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1999: Not a bad finish
February 7, 2000 |Estimated reading time: 17 minutes
1999 – Not a Bad Finish
by Walt Custer
Feb. 07, 2000
This column appears monthly in CircuiTree magazine
1999 was a good year that finished with a bang. Chart 1 speaks for itself. Rigid PCB orders were up 6.2% for the year and 9.4% on a 3-month basis (Oct-Dec ’99 vs. Oct-Dec ’98). Similarly 3-month growth rates for electronic equipment orders increased 18.6% with communications equipment up a whopping 42%! As we go into 2000 the outlook is quit optimistic. Yes, there are some concerns – component shortages and looming interest rate hikes but the key global economies are doing well (Chart 2) and equipment demand is strong in all end-markets (Chart 1).
For 1999 global electronic equipment production was almost $1.1 trillion (Chart 3) driven by incredible communication equipment demand (Chart 4). Looking into 2000 the computer industry weathered the Y2K scares. A combination of a post Y2K scare computer buying flurry coupled with Microsoft’s Windows 2000 February release suggests the corporate PC buying will be brisk. Computer Reseller News’ survey of “large company” buying plans (Chart 5) suggests that personal computer/server orders will be strong.
The N American PCB industry is sure to benefit. Signs of stronger PCB growth are already here (Chart 6). The December 1-month rigid PCB book/bill ratio jumped to 1.17 as December 1999 rigid PCB bookings were up 11.5%, laminate/prepreg SF orders up 41.8% and flex bookings up 70.3% versus December 1998. Wow! Comparing 3-month (3/12) order growth of PCBs vs. the equipment end markets (Chart 7) shows that every end market is supporting the expansion.
With this positive backdrop a few recent events make the situation even more interesting. Ford’s and Delta Air Lines “all employee” PC giveaways could unleash an avalanche if other companies follow their lead. With just two companies effectively ordering 425,000 new PCs think what will happen if this approach becomes a common practice globally! Suppose the labor unions demand it?
Another breakthrough is in digital camera technology. Read the news item below about Fuji’s new digital cameras – one with 6.1 million pixels (3040 x 2016 resolution). Thanks to a new CCD technology Fuji has made a huge jump in resolution. Just a few months ago 2.3 million pixels was “state of the art.” I see the mad rush from film to digital cameras accelerating.
Lastly E-Commerce is changing the world. Retailers and many service providers (travel agents, stock brokers) had better be looking over their shoulders because their traditional business models and comfortable life styles are in real jeopardy. People can buy things faster, cheaper and easier online. The E-Retailer pays little or no inventory costs, sales commissions, rent and often sales taxes. Higher overhead traditional stores are under real fire.
Speaking of E-Commerce take a look at Custer Consulting Groups new website: www.custerconsulting.com
Here you can read my latest CircuiTree articles, download my IPC TMRC presentation, see up-to-the-minute business condition indicators and order my daily electronic industry E-News service. You can even get my entire 250-slide Business Outlook presentation and order Henderson Ventures and Electronic Outlook’s market research reports and forecasts. Take a look. It’s E-Commerce!
General Business Conditions
Factory orders rose 3.3% in December to a seasonally adjusted $377.8 billion. U.S. factories recorded the largest gain in seven years thanks to a surge in aircraft orders and demand for electronic equipment.
Ford Motor and Delta Air Lines will provide free or subsidized personal computers to their staffs. There is a key transformation in the way computers are sold to consumers and threatens to undermine the business of electronics retailers. Ford is giving its 350,000 employees free Hewlett-Packard PCs and printers, as well as Internet access for a fee of $5 per month. Delta Air Lines will subsidize PCs and Internet access, offering its 72,000 employees home computers for up to $12 per month over 36 months.
Vodafone Airtouch’s takeover of Mannesmann may the start of a consolidation wave in the telecom industry. The creation of the world's biggest telecom company raises the pressure on rivals to follow suit.
Federal Communications Commission Chairman William Kennard wants to spread wireless technology across the country quickly to revolutionize Americans' daily life, from the Internet and movies to cars and kitchen appliances. Kennard said the FCC would auction more slices of the airwaves for wireless technology and draft new standards for digital TV.
PCB related cost increases? - Global Palladium and Platinum supply shortages caused primarily by a lack of Russian exports have fueled surging prices. Producers of bromine-based flame retardants have announced price increases in an effort to reverse falling selling prices. Tetrabromobisphenol A (used in many PCB laminates) was the hardest hit. Great Lakes Chemical led the latest increases with a $0.10/kg hike worldwide for TBPA.
