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PCBs and Semiconductors Continue to Surge (April 2000)
April 2, 2000 |Estimated reading time: 18 minutes
PCBs and Semiconductors Continue to Surge
by Walt Custer
April 02, 2000
This column appears monthly in CircuiTree magazine
Business conditions remain very strong - so strong that component and bas material shortages may emerge as key issues later in 2000. For 1999 global semiconductor sales jumped 21.6% to $168.6 billion as both volume and memory price increases fueled the strong rebound (Chart 1). The top 10 semiconductors were led again by Intel, which captured almost 16% of the total market growing almost 18% over 1998 (Chart 2). Notable was the strong growth of the DRAM suppliers following a sharp decline in 1998.
PCBs orders are booming as the 3-month rigid board book/bill ration jumped to 1.15 in February (Chart 3). Book/bill ratios this high often raise concerns about overbooking but electronic equipment orders also are holding strong (Chart 4) suggesting that PCB demand will remain strong. Actually equipment growth did slow "a tad" in February suggesting that the trends in Chart 4 and Chart 5 bear continual monitoring. As long as the 3/12 growth of equipment remains in the same range as PCBs the year 2000 outlook will remain firm. I think it will!
Chart 6 shows growth of the key PCB indicators in N America in February based upon data collected by the IPC statistical survey. The strong growth should bring quite a few smiles to our industry executives. Unfortunately strong PCB orders have not translated to broad industry profits (Chart 7) as a number of major rigid and flex suppliers are having tough times. The rapid shift to more value-added activities (assembly, backplanes) etc is evident in the acquisition and expansion announcements of Viasystems, Hadco, Flextronics/Diii/Multek/, Sanmina and most recently DDi/Dynamic Details (Chart 8) with its acquisition of MCM Electronics (see below). Many companies have learned that being a "CEM" earns a higher stock multiple on Wall Street. Just look at Viasystems' recent press releases proclaiming it to be the "leading global provider of electronics manufacturing services" rather than the world's largest PCB producer!
2000 should be an interesting year
General Business Conditions
In spite of any Y2K worries personal computers enjoyed an excellent year in 1999 growing 21.7% globally as Compaq, Dell and IBM led their competitors. 113 million desktop PCs and notebooks were shipped last year plus an additional 1.6 million total NT and UNIX workstations. For comparison 283 million cellular phones were made in 1999.
A shortage of key computer components cut into Dell Computer's fourth quarter earnings. Tantalum capacitors, TFT displays, certain microprocessors and other key parts experienced shortages during the fall/early winter PC peak. Although supplies are now improved expect component shortages to again impact sales in late 2000.
Intel is offering personal computers, Internet access and services free to all its 70,000 full-time and part-time employees - following similar actions by Ford Motor, Delta Air Lines and American Airlines. "We want our employees and their families to participate fully in the Internet revolution," said Craig Barrett, Intel's president and CEO. Intel will give its employees high performance PCs, with a 667 MHz Pentium III processors, 20 GB hard drive, 128 megabytes of memory, a printer, speakers, unlimited Internet access, office productivity software and the choice of one Intel/Mattel Play product. Think of the volume implications if many other companies follow the lead of Intel, Ford, American and Delta Airlines!
Everybody is forming alliances for high-speed wireless communication. Canada's Research In Motion has supply agreements with America Online, Compaq Computer and Nortel for its interactive e-mail pagers. Nokia and AOL are developing a version of AOL Instant Messenger for Nokia wireless handheld devices.
Global merger volume soared 68% in the first quarter to a record $1.14 trillion, led by a boom in European deal making and the rapid transformation of the technology sector worldwide. In the U.S., deal volume jumped 64% to $578 billion, propelled by America Online's proposed acquisition of Time Warner, a deal originally valued at $160 billion in stock and the second largest merger ever.
