of all transactions, putting pressure on already weakened prices. Total supply of existing homes was 10.2 months in October. Although home affordability has improved, mortgage rates have remained stubbornly high and credit availability tight, even after the federal takeover of Fannie Mae and Freddie Mac. Continued economic uncertainty and turmoil in financial markets make it unlikely that demand for housing will pick up any time soon, though the downward trajectory in housing starts and permits may be arrested if there are fewer foreclosures due to governmental rescue action.

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

2001 Q1 2002 Q1 2003 Q1 2004 Q1 2005 Q1 2006 Q1 2007 Q1 2008 Q1

-25-20

-15-10-50

51015

2025

USA WW-USUS YoY Growth WW YoY Growth

(Unit : Thousand , %)(Source : Gartner)

0

5

10

15

20

25

01/1 02/1 03/1 04/1 05/1 06/1 07/1 08/1

-80%

-60%

-40%

-20%

0%

20%

40%

60%

Americas OthersAmericas YoY % change WW YoY % change

(Source: Semiconductor Industry Association) (Unit: Billions, % )

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2,200

98/1 00/1 02/1 04/1 06/1 08/1

4

5

6

7

8

9

Housing Starts 30-yr Mortg. RateBuilding Permits

(Source: US Dept. of Comm.) (Unit: Thousands, %)


5

10.Retail Sales Forecast : Retailers point to lacklustre demand going forward

Core retail sales, excluding food services and gasoline were down 3.1% MoM and 5.0% below last October. Overall retail sales tumbled 2.8%, the forth drop in a row. Excluding the 5.5% drop in auto purchases, retail sales fell 2.2%. Retailers continue to point to lacklustre demand going forward. Wal-Mart reported sales increase, as consumables was about the only category that continues to draw traffic. Meanwhile comparable store sales growth for operators selling apparel, home-related goods, and other discretionary categories is expected to continue to be negative. The credit crunch and stock-market volatility have made shoppers already hurt by rising foods costs and declining housing market even more reluctant to spend. Retailers are bracing for what could be the worst holiday shopping season over the past two decades. This is particularly significant for the department stores as well as specialty apparel and electronic retailers as the 4Q represents about 30% of sales and up to 50% or more of operating earnings for these companies. Promotional activity will be substantial and broad to drive consumer traffic and clear inventory. For 2009, these trends are expected to continue.

11.Ad Revenue Forecast : Ad revenue will continue to decline

Total US ad spending fell by –1.6% during the first half of 2008 with 2Q results down –3.7% y/y representing the steepest quarterly drop since 2001. Newspaper ad sales continue to suffer the most, falling-off more than –7% during the first half driven by particular weakness in classifieds (with big exposure to real estate, autos and help wanted – some of the weakest areas of the domestic economy). Notably, first half TV results were slightly negative with second half results likely to benefit somewhat from political and Olympic ad spend. In our opinion, the sharp drop-off in consumer spending (something which became very noticeable during the beginning of 4Q:08) has very negative future implications for ad spending especially given ongoing weak prospects for the automotive, retail and financial services sectors (all big ad spenders). Basically, we expect the deleveraging of the US consumer to have a long lasting affect on consumer and resultant ad spending. In any case, Zenith Optimedia expects ’09 US ad spending to fall by -6.2% with developing markets growing much faster thus down -0.2% for global ad spending growth.

12.Railroad Traffic Forecast: Continued contraction in demand likely. Benefits of long-term contract pricing to diminish.

Rail traffic demand has become progressively weaker over the last six months. Year-over-year growth in carloadings has been negative (-1%) in both Q2 and Q3, while intermodal shipments continue to decline at a 2-4% annual rate. Weakness has been especially pronounced in motor vehicles (-18%) and forest products (-19%). Coal shipments (up 3-4%) remain solid, but growth in both chemicals and grain – which have been areas of strength – slowed abruptly in Q3. Carloadings are expected to continue to contract over the next six months. However, coal shipments should remain reasonably firm, providing some support for railroad ton-miles. Further contraction in consumer goods demand will keep the intermodal sector under pressure. Repricing of long-term contracts is nearly completed and volume declines should begin to eat into revenues.