Electronic Equipment
The Global PC market continued to experience robust growth in 1999, according to Dataquest. Worldwide PC shipments surpassed 113.5 million units in 1999, an increase of 21.7% over 1998 shipments.
Preliminary Worldwide PC Vendor Unit Shipment Estimates for 1999 (Thousands of Units)
Company 1999 Shipments 1999 Market Share (%) 1998 Shipments 1998 Market Share (%) Growth (%) Compaq 15,035 13.2 12,785 13.7 17.6 Dell 11,123 9.8 7,361 7.9 51.1 IBM 8,932 7.9 7,613 8.2 17.3 Hewlett-Packard 7,242 6.4 5,388 5.8 34.4 Packard Bell NEC + NEC 5,936 5.2 5,914 6.3 0.4 Gateway 4,638 4.1 3,561 3.8 30.2 Apple 3,821 3.4 3,070 3.3 24.5 Others 56,795 50.0 47,619 51.0 19.2 Total Market 113,521 100.0 93,310 100.0 21.7
Preliminary U.S. PC Vendor Unit Shipment Estimates for 1999 (Thousands of Units)
Company 1999 Shipments 1999 Market Share (%) 1998 Shipments 1998 Market Share (%) Growth (%) Dell 7,017 16.0 4,592 12.7 52.8 Compaq 6,861 15.7 5,815 16.1 18.0 Gateway 3,985 9.1 3,022 8.4 31.9 Hewlett-Packard 3,825 8.7 2,703 7.5 41.5 IBM 3,168 7.2 2,890 8.0 9.6 Apple 1,932 4.4 1,651 4.6 17.0 Others 17,046 38.9 15,387 42.7 10.8 Total Market 43,833 100.0 36,060 100.0 21.6 Source: Dataquest (January 2000)
Note: Tables are PCs only (desktop, deskside, notebook, ultraportable, laptop and transportable). Server-marketed PCs are not included.
According to IDC and despite Y2K buying lock downs, revenue growth of PC servers registered 26.3% in 1999, bringing the market's total to over $17.3 billion and making PC servers the fastest-growing segment of the server market. The 26% leap in revenues is a significant improvement from the market's 8% growth in 1998, and IDC expects strong growth to continue into 2000. The top four vendors - Compaq, Dell, IBM, and Hewlett-Packard combined had 73% of the market's revenues.
Dell'Oro Group projects that routers optimized for the Internet will become increasingly pervasive.
The WAN Router market continued to make significant gains in 3Q’99, growing 47% ($199 M) according to a Dell'Oro report. www.delloro.com
Market Leaders - WAN Routers
TOTAL MARKET 3Q99
QUATERLY GROWTH
MFG Revenue ($M) $199 + 47% VENDOR RANK GROWTH Cisco 1 +47% Juniper 2 +68% Lucent 3 -53% Nortel 4 +0% Ericsson 5 +50%
In 1999, sales of computer hardware and related peripherals through retail, mail order and online channels grew 12.7%; to an estimated $36.5 billion according to research firm PC Data. Digital cameras were one of the fastest growing product classes growing 67% year-over-year.
Texas Instruments’ CEO Tom Engibous predicted that wireless Internet devices would outpace personal computers in the near future. Citing continuing implementation of broadband networking technologies, Engibous predicted that, "Wireless Internet devices will not only capture some existing PC applications but introduce brand new applications that the desk-top PC has no way to handle today. The possibilities for wireless applications seem limitless - from checking e-mail to participating in video teleconferencing.” By 2001, mobile phone services utilizing these technologies will be offered in Japan, and other countries around the world.
IGI Consulting predicts that 830 million mobile devices will access the Internet by 2005, up from 600 million in 2003, and 76 million in 1999.
Samsung plans to introduce sub-$200 'throw-away' PC - a radically new generation of disposable PC, which it will release, for a price of less than $200 in time for the 2001 holiday season.
The number of U.S. residential subscribers to high-speed Internet access services should grow to 3.3 million by the end of this year and 16.6 million by 2004, up from 1.4 million at the end of 1999, according to The Yankee Group.
Cisco Systems is buying Altiga Networks and Compatible Systems for about $567 million in stock. Both Altiga and Comptible are focused on Virtual Private Networks. VPNs provide secure network connