MARKET REPORT
SHORT READ PART 2
2023 JULY ISSUE
Written by : Andrew Sia
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From the Desk of the Publisher
We covered very broadly many areas such as the CHIPS & Science Act initiated by Biden administration in the U.S., solar power, the revisiting of Radio-Frequency Identification (RFID), the world entering into the post-pandemic era and other challenges. We hope that the report can bring your attention and interest as well.
With Russia’s invasion of Ukraine, it has triggered the awareness of their dependence on its massive import of Russian natural gas. EU has started to look for alternatives like solar power.
Contents:
Manufacturing in the U.S.
RFID in Bricks-and-Mortar Stores
2024 Olympics in Paris, July 26-August 11
Banning TikTok in Montana
After the Surging of the Headcounts During the First Two Years of the Pandemic
China’s Ability in Developing Chatbot is Restricted
Manufacturing of Semiconductor in the United States
EU Wants to Overturn the Dominance of Solar Power Industry from China
A COVID New Variant is On the Rise
Retail Workers Status in New York City Coming Out of the COVID
Tales of Three Cities
Manufacturing in the U.S. – WSJ, April 8, 2023
Last year, construction spending related to manufacturing reached $108 billion, the highest annual total on record, and it is more than spending to build schools, healthcare centers or office buildings. Much of the growth is in the high-tech fields of electric-vehicle batteries and semiconductors backed by billions of dollars from the government incentives. Also other companies who are once relied only on low-cost countries are moving their productions home.
A sock manufacturer, FutureStitch Inc., who has been after speed and flexibility, has factories in China and Turkey is back for a new factory in Oceanside, California. Its customer, the retailers, expressed the desire not to carry excess inventory in their stores, and the factory reacted by quick replenishment of stock. Everyone realized that time is an essence especially if it has to do with events to commemorate events like NBA Finals or the Kentucky Derby.
It is still keeping its overseas factories but will open more factories here for adding the speed and flexibility.
We have to realize that the U.S. production had grown about 4% a year for decades until 2001 when China entered into the World Trade Organization.
But 2022 we have seen the strongest growth since 2015 after we experienced the pandemic-driven shortages and delays and realized the supply chains was at risk.
Today the U.S. manufacturing is employing about 10% of the private sector according to the U.S. Bureau of Labor Statistics with nearly 800,000 jobs being added over the past two years. The total number, 13 million remained unchanged in the latest statistical report.
The National Association of Manufacturing is looking for another 800,000 to be hired. The Reshoring Initiative is assuring that more jobs would come back if they can only have more workers.
By bring back the manufacturing home can reinvigorate the local shopping districts and open new shops. Not only it can shorten the supply but also help to reduce carbon footprint. It can also boost local supply of components which most of those parts could still have to source from China for instance. But if more companies are coming back for manufacturing, the manufacturing of parts and accessories would follow. It is not a bad idea to have a home-grown supply chain eventually built.
Manufacturing has been a part of the American history and to revive and return to a more traditional way of doing things is a good move. But this time I believe that we can do better.
RFID in Bricks-and-Mortar Stores – WSJ, April 8, 2023
Radio-Frequency Identification is nothing new. It has been around for quite some time. We came to know about it in the 2000s already.
In 2014, the world market for RFID was worth $8.89 billion, up from $7.77 billion in 2913 and $6.96 billion in 2012. This figure includes tags, readers, software for RFID cards, labels, and other factors. It is said that the market value will rise to $12.08 billion in 2020 and $16.23 billion by 2029.
The cost for the RFID tags was at 60 cents per tag before and it is now about 4 cents for each tag.
The radio-frequency identification readers are installed inside the checkout machines that can read the price embedded in the tags and this can speed up the checkout time by 50%. Both the RFID readers and antennas are integrated into the point-of-sales systems.
In the backroom of the stores, when those sales are picked up and can trigger the reloading of the items on the shop floor to reduce lost sales and improve customer’s shopping experience and bring satisfaction.
On the other hand, it can help the retailer to track individual items down to the factories and warehouses. This can improve the accuracy of inventory in store, adjusting production base on demand, and gain more visibility into its supply chain.