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

1Q03 3Q03 1Q04 3Q04 1Q05 3Q05 1Q06 3Q06 1Q07 3Q07 1Q08

Total Growth (YTD)

(Source: TNS Media Intellignece)

200

250

300

350

400

450

500

1Q98 1Q99 1Q00 1Q01 1Q02 1Q03 1Q04 1Q05 1Q06 1Q07 1Q08

-15

-10

-5

0

5

10

15Ton-M iles Grow th Ratio (YoY)

(Source: Surface T ransportation Board) (U nit: Billions , %)

150000

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350000

400000

00/1 01/1 02/1 03/1 04/1 05/1 06/1 07/1 08/1

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

Retail Total YoY % Change

(Unit: Million US$, %)(Source: U.S. Census Bureau)


6

13.Airline Revenue Passenger Miles Forecast: Sluggish demand to continue, but lower fuel costs and

capacity cuts put industry in favourable position.

Total airline passenger traffic growth year-to-date (through July) has risen less than 1% as a 5% increase in international business has offset a 1% decline domestically. The international growth reflects legacy carriers’ (LC) transfer of equipment from domestic markets to more profitable overseas routes. The most dramatic development in recent months has been the sudden slowing in low cost carrier (LCC) traffic. In Q3/08 LCC revenue passenger miles fell 1% - the first quarterly decline in more than five years – as LCCs cut back flights due to the surge in fuel costs. Passenger demand will likely remain sluggish, particularly in domestic markets. However, LC capacity cuts should be sufficient to keep load factors at profitable levels and LCCs will likely reinstate their growth model now that energy prices are coming down. Lower jet fuel costs will permit price reductions to stimulate demand.

14.Wireless Subscription Forecast : Positive but slowing sub growth

The CTIA reported +7.9% y/y sub growth for 6/30/08 as the industry continues to increase penetration at a slowing pace. However, with the CTIA reporting ~263MM domestic subs it is easy to see how the US upside is increasingly smaller with a total US population of about 300MM. Third quarter results for the 3 largest US wireless players (AT&T, Verizon and Sprint Nextel) show a similar story with a net +7% y/y sub increase (with AT&T and Verizon gaining a fair amount of market share from troubled Sprint Nextel) representing a total of 12.8MM in additional subs. Notably, JupiterResearch released a report in August of this year indicating that the US currently has 240MM subs with a forecast calling for the addition of just 26MM new subs over the next 5 years – reaching 266MM total subs by 2013. According to their research, adoption by teens and young adults has become nearly ubiquitous with even 31% of 10-12 year old children already with wireless cell phones. Resultantly, it is easy to see that wireless sub growth is quickly reaching saturation at which point it will grow in-line with the population growth.

15.Electricity Wholesale Price Forecast: Lower energy prices and reduced reserve margin pressures should lead to a 10 – 25% drop in power prices.

Wholesale power prices rose 24% in the first nine months of 2008, largely due to a sharp spike in natural gas prices. Reserve margins have been particularly tight in the Northeast and PJM regions leading to higher power dispatch from peaking plants. As a result, June-August wholesale electricity prices averaged nearly $120 per Mwh, surpassing the previous peak (2005) by over 20%. The environment for the electric utility industry has changed dramatically in the last three months. Oil and gas prices have plummeted and the outlook for power demand has weakened. Reserve margin pressures should ease enabling power producers to postpone some of the planned investment in new capacity. In the absence of extended severe weather patterns, wholesale electricity prices should fall 10 – 25% over the next six months.

