Question-and-Answer Session
Operator
(Operator instructions) Your first question comes from John McNulty - Credit Suisse.
John McNulty - Credit Suisse
On the Electronics business, with the actions that you are taking, can you give us some color as to how your past quarter, the second quarter, which really came under so much pressure, what that would look like with the cost cuts that you are looking to pull in? How would the profitability improve?
Paul Huck
You are talking about on quarter two?
John McNulty - Credit Suisse
Exactly.
Paul Huck
As far as quarter two is concerned, when we look at this, we are striving to take actions so that we do not drive ourselves into a loss and so that would be the thing that we think with the actions which we are taking here, that we could hopefully avoid a loss in this sharp downturn here; and also that we would be on average over this cycle, have returns which are well above our cost to capital.
John McNulty - Credit Suisse
Okay, great. Then just a question on your big on-site project, some of them had been delayed. Have you seen any comeback, now that the credit crisis doesn’t seem quite as severe?
Paul Huck
We have not seen anybody come back on the projects which people have put off, our current projects are proceeding well and we told you that, but as far as the ones which have not started, we haven’t seen anybody start to come back on that. I think that’s a little bit early.
I don’t think it’s a crisis of credit John, so much as people are looking, are they going to be able to sell the product. Manufacturing capacity operates at about 65% of global capacity today. So I think the push on new projects is going to be light over the next few years.
I think the places in which we’re going to see, we’ve told this to people before is we still see the hydrogen projects going forward for the refineries to make the refineries a lot more competitive, that’s a case of their economics and improving their economics.
In China we still expect that, and manufacturing is picking up faster in China than any place else in the world and so as they build a chemical industry in the inland of China based upon coal, we still expect to see the gasification projects proceed.
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