Electronic Equipment
European personal computer shipments were almost 30 million units in 1999 up 18% over 1998. Compaq, Fujitsu Siemens, Dell and IBM had the largest shares. Latin America PC sales grew over 15% in 1999 with Mexico, Chile, Brazil and Argentina had the majority of the sales (6 million units total). This strong growth is expected to continue in 2000 due to ISP/PC bundling and strong promotional efforts. Japanese PC shipments were up 37% in 1999 as home PC usage surged. Approximately 11 million PCs were shipped in Japan in 1999 compared to 113 million worldwide. Portable computers make up almost 50% of Japan's sales. Over 14.million PCs were shipped in 1999 in the Asia Pacific region, excluding Japan - up 35% over 1998. S Korea and China were the largest consumers and IBM had the highest share.
Facing ever-shrinking margins PC makers are attempting to diversify their product portfolios. Gateway announced their corporate "Beyond the Box" goals:
- 40% Non-system income by Q4 2000
- $30 Billion in revenue by 2004
- Strategic alliances with Sun Microsystems, OfficeMax, eSoft Others are offering Internet services, web hosting and other value added alternatives to augment PC sales.
Worldwide midrange server sales dropped 10% in 1999 with only modest growth expected in 2000. Y2K-related order freezes, price degradation, product transitions, slower sales of IBM midrange servers, and lower sales second-tier vendors all hurt the 1999 performance. With Y2K worries behind and a promising global economic foundation midrange server sales should increase slightly in 2000.
Both Unix and Windows NT workstation shipments grew in 1999. Per IDC the 1999 U.S. and world markets were:
Top Vendors, Worldwide Branded Personal (Windows NT) Workstation Shipments, 1999
U.S. Shipments U.S. Market Share Worldwide Shipments Worldwide Market Share Dell 165,011 33% 249,544 25% HP 103,448 21% 230,138 23% Compaq 84,137 17% 194,431 19% IBM 64,881 13% 153,547 15% Other 79,417 16% 179,823 18% Total 496,894 100% 1,007,483 100%
Top Vendors, Worldwide Traditional (Unix) Workstation Shipments, 1999
U.S. Shipments U.S. Market Share Worldwide Shipments Worldwide Market Share Sun 197,463 66% 349,040 57% HP 40,188 14% 88,375 14.5% IBM 26,415 9% 76,645 13% SGI 19,403 7% 41,218 7% Compaq 8,147 3% 25,998 4% Other 3,850 1% 28,152 4.5% Total 295,466 100% 609,428 100%
Despite declining prices, the momentum in the worldwide local area network (LAN) equipment market continues. According to IDC
- 1999 worldwide LAN switch end-user revenue expanded to $3.9 billion.
- Worldwide Layer 3 switches accounted for 1.469 million ports and $937 million in end-user revenue in 4Q99.
- Worldwide Gigabit Ethernet switches represented 479,572 ports and $534 million in revenue.
- Worldwide router end-user revenue increased to $2.4 billion in 4Q99.
- The pace of Gigabit router installations has picked up significantly, jumping to 1,479 units.
- The biggest growth in the router segment came from sales of SOHO routers, which grew 20.5% over the previous quarter.
PCMCIA sales will increase as a new high-speed design standard takes hold. The new CardBay standard adapts the popular USB and 1394 serial interfaces into specifications compatible with the PC Card form factor. Developers of modular peripheral devices for mobile computing platforms, such as laptops and personal digital assistants (PDAs), can use CardBay to take advantage of plug-and-play technologies while retaining the benefit of PC card's embedded form. The new CardBay standard will support a variety of applications including high-speed networking and telephony (modems, LANs), video (DVD, MPEG, video capture) and memory (USB enabled) cards. Current plans call for the CardBay specification to be available to mobile system developers by late 2000. The first products using CardBay are expected to appear in 2001.
Worldwide PC monitor grew 25% to surpass $33 billion in 1999 with Cathode-ray tubes accounting for 96% of the 100 million PC displays shipped worldwide. However, flat panel TFT displays are growing fast as prices drop and size and resolution improve.