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00/1H 01/1H 02/1H 03/1H 04/1H 05/1H 06/1H 07/1H 08/1H

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Subscribers YoY Grow th

(Unit : Thousand Persons , %)(Source : CTIA )

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160

01/1 02/1 03/1 04/1 05/1 06/1 07/1 08/1

NEPOOL Mass HubPJM WestERCOT

(Unit: US$/MWh)(Source: Intercontinental Ex change)

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01/1 02/1 03/1 04/1 05/1 06/1 07/1 08/1

-50%-40%-30%

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30%40%50%

Domestic RPMs International RPMsDom Grow th (YoY) Int Grow th (YoY)

(Source: US Dept. of Transportation) (Unit: Billions, %)


7

Company Financial Performance

Energy (Oil, Natural Gas)

◇ Oil companies (exploration and production, integrated oil) benefited from surging crude oil prices until July and in 3Q08 achieved revenue growth, ending the quarter in black. However, due to decline in crude oil prices after mid-July, revenue growth rate declined 4.6% points compared to the previous quarter.

◇ Looking forward, if crude oil prices were to remain at the current level on top of declining demand due to slowing economy, resulting pressure on revenue and profitability is likely to lower revenue in 4Q08.

Materials （Chemicals, Steel/Nonferrous Metals, Paper/Wood, Packaging） ◇Chemicals and packaging: Maintaining revenue growth

bolstered by international demand. However, in addition to further decline in domestic demand during 3Q08, international demand especially for Europe slowed down, resulting in significant deterioration in revenue growth rate.

◇Steel/nonferrous metals: Despite lower domestic demand, steel companies maintained revenue growth and profitability due mainly to price increases. Nonetheless, due to plunging steel prices since October, financial results are expected to deteriorate.

◇Wood/paper: In addition to lower demand and increased competition from imported goods, this segment has been plagued with structural weakness. However, supply control implemented by industry reorganization slightly improved financials. Nonetheless, price decline is expected for the near term.

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50

100

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200

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400

450

2006/4Q 2007/1Q 2007/2Q 2007/3Q 2007/4Q 2008/1Q 2008/2Q 2008/3Q

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%Revenue

Revenue Growth

Operating Margin

0

20

40

60

80

100

120

140

2006/4Q 2007/1Q 2007/2Q 2007/3Q 2007/4Q 2008/1Q 2008/2Q 2008/3Q

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%Revenue

Revenue Growth

Operating Margin

※Companies Included～Dow Chemical, Du Pont, 3M Company, Huntsman Corp., PPG Inds., Air Products & Chem., Praxair Inc., Rohm and Haas, Sherwin-Williams, Ashland Inc., Alcoa Inc., U.S. Steel Corp., Nucor Corp., Illinois Tool Works,Commercial Metals, Teck Cominco Ltd. , AK Steel Holding, Freep't-McMoRan C&G, Reliance Steel, Owens-Illinois, Smurfit-Stone Cont., Crown Holdings, Ball Corp., MeadWestvaco, Sealed Air, Sonoco Products, Bemis Co., Pactiv Corp., Silgan Holdings, Int'l Paper, Weyerhaeuser Co., Temple-Inland, Louisiana-Pacific, Plum Creek Timber, Rayonier Inc., Wausau Paper

※Companies Included～Exxon Mobil Corp., Chevron Corp., ConocoPhillips, Valero Energy, Marathon Oil Corp., Sunoco, Inc., Hess Corp., Schlumberger Ltd., Tesoro Corp., Occidental Petroleum, Williams Cos., Enbridge Inc., Kinder Morgan Energy, Magellan Midstream

(MM$)

(MM$)


8

Industrials（Aerospace/Defence, Machinery, Transportation, Construction (excl. Homebuilder)

◇Aerospace/defense companies revenue growth rate significantly slowed from 7.5% to 1.6% due mainly to revenue and profit decline by aircraft manufacturers as a result of strike. Defense related companies maintained solid results.

