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14 SMT007 MAGAZINE I DECEMBER 2023 warehouse. ese were oen financed as five- year balloons. When the five-year term ended, companies would just initiate a new five-year loan. But banks in 2008–09 were not renew- ing these loans and wouldn't let the compa- nies roll them over. Companies would either have to sell the warehouse or find alternative sources of money. It produced accelerating sales of assets, oen at discount prices, which then filtered back to the financial market. e Fed has learned from that, so they put in stop- gaps to avoid it, and now it doesn't feel like the big national banks are creating an environment that forces asset sales. However, there is more pressure on regional banks. If you're an EMS provider or a PCB fab and you're using a regional bank, it's always good to check in regularly with them to ensure your lines of credit are still intact and there are no unforeseen changes. Companies oen rely on those lines of credit to buy the inventory in advance, and then they're not getting the payment until 30 days aer they've shipped the box, so those lines of credit can be very impor tant. My sense is many EMS companies have very good relation- ships with their banks, but it's worth making sure nothing has changed. Because costs are up and it will be more costly to expand, we may see more merger activity; in some instances, it might be cheaper to buy out a competitor than to buy the equip- ment new. Johnson: So far, we've been talking about assemblers and fabricators, but what about the capital equipment manufacturers? How bullish or bearish is the economy for them? Capital equipment providers face unique chal- lenges. Many are likely to see a shi in the geographies where they sell. Pre-pandemic, pre-trade embargoes, and pre-tariff, U.S. companies were likely selling a lot of equip- ment to Asia. As Asia slowed, it tried to force their manufacturers and facilities to use more domestic capacity, capital, and machinery. But areas like Mexico, parts of Western and East- ern Europe, and the U.S. are growing. at's where that capital equipment is shiing. It's a tougher environment, though, so it will prob- ably be harder to sell some of that equipment. e decision whether to increase capacity will be a big one to make in a slow growth envi- ronment with high interest and finance costs; it becomes a much more challenging decision. Johnson: There have been times when capital equipment manufacturers got into the finance business and carried the paper themselves. Is now the time for that tactic to return? We could see that. You see it already happen- ing in the U.S. residential market, where build- ers are willing to buy down rates for buyers so they can get better rates. ey're essentially putting money into the financing. Maybe they're not carrying the note, but they're paying down the rate. at could def- initely make more sense now. Equipment is more soware-sensitive now. Much of the value is in the soware and the services, not just in the metal and the hard- ware. Getting that recurring revenue by hav- ing customers pay for ongoing service con- tracts may be lucrative for the companies. e other thing is the resale value, precisely because it's more soware-dependent and can be updated and upgraded. If you needed to reclaim some of that equipment, you could probably place it at other facilities without a lot of heartache. If you had to take back used equipment, you could probably refurbish and resell it. e soware would be up to date, so it's not like you're having to sell it for pennies on the dollar.