All these information was coming from the writeup from Uniqlo who claimed to have built the RFID strategy architect. It is used in all 47 U.S. and 16 Canadian stores, and 14 of the 25 markets where it has stores.
I am looking at the RFID checkout quite differently as without question it should be faster, easier and more accurate compare with the barcode self-checkout machines. Not to say that some retailers are still using printed bar codes which require manual scanning which is a very tedious process. But we have to know that the stores lost 3% of goods from their self-checkout machines as customers dishonestly skip the scanning. This is known as shoplifting. The 3% is what they said that they can tolerate, and it can go as high as 6% and that is why some of them stop using the self-checkout machines.
If the RFID can read everything in the bin with the radio-frequency through the antennas in the store, then this can be completely avoided. I think that someone should investigate this thoroughly and can keep out the shoplifting eventually.
2024 Olympics in Paris, July 26-August 11 – WSJ, April 7, 2023
Paris is hosting the Games of the XXXIII Olympiad 2024 and the French lawmakers approved plans to use smart surveillance measure. The country’s national assembly approved a bill last month authorizing companies to test computer-vision cameras to use at stadiums and nearby transportation hubs to identify security threats during the Olympics. This law will make France the first country in Europe to legalize biometric surveillance.
This computer-vision technology which uses algorithms to detect suspicious behavior and sends alerts to security authorities. It is on par with facial-recognition cameras that identify specific individuals based on the database.
Already the privacy advocates are voicing out that it may violate potential violations. They expressed their worries that at use of computer-vision cameras will open the door for surveillance by police and other organizations.
For the host country to expect 600,000 people turning up for Olympics opening ceremony, security measure is very important.
Banning TikTok in Montana – WSJ, April 17, 2023
Montana, the Treasure State, has a population of 1.1 million residents which is less than half the population of the New York City borough of Queens. It is advancing a bill to ban the popular video app for Montanans.
TikTok quickly responded by calling it a violation of Montanan’s free-speech rights and hired lobbyists in Helena, the state capital. TikTok has a reason to worry as if the Montana bill is passed, it could lead to a domino effect in which other states would follow. This could also give momentum to politicians in Washing to push for a nationwide ban.
For what happened already in South Dakota where they banned TikTok from government-issued devices for state employees in last November, and more than half of the U.S. states followed the same.
TikTok is popular with the young people in the U.S. and to mention that it is causing state security threat is probably being exaggerated. The most we may say is the time spend by the youngsters on the app is a waste of their time. But there are more apps out there than we can count. It is also becoming the youngster’s lifestyle.
In the social media arena, everyone is selling the data they collect for all kind of businesses. We can stop one but we can’t stop all of them.
After the Surging of the Headcounts During the First Two Years of the Pandemic – WSJ, March 5, 2023
Many technology companies grew rapidly during the first two years of the pandemic and you can refer to the chart as the following. But entering the third year, the rising of the interest rates and the fears of inflation and an economic downturn prompted some firms to control their headcounts.
China’s Ability to Develop the Chatbot is Restricted – New York Times, March 17, 2023
China was defected six years ago by a Google computer program at Go, which is an ancient Chinese board game. It poured a record sums of money to develop an AI plan. Now, a similar situation is taking place, and the rise of ChatGPT has started another AI race. As we know ChatGPT is the realm of machine-generating content. Beijing unveiled a bot, named Ernie, by Baidu which proved to be a flop.
In recent years, the relationship between the U.S. and China deteriorated, and this has cut China off from the high-end computer chips. It is also a key ingredient in technologies like the chatbot.
China is known for following the development of an existing invention and it has the lack of diversity of thoughts and free expression of ideas that help it to nurture out-of-the-box thinking.
Also China’s strict censorship rules can undermine the quality of data and restrict the development of chatbots. The ability of setting up the algorithms is restricted.
Manufacturing of Semiconductor in the United States
U.S. semiconductor industry was big in the 1980s until the business was largely migrated to Asia. It is already more than three decades. Biden administration hopes to make the United States a chip-manufacturing hub again.