◇Machinery companies continue to maintain revenue growth trend. However, declining capital investment led to slowing domestic demand, and international demand driving growth so far is showing signs of slowdown. As a result, previously strong growth force is beginning to weaken.

◇Airlines continue to suffer loss, hit by declining demand and surging crude oil prices. Due to plunging crude oil prices after August, profitability is expected to somewhat improve although demand itself may take some time to recover.

◇Construction and transportation companies did not see significant decline in 3Q08, however along with slowing economy, decline in capital investment and volume of goods transported seems inevitable. As a result, revenue and profitability is expected to decline.

Consumer Staples （Food, Household Goods, Grocery Stores, Drugstores/Discount Stores）

◇Demand for food and household goods are relatively immune to economic downturn and as international demand is driving revenue growth, segment maintained growth rate of around 10%. Nonetheless, considering part of revenue increase is due to price increases, sales volume trend is slowing down.

◇ Retail (food, discount stores, drug stores) companies maintained solid results, supported by healthy demand and increased customer traffic diverted from department stores and specialty stores as a result of declining consumer confidence.

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50

100

150

200

250

2006/4Q 2007/1Q 2007/2Q 2007/3Q 2007/4Q 2008/1Q 2008/2Q 2008/3Q

0%

2%

4%

6%

8%

10%

12%

14%Revenue

Revenue Growth

Operating Margin

0

50

100

150

200

250

300

350

2006/4Q 2007/1Q 2007/2Q 2007/3Q 2007/4Q 2008/1Q 2008/2Q 2008/3Q

0%

2%

4%

6%

8%

10%

12%

14%

16%

Revenue

Revenue Growth

Operating Margin

※Companied Included～PepsiCo, Inc., Kraft Foods, Tyson Foods , Coca-Cola, Anheuser-Busch, Con Agra Food, Gen'l Mills, Sara Lee Corp., Procter & Gamble, Kimberly-Clark, Colgate-Palmolive, Avon Products, Estee Lauder, Kroger Co., Safeway Inc., Supervalu Inc., Sysco Corp., G't Atlantic & Pacific, Whole Foods Market, Wal-Mart Stores, Costco Wholesale, Walgreen Co., CVS Caremark Corp., Target Corp

※Companies Included～Boeing, Lockheed Martin, Honeywell Int'l, Northrop Grumman, Gen'l Dynamics, Raytheon Co., L-3 Communic. Hldgs., Textron, Inc., Goodrich Corp., Precision Castparts, Waste Management, Jacobs Engineering, EMCOR Group, Granite Construction, Shaw Group, United Technologies, Caterpillar Inc., Deere & Co., Fluor Corp., CNH Global NV, Cummins Inc., Terex Corp., Dover Corp., AMR Corp., UAL Corp., Cont'l Airlines, Southwest Airlines, Alaska Air Group, JetBlue Airways, United Parcel Serv., FedEx Corp., YRC Worldwide, C.H. Robinson, Ryder System, Expeditors Int'l, Con-way Inc., J.B. Hunt, Werner Enterprises, Union Pacific, Burlington Northern, CSX Corp., Norfolk Southern, Kansas City South'n

(MM$)

(MM$)


9

Consumer Discretionary (Auto, Housing, Consumer Durables, Hotel/Restaurant, Apparel, Department/Specialty Stores,

Media) ◇Demand for consumer discretionary sector is highly

sensitive to income trend and consumer confidence, and as financial services often fuel purchasing power, tightening credit had negative impact on the sector , resulting in declining revenue/profitability from early on.

◇ Until September, effect of tightening credit was limited to auto and home loans, therefore decline was concentrated on expensive items such as automobiles and homes. However, after the outbreak of financial crisis, stricter standards are applied for credit standing for credit cards, and revenue/profitability downturn has also spread to durable goods.

◇Some companies in apparel and hotel/restaurant segment are experiencing declining revenue/profitability. Lower consumer confidence and tightening credit for credit cards are expected to decrease profitability albeit not as deep as durable goods.

