Critical.
Authoritative.
Strategic.
Subscribe to CIO Magazine »

Rising oil prices could push up price of electronics, R&D

Rates of more than US$100 per barrel for six to 12 months would hurt the tech industry

Rising world oil prices threaten to raise the cost of consumer electronics and slow development by forcing Asian manufacturers to spend more on transportation and raw materials, regional economists say.

Oil prices have been pushed up by unrest in the Middle East and the cost of crude for April delivery moved close to US$100 a barrel on Monday. That level it threatens to jack up transportation expenses, which account for roughly 20 percent of the cost of products made in East Asia, said analysts.

The cost of raw materials such as plastics for computer casing or chemicals for mobile phone printed circuit boards will also go up if petrochemical factories end up paying more for crude supplies.

Oil refiners or naptha crackers would pass on about 80 percent of their higher costs to electronics firms who buy from them, said Wai Ho Leong, regional economist with Barclays Capital in Singapore.

"I assume the oil price hikes would be passed through to end users," Tim Condon, chief economist with ING in Singapore. "Activity would slow because consumers wouldn't be parting with their money. Demand would go down, you'd see unwanted inventory accumulating, and you'd see product cutbacks and employment effects."

So far oil prices that have tested their highest since mid-2008 haven't cramped Asia's momentum in PCs seen during the Western year-end holidays and China's Lunar New Year, analysts say.

But if the prices stay above $100 per barrel -- and fresh violence in Libya could push them into that groove -- for six to 12 months, manufacturers will be pinched.

"There is already some moderation kicking in," said Joanna Tan, economist with Forecast Ltd in Singapore. "With the oil prices up, we could see more moderation. It really depends on how long it drags on."

A dent in general world consumer confidence driven by higher oil prices could reduce demand for electronics, prompting manufacturers to pull back on capital expenditures for development of new technology, said Tony Phoo, economist with Standard Chartered in Taipei.

Oil prices that topped $140 per barrel in 2008 contributed to a slowdown in the growth of India's PC market and compounded the woes of manufacturers elsewhere as the world economy struggled against fallout from the U.S. sub-prime mortgage crisis.

Electronics firms are not assuming business as usual this year but keeping a wary eye on the second quarter of 2011 for any signs that oil prices will stay high.

"Our attitude on this is that if (oil prices) cost us more it also costs our competitors more," said Tim Handley, deputy marketing manager at Taipei-based motherboard maker Gigabyte. "I think the consumers would see some of this."

Join the CIO Australia group on LinkedIn. The group is open to CIOs, IT Directors, COOs, CTOs and senior IT managers.

More about: Gigabyte, ING

Comments

Post new comment

The content of this field is kept private and will not be shown publicly.
Users posting comments agree to the CIO comments policy.
Login or register to link comments to your user profile, or you may also post a comment without being logged in.
Related Coverage
Related Whitepapers
Latest Stories
Community Comments
Tags: Acer, Asustek Computer, Samsung Electronics, toshiba, Business Management, Budgeting and forecasting, hardware systems
Latest Blog Posts
Whitepapers
  • Optimizing Storage and Protecting Data with Oracle Database 11g
    This paper focuses on key Oracle Database 11g capabilities that help IT departments better optimise their storage infrastructure, enabling administrators to deliver a cost-effective, scalable data management platform that is easy to manage, reduces costs, and protects data while continuing to deliver the performance and availability that today’s businesses require.
    Learn more »
  • Top Reasons to Implement an SOA Governance Strategy: A List for IT Executives
    Service-oriented architecture (SOA) has moved beyond hype to widespread acceptance as an IT strategy for delivering business value. SOA promotes the notion of modularity, providing overwhelming flexibility and superior economics for addressing business demands. However, undertaking the transformation to SOA is not without its challenges. If left unchecked, your inventory of SOA assets will become unmanageable; the reuse of services will diminish in favor of custom development; or even worse, modifications will be made to your existing services that break other business processes. The purpose of SOA governance is to help you ensure that this does not happen. This paper outlines the most compelling reasons for you to establish SOA governance within your organization.
    Learn more »
  • Printer Usage and Cost Management Strategies for the Australian Mid-market, an Unrealised Opportunity
    This whitepaper was commissioned to aid senior business and ICT decision makers of medium-sized government and corporate organisations, including marketing, finance, and technology executives to better understand the current use of print devices including copiers, printers and multi-function Page 19 Reproductions in whole or in part are prohibited. This whitepaper also provides insights into how current management practices can be improved to optimise investments and improve sustainability. Read on.
    Learn more »
All whitepapers
rhs_login_lockGet exclusive access to Invitation only events CIO, reports & analysis.
Recent comments