Today, it is an industry forecasted to reach $1 trillion as it is expecting to growth 6 to 8% through 2030. Currently the industry is operating at capacity and have to double its production to meet the microelectronics resurgence and more new fabrication plants, commonly known as fabs, will need to be built. The Chips Act is to boost the value of those US-based semiconductor projects that are under way. Something around $260 billion, including those that are under way, announced, or under consideration through 2030. It is not just private companies who want to move their production to the United States, but also domestic manufacturers who have recently been approved the funding from the federal government. Already $54 billion in grants for domestic semiconductor manufacturing and research through the CHIPS and Science Act.
Although there is a strong outlook for future demand, lately the demand for PC and other electrical appliances have dropped because of the global weakening demand. The semiconductor companies may decide to invest in the through cycle to avoid another supply shortage, and yet this may create a cash flow limitations for instance. There are other challenges in building fabs in the U.S. such as the labor and material shortages. Also, there is the volatility of the prices for raw materials which adds the uncertainty to the cost. For the overseas manufacturers to continue to build the U.S. fabs amid of all this uncertainty is a serious question.
For many years, chip manufacturing has been concentrated in Southeast Asia and China. Semiconductor manufacture in the U.S. can only account for about 12% of the global total, down from 37% in 30 years ago. The production is determined by node size, and the leading-edge chips with node sizes under ten nanometers are largely produced in East Asia.
In recent years the chip production and distribution have been affected by the Covid-19 pandemic that subsequently brought along the supply chain disruption. Taiwan’s geopolitical political issue has threatened its capacity sharing of 63% for the chips <10 nm has alerted the world. Its consideration to build their fab locations in the U.S. is becoming imperative.
Lately, Taiwan Semiconductor Manufacturing Co., (TSMC) who plans to invest $40 billion in two chip factories in Arizona is showing its concern about rules that will require it to share profits from the factories and need to disclose detail information about operations. It objected to Washington for the conditions as attached while it is also looking for factory subsidies of $15 billion under the CHIPS Act.
Last year the CHIPS Act provided $53 billion in funding, most of it went for building the fabs in the U.S.
TSMC is expecting $7 billion to $8 billion for the tax credits and some $6 billion to $7 billion in grants for the two Amazon plants. This will bring the total of $15 billion for the two factories and TSMC has already started with the first factory. It is also looking to protect its customers and the types of the chips they have supplied. They want to guard their product blueprints for many of the world’s top consumer technology companies. This included the types of machines and materials it used in order to fence off the competitors.
The building of the fabs in the U.S. would cost TSMC at least 50% more compared with Taiwan. Korean semiconductor manufacturers, Samsung Electronics Co. and SK Hynix Inc. are sharing their similar impressions. And they all show concerns with their investments in China if they will take up U.S. subsidies. They are all focused on less-advanced chips for customers such as those car makers.
The CHIPS and Science Act, as known as an initiative by the Biden administration, will provide the first trench of $54 billion in federal incentives for semiconductor manufacturing and R&D, but the companies will need to go through a range of eligible requirements in order to be qualified for funding. But they can’t overlook the challenges of the commodity price volatility, inflation, supply chain disruptions, and an overheated labor market. The result is remaining to be seen and we are talking about mega investments here and also the well-experiences engineers and skillful workers are required once the fabs are up and running.
EU Wants to Overturn the Dominance of Solar Power Industry from China – WNYC, May 17, 2023
In Chemnitz, Germany, a city near to the Czech border is assembling the solar panel by using robotic arms to pick up solar cells and affix them to the glass panel in Heckert Solar Plant. At the moment it is making 3,000 panels daily and it is not enough.
With Russia’s invasion of Ukraine, it has triggered the awareness of their dependence on its massive import of Russian natural gas. EU has started to look for alternatives like solar power. It is aiming now to make solar power its biggest source of energy by the end of this decade.
Heckert Solar was the market leader in 2012 and it was the golden age of Germany’s solar power industry in the first decade of this century. During that time the solar panels were incentivized by tariffs and paying solar power users for contributing energy to the power grid. The incentives made Germany as a global leader in solar power and as the center of the industry’s research and development.