Seagate Technology is going private in a $20 billion deal with Veritas Software and a technology-oriented investment group led by Silver Lake Partners.
DSL subscribers will surpass cable subscribers worldwide in 2001 but the DSL/Cable battle will be hotly contested. In rural areas where cable and DSL are unavailable satellite systems will prevail. According to Cahners/In-Stat the installed base of broadband subscribers is expected to reach almost 9 million worldwide by the end of 2000, and almost 49 million by 2003. Voice over DSL (VoDSL) will be the first "killer" application to propel widespread DSL usage. The ability to offer multi-line telephone service to small businesses at an attractive price, and reduced copper installation requirements are both seen as advantages.
Iridium World Communications failed to attract a qualified, offer to rescue it from liquidation. It shut down in mid-March and is now pulling its satellites out of orbit, allowing them to burn up in the atmosphere. This ends a $5 billion project to provide telephone service to any spot on the globe through a system of 66 low-earth-orbit satellites.
Cisco Systems announced a new office telephone system, which integrates voice and computer communications over a single network, using the standard "IP protocol" language of the Internet.
Lucent Technologies introduced a new optical networking product that allows telephone and Internet companies to build local data networks, which are four times faster than today's networks. Designed by Bell Labs, Lucent's new WaveStar DataExpress 10G allows local and regional data networks operating at speeds of 10 gigabits per second (Gb/s). That's the equivalent of transmitting a 2 million-page document every second. "Our WaveStar DataExpress will push high-speed fiber-optics into ISP networks as we help break through the bottlenecks that slow down the Internet and other data transport," said Harry Bosco, Group President of Lucent's Optical Networking Group. Lucent is tripling the manufacturing capacity for its high-speed optical networking systems this quarter. Optical data transmission is a "hot" topic in the industry this year.
In a survey of 700 digital camera owners, InfoTrends Research Group found that digital photographers expect to capture 100% of their images digitally by 2004. Conventional film suppliers and processors will be hurt as 35 mm film gives way to reusable memory cards. With 4+ megapixel CCD devices now available affordable film-quality digital cameras are now a reality. A surge in digital camera sales will spur companion increases in photo quality color printers, flash memory cards and micro hard drives.
Next generation video games are big news. Sony, Sega, Nintendo and most recently Microsoft are targeting volumes comparable in size to the world personal computer market. Stunning, high speed graphics and the ability to play DVD disks and access the Internet suggests that these "games" will also be Internet appliances and home computers. Microsoft's specifications for its upcoming X-Box tell the story:
- DirectX API
- Intel Pentium III processor technology with Streaming SIMD Extensions.
- Custom 3-D NVIDIA graphics processor
- 64 MB of RAM (unified memory architecture)
- Custom 3-D audio processor
- 8GB hard drive
- 4X DVD drive with movie playback
- Four game controller ports
- Expansion port
- Proprietary A/V connector
- 100 MBps Ethernet
Printed Circuit Boards
Dynamic Details' parent DDi Corp. will acquire MCM Electronics Ltd. of Tewkesbury, UK. MCM Electronics, formed as a management buy-out of publicly traded Symonds Limited in July 1999, is a CEM offering quick-turn PCB prototype services and high density interconnect products to OEMs including Alcatel, Raychem, Rotork Controls and Soundcraft/BSS. (editorial comment: I consider this a significant move - PCB fabricator buys assembly company. This positions DDi to make a public offering (IPO) as a CEM rather than a PCB manufacturer - thus commanding better stock prices).
Hadco is expanding its Santa Clara, CA "Value Added Manufacturing" facility to 90,000 from 50,000 SF - targeting more customers in the rapidly growing telecommunications and networking businesses. It will spend more than $3 million for capacity expansions plus it will renovate two currently leased buildings.
In mid-March ELEC & Eltek said it had called off the sale of its core PCB business "since the buyer's final offer price did not "reflect a fair valuation of the PCB business...and its underlying business prospects."