◇Revenues of media companies are expected to decline due to strong impact of economic volatility on corporate ad spending.

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100

150

200

250

300

350

2006/4Q 2007/1Q 2007/2Q 2007/3Q 2007/4Q 2008/1Q 2008/2Q 2008/3Q

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

Revenue

Revenue Growth

Operating Margin

※Companies Included～GM, Ford Motor, Johnson Controls, Goodyear Tire, AutoNation, Inc., Lear Corp., PACCAR Inc., Eaton Corp., Visteon Corp., Genuine Parts, Lennar Corp., Pulte Homes, Centex Corp., KB Home, Int'l Game Tech., Darden Restaurant, Starwood Hotels, Marriott International, McDonald's Corp., Yum! Brands, Starbucks Corp., Whirlpool Corp., Mohawk Inds., Black & Decker, Fortune Brands, Harman International, Leggett & Platt, Newell Rubbermai, Snap-on INC, Stanley Works, Nike, Inc. , V.F. Corp., Coach Inc, Jones Apparel, LIZ Claiborne, Polo Ralph Lauren, Hearst-Argyle, Gray TV, Sinclair Broadcast, Entravision, LIN TV, Radio One , Entercom, Cox Radio, Cumulus, Emmis, Interpublic Group, Omnicom Group, DIRECTV Group , Comcast Corp., DISH Network, Cablevision Sys. , Shaw Communication , Time Warner, Walt Disney, News Corp., Viacom Inc. , CBS Corp. , Gannett Co., Washington Post, New York Times, EW Scripps, McClatchy Co., Media General 'A', Belo Corp, Home Depot, Sears Holdings, Best Buy Co., Macy's Inc., J.C. Penney, Gap Inc., Bed Bath & Beyond, Radioshack Corp, Tiffany & Co, Limited Brands

(MM$)


10

Healthcare（Pharmaceuticals, Medical Equipment, Bio Technology, Medical Service）

◇Each segment in healthcare sector maintained solid results

for 3Q08. ◇However, medical equipment and pharmaceuticals are

highly dependent on international markets in both volume and growth, and domestic market was tepid. International market, the sector’s growth driver, is decelerating albeit to a lesser degree than other sectors. Further, applicable especially for pharmaceuticals, financial results will vary depending on new drug development since there will be many blockbuster patent expirations from now until 2012.

IT（PC・Peripherals, Communication Equipment, Semiconductors, Electrical Components/EMS, Software）

◇Revenue growth rate for PC/peripherals and

communications equipment companies slowed down due to lower consumer confidence and tightening credit by credit card companies as well as slowing capital investment for domestic market. Asian companies are eroding U.S. market share in international market. As a result, 3Q08 revenue growth rate for PC/peripherals declined and revenue declined for communications equipment.

◇Finished product manufacturers are decreasing inventory, and as a result, revenue is declining for upstream industry of those manufacturers such as electronic components/EMS and semiconductors.

◇Revenue growth rate for software is slowing down, though financials continues to be solid compared to hardware.

0

20

40

60

80

100

120

140

160

180

2006/4Q 2007/1Q 2007/2Q 2007/3Q 2007/4Q 2008/1Q 2008/2Q 2008/3Q

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

Revenue

Revenue Growth

Operating Margin

0

20

40

60

80

100

120

140

160

180

200

2006/4Q 2007/1Q 2007/2Q 2007/3Q 2007/4Q 2008/1Q 2008/2Q 2008/3Q

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%Revenue

Revenue Growth

Operating Margin

※Companies Included～Cisco Systems, Nortel Networks, Juniper Networks, Tellabs, Inc., Motorola Inc, Hewlett-Packard, Int'l Business Mach., Dell Inc., Apple Inc., Sun Microsystems, Sanmina-SCI Corp., Jabil Circuit, Celestica Inc., Emerson Electric, Intel Corp., Texas Instruments, Micron Technology, Advanced Micro Dev., Analog Devices, LSI Corp., Microsoft Corp., Oracle Corp., Google, Inc., Yahoo! Inc., Symantec Corp., CA, Inc., Intuit Inc., BMC Software

