In the fat years, the communications equipment and component companies grew like mad, building capacity in the form of expanding workforces and new factories with Manhattan Project urgency. Now all that capacity sits on their balance sheets as the worst sort of excess inventory. With both primary and secondary drivers working against them, communications equipment and component companies have been slashing capacity, and while there's nothing they can do about capex spending, they sure as heck can start firing people. In other words, even with a modest recovery in demand, the industry is setting itself up for the biggest capacity crunch it has ever experienced. In a capacity crunch, the secondary driver becomes the primary driver.
Inventories fall to zero, backlogs build up and unit prices rise.
This will exacerbate the component shortage problem through next year and well into 2003. Delving deep into Luber's specialty as a consultant, optical components, it's even trickier. And therein lies the problem folks. Optical component companies should be purchasing this equipment now and developing their process capabilities, but they aren't because the current business downturn has caused optical component manufacturers to delay capital equipment purchases. If the former, revenue crashes.