Parlex will sell 1.25 million shares while two of its stockholders Chairman Herbert Pollack and his wife plan to sell 150,000 shares. It will use the proceeds for to repay debt, largely in connection with its acquisition of Poly-Flex Circuits and general corporate purposes including working capital. After the offering there will be approximately 6.1 million shares outstanding.
Merix will sell 3 million common shares, including 1 million shares to be sold by Tektronix. It will use the proceeds to fund growth, including a capacity expansion of its existing Forest Grove facilities.
Innovex has moved to its new world headquarters in Maple Plain, Minnesota. The 80,000 SF facility was designed for manufacturing advanced flexible circuit materials and will also house Innovex's corporate offices and R&D laboratory, along with the development and prototype production of Innovex's flexible suspension assembly (FSA). In February 2000, Innovex transferred its high volume FSA production to its Lamphun, Thailand facility.
Sheldahl said the company continues to explore "all options" while it awaits word from investor Irwin Jacobs regarding his earlier acquisition bid. "The outcome remains uncertain," President and CEO Edward Lundstrom said during a conference call with securities analysts 3/28/2000 after the company released second quarter results. Molex, a previous Sheldahl suitor, has curtailed its acquisition discussions.
Fujitsu Computer Products of Vietnam has inaugurated a third factory in Dong Nai Province as part of its US$198.8 million investment plan for Vietnam. Fujitsu Vietnam can now produce 24 million products a year, chiefly PCB assemblies and wiring boards. Its key export markets are Japan, Thailand, Singapore, the European Union and the United States.
Compositech terminated its merger negotiations with Netdirect International Corporation and will continue to pursue licensing programs and resume other merger discussions.
Thailand's Draco PCB will expand its PCB production capacity by 500,000 square meters in 2000 to a total of 1.7 million square meters.
Assembly
International Wire Group completed the sale of its Wire Harness Segment to Viasystems Group for $210 million in cash.
Plexus will acquire all of the turnkey electronic manufacturing operations of Elamex, Juarez, Mexico for approximately $53 million. Elamex is the largest Mexican-based EMS provider with a current annual sales rate of between $80 million and $100 million. Plexus will be acquiring two leased facilities, an existing 30,000 SF service center and a recently constructed 210,000 SF electronic manufacturing facility.
Viasystems Group completed the acquisition of Marconi Communications' Network Components & Services European and China operations ("NC&S"). NC&S, previously known as RELTEC-Europe and Shanghai-RELTEC, was acquired in April 1999 as part of Marconi plc's acquisition of RELTEC Corporation. In 1999, NC&S had revenues of approximately $150 million.
Viasystems Group's March IPO netted approximately $870 million. $210 million was spent to buy the wire harness business of another Mills company, International Wire Group Inc. About $630 million will be used to repay debt.
Jabil Circuit will construct a $40 million, 325,000 SF expansion in Auburn Hills, Michigan. The project will join an existing 125,000 SF Jabil facility.
Solectron is targeting acquisitions worth over $1 billion, considerably larger than previous deals, said CFO Susan Wang on 3/27/2000. Wang said the stepped-up pace of deals reflected the growing trend by major computer and communications equipment makers to turn over manufacturing to low-cost specialists such as the Solectron. Solectron recently acquired cell phone manufacturing assets from Ericsson, in a deal worth an estimated $500-600 million in revenue. A pending deal with French telecom equipment supplier Alcatel is expected to generate another $200-300 million in sales for Solectron.
Flextronics International signed agreements with Bosch Telecom GmbH, Stuttgart, Germany and Siemens AG, Germany to acquire the Bosch manufacturing operation in Pandrup, Denmark, which manufactures GSM phones for Siemens. The value of the agreement is expected to exceed $1 billion in revenue over the next three years. The purchase price will be the approximate book value of the fixed assets and Flextronics will employ the 1,300 workers. Flextronics International will become Siemens' manufacturing partner for GSM phones and the two companies have signed a long-term supply agreement.