※Companies Included～Amgen, Genentech Inc., Gilead Sciences, Celgene Corp, Genzyme Corp, McKesson Corp., Cardinal Health, AmerisourceBergen, Johnson & Johnson, Abbott Labs., Medtronic, Inc., Baxter Int'l Inc., Owens & Minor Inc., Patterson Companies Inc, Kindred Healthcare Inc., Tenet Healthcare Corp, Universal Health Services Inc., Laboratory Corp of America Hldgs, Express Scripts Inc., Davita Inc. , Pfizer, Inc., Merck & Co., Wyeth, Bristol-Myers Squibb, Eli Lilly, Genzyme Corp., Forest Labs., Allergan, Inc.

(MM$)

(MM$)


11

Telecommunications（Wireline, Wireless）

◇ The effects of financial crisis on telecommunications

sector is relatively limited. However, while significant revenue growth in traditional telephone service is unlikely, growing dependence on services that are sensitive to economic trends such as broadband services will keep growth rate in single-digit range for the near term.

Utilities

◇ Due to relatively steady demand, utilities sector is

maintaining solid results despite stagnating economy and financial crisis.

0

10

20

30

40

50

60

70

80

2006/4Q 2007/1Q 2007/2Q 2007/3Q 2007/4Q 2008/1Q 2008/2Q 2008/3Q

0%

5%

10%

15%

20%

Revenue

Revenue Growth

Operating Margin

※Companies Included～Verizon Communication., AT&T Inc., Qwest Communication., CenturyTel Inc., Cincinnati Bell, Windstream Corporation, U.S. Cellular, Sprint Nextel, Leap Wireless , Centennial Communications

0

10

20

30

40

50

2006/4Q 2007/1Q 2007/2Q 2007/3Q 2007/4Q 2008/1Q 2008/2Q 2008/3Q

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%Revenue

Revenue Growth

Operating Margin

※Companies Included～Constellation Energy, Dominion Resources, FPL Group, Exelon Corp., Southern Co., Amer. Elec. Power, Edison Int'l, PG&E Corp., Public Serv. Enterprise, Consol. Edison

(MM$)

(MM$)


12

Macro Indicators

Real GDP Growth ISM

Industrial Production CPI・PPI

Consumer Confidence Index Unemployment Rate

-4-3-2-1012345678

85/1Q

87/1Q

89/1Q

91/1Q

93/1Q

95/1Q

97/1Q

99/1Q

01/1Q

03/1Q

05/1Q

07/1Q

Real GDP % Ch.

(Source: Bureau of Economic Analy sis) (Unit: %)

30

40

50

60

70

80

98/1 00/1 02/1 04/1 06/1 08/1

Manufacturing Non-manufacturing

(Source: Institute for Supply Managemant) (Unit: index )

88

94

100

106

112

118

124

98/1 00/1 02/1 04/1 06/1 08/1

-6

-3

0

3

6

9

12Industrial Production% Ch.

(Source: FRB) (Unit: index , %)

-3-2-10123456789

1011

98/1 00/1 02/1 04/1 06/1 08/1

CPI PPI

(Source: US Dept. of Labor) (Unit: %)

30

50

70

90

110

130

150

95/1 97/1 99/1 01/1 03/1 05/1 07/1

Consumer Confidence

(Source: The Conferrence Board) (Unit: index )

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

95/1 97/1 99/1 01/1 03/1 05/1 07/1

UnemploymentRate

(Source: US Dept. of Labor) (Unit: %)

industry monitor · pdf file · 2013-05-10consumers curtail purchases of capital...

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