The law changed in 2013 and the industry collapsed and all of a sudden found seventy thousand workers in Germany’s solar industry lost their jobs. German solar panels were quickly replaced by the ones made in China. And since 2011, China invested ten times more in the solar energy than Europe did. It cannibalized the solar panel industry and today it is producing 97% of the silicon wafers for the solar panels and more than three-quarters of the world’s solar panels.
Under the Biden’s administration, as part of the Inflation Reduction Act which out forth a range of incentives for solar panel producers and users. In Germany they would need something similar to put their solar power industry back in competition.
The loss of Germany’s solar industry ten years ago was due to the conservative-run government of Angela Merkel who prioritized natural gas from Russia.
EU’s Net Zero Industry Act is aiming for 40% of all solar panels to be installed in Europe with the European made solar panels but the act has not been passed as the process of passing the bill is taking too long. Already the Swiss solar panel manufacturer, Meyer Burger, has decided to build its next big solar plant in Arizona in the U.S.
A COVID New Variant is On the Rise – USA Today, April 27, 2023
A new strain of Omicron known as the Arcturus, or XBB.1.16 is about 10% of the COVID-19 nation’s emerging cases in according to the Centers for Disease Control and Prevention. It has been expanded rapidly in India and Indonesia at the beginning of the year. Fortunately, it is not causing severe cases except that it is contagious.
There is also the development pf pink eye from COVID but it can also be similar to other pink eye viral infections. It is hard to determine if it is from an allergy or is it a bacterial infection.
Bacteria pink eye can be treated with eye drops containing antibiotics. Eye drops can reduce itchiness and puffiness and we should avoid rubbing the eyes with hands.
Retail Worker Status in New York City Coming Out of the COVID – New York Times, June 9, 2023
New York City has the 301,700 retail jobs and 70% are held by Black, Hispanic and Asian workers. Its disproportional share is due to those who have not finished college. Over 20% of the workforce is under the age of 25. During the pandemic, thousands of jobs were lost. The study found that in the three years since February 2020, New York City lost 37,800 retail jobs. It was a decline of 11.1%. Now the rest of the job market has almost fully recovered, and overall private employment regained all but only 0.8% of the jobs.
The city’s job losses in retail were also far worse than the rest of the country. Nationally an average of 0.7% of retail jobs were up. Retail jobs are crucial for the city’s job market.
The retail industry includes clothing, sports goods and grocery stores has been shrinking even before the pandemic. The pandemic sped up the growth of online shopping but its ecosystem relies on tourism. The decline in job applicants is due to the widening of racial disparities. At the first quarter of the year, unemployment rate for Black New Yorkers was 12,2% compared to 1.3% of the white New Yorkers.
Other industries in the city are growing, such as the tech, finance, health, legal and accounting services, But these are no accessible to those unemployed workforce.
The average annual wage across all retail sectors in 2021 was $53,900 compared with those who made $48,180 on average as couriers and messengers. In the last three years, their wages jumped 20% and obviously that there has been an uptick in e-commerce. This has an increase of 4,300 new jobs.
The home health care services have gain 41,700 jobs but they tend to pay less than retail jobs.
Retail workers will need to have training programs to show them the new potential in this field. There are incentives that will also be needed to introduce to the workforce. We have to remember that New York City is the commercial center of the U.S. and its commercial ecosystem relies on tourism, whether they are from national or international. The show must go on.
Tales of Three Cities – WSJ, June 13, 2023
While hotel owners in New York City and Los Angeles are filling up their rooms as near to the occupancy rate as they did in 2019 with the higher room-rates, San Francisco hotels are still struggling badly with both the occupancy rate and the room rates. They were so bad that the revenue per available room was nearly 23% lower in April compared with the same month in 2019.
The city’s crime rate and other issues such as the tech companies are still working remotely and this has affected the travel in the city and the hotel activities. This cause the failure of paying down the loans that led to foreclosure and it has made the San Francisco hoteliers very venerable. The city’s biggest potential hotel default which is yet to happen is its Park Hotels and Resorts who has stopped to make loan payments secured by the Hilton San Francisco Union Square and Parc 55 San Francisco. The two hotels are located in the city center with nearly 3,000 rooms and are right in the shopping and cultural district.
National retailers like Nordstrom, Crate & Barrel and H&M have closed their Union Square stores.