NatSteel Electronics acquired 3Com Corp.'s manufacturing facility in Mount Prospect, Ill. Under the agreement, Singapore-based NatSteel forged a strategic manufacturing alliance with 3Com, to make broadband modems and multi-service access platforms. 3Com and NatSteel also formed a strategic partnership with Accton Technology, a Taiwan-based networking-equipment designer and 3Com supplier. The three companies have created a Chicago-based company that will be responsible for the design, marketing, and sales of Internet-access products.
Fujitsu Computer Products of Vietnam has inaugurated a third factory in Dong Nai Province as part of its US$198.8 million investment plan for Vietnam. Fujitsu Vietnam can now produce 24 million products a year, chiefly PCB assemblies and wiring boards. Its key export markets are Japan, Thailand, Singapore, the European Union and the United States.
ACT Manufacturing will acquire GSS ARRAY Technology - a Thai-based CEM for approximately $93 million. John Pino, Chairman and CEO of ACT, said "the addition of GSS ARRAY's 240,000 SF of low-cost manufacturing capacity increases our overall manufacturing capacity to well over 1 million square feet.
Flextronics will consolidate four recent acquisitions - Circuit Board Assemblers, Newport Technology, EMC International and Summit Manufacturing, and about 300 employees into a new facility in Youngsville, NC.
C-MAC Industries is acquiring A-Plus Manufacturing, a private San Jose, CA EMS provider. Terms were not disclosed. The current A-Plus sales run rate is more than US$150 million annually. It will expand its 151,000 SF capacity to about 200,000 SF in August, when its newest facility becomes operational.
Sanmina completed its acquisition of the Clinton, NC electronic enclosure systems facility from Alcatel. The transaction includes an enclosure fabrication and mechanical assembly facility, 26 acres of commercially zoned land, as well as a manufacturing service contract. This facility primarily manufactures electronic system enclosures for Alcatel's ADSL products.
Semiconductors
Worldwide semiconductor sales reached $14.8 billion in January, increasing from $11.1 billion from January 1999. "The chip industry is off to a strong start for year 2000," said George Scalise, SIA President. "January sales were stronger than traditional seasonal patterns.
The 1999 world semiconductor market was a record $168.6 billion, a 22% increase over 1998 revenue of $138.7 billion, according to Dataquest. "The memory market made a big comeback fuelled by the revival in DRAM, which grew 46% in 1999, and the shortage of flash capacity," said Joe D'Elia, Director of Dataquest's European Semiconductor Research.
Top 10 Worldwide Semiconductor Vendors by Revenue Estimates (Millions of U.S. Dollars)
1998 Rank 1999 Rank Company 1998 Revenue 1999 Revenue
1999 Market Share (%)
1998-1999 Growth (%) 1 1 Intel 22,784 26,806 15.9 17.7 2 2 NEC 7,947 9,210 5.5 15.9 4 3 Toshiba 5,913 7,618 4.5 28.8 6 4 Samsung 4,743 7,125 4.2 50.2 5 5 Texas Instruments 5,820 7,120 4.2 22.3 3 6 Motorola 7,088 6,394 3.8 -9.8 7 7 Hitachi 4,668 5,554 3.3 19.0 10 8 Infineon 3,909 5,223 3.1 33.6 9 9 STMicroelectronics N.V. 4,199 5,077 3.0 20.9 8 10 Philips 4,448 5,074 3.0 14.1 Others 67,167 83,378 49.5 24.1 Total Market 138,686 168,579 100.0 21.6
Source: Dataquest
DRAM prices have dropped again as 64-Mbit SDRAMs were listing on the February spot market for as little as $4.50. A few months ago the price was $20. Industry analysts predict that it will take until the second quarter before some balance is restored to the supply/demand. Reasons for the price drop include seasonality, the scarcity of Intel processors and no significant increase in the amount of memory in new computers. A rebound is expected when the PC industry ramps up for back-to-school and holiday sales.
Microprocessor volumes are up and past Intel supply problems have been issues. Competition is increasing. At the high end AMD and Intel play leapfrog with processor speeds with AMD being first with a 1 GHz announcement. For the cost conscious Taiwan’s VIA Technologies launched its low-cost Joshua chip aka VIA Cyrix 111 – an attempt to penetrate the market for low cost PCs. Speeds are 500 and 533 megahertz (US$84 & US$99). VIA already competes with Intel on PC chipsets. For portables and handhelds California startup’s Transmeta is drawing significant attention. Reported the Taiwanese handheld manufacturers are designing product around this new microprocessor.
IBM is developing new E-beam chip writing technology with Nikon. Named Prevail (Projection Reduction Exposure With Variable Axis Immersion Lenses) it will be used to produce chips for products ranging from small hand-held devices to super-computers. The technology will be available for use in chip-making equipment after 2003. Separately ASM Lithography Holdings NV and Applied Materials are working with Lucent Technologies to develop Lucent's SCALPEL system, which also uses an electron beam instead of light to imprint circuits on chips.
Intel hopes to use a new computer chip touted as the world's fastest to accelerate its transformation from a PC-centric company into a supplier of components for dozens of Internet products. Intel’s new “Willamette'' chip will run at 1.5 GHz. Intel’s targets are “new generations of Internet commerce, gaming and entertainment” that require greater processing power.
AMD has decided not to sell its network products unit due to increased demand. The network products unit supplies ICs for data communications and computer connectivity. AMD reevaluated its plans to sell the unit in light of growing demand for processor-centric integrated solutions for high-performance networking applications and Internet access.
Infineon Technologies AG, the Siemens AG semiconductor spinoff, will invest more than one billion euros ($960.9 million) in its Dresden chip plant to accelerate 300-millimeter wafer production. Infineon said the plant will produce 256MB DRAM. Infineon has been developing the products in collaboration with Motorola.
Applied Materials the “world's largest semiconductor equipment company” acquired Etec Systems a leading manufacturer of mask pattern generation solutions for the semiconductor and electronics industries. Etec also markets laser direct-write imaging systems for the PCB industry.
IBM researchers have combined nanotechnology with chemistry to make a radically new class of magnetic materials that may one day allow computer hard disks and other data-storage systems to store more than 100 times more data than today's products. IBM scientists discovered chemical reactions that cause tiny magnetic particles, each uniformly containing only a few thousand atoms, to self-assemble - or automatically arrange themselves –into well-ordered arrays with each particle separated from its neighbors by the same preset distance. Only 4 nanometers in diameter, some 20,000 of these tiny "nanoparticles" containing a mixture of iron and platinum would be needed to span a human hair. The new reactions also permit precise control of both the size of the "nanoparticles" and their separation distance, factors that are important in increasing data density.
Other
Mobile phone manufacturing could be squeezed soon as an LCD pinch that has plagued the mobile and desktop markets spreads to small-screen devices. LCD makers, who have only recently seen an easing of glass supplies needed to produce monitors, now face a shortage of another key component - LCD drivers, which are used to regulate voltage levels for the screen displays.
IBM researchers have combined nanotechnology with chemistry to make a radically new class of magnetic materials that may one day allow computer hard disks and other data-storage systems to store more than 100 times more data than today's products. IBM scientists discovered chemical reactions that cause tiny magnetic particles, each uniformly containing only a few thousand atoms, to self-assemble - or automatically arrange themselves –into well-ordered arrays with each particle separated from its neighbors by the same preset distance. Only 4 nanometers in diameter, some 20,000 of these tiny "nanoparticles" containing a mixture of iron and platinum would be needed to span a human hair. The new reactions also permit precise control of both the size of the "nanoparticles" and their separation distance, factors that are important in increasing data density.
Keeping Current
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Walt Custer CusterConsulting Group Phone: 707 785-1777FAX: 707 785-1988 http://www.custerconsulting.comE-mail: wcuster@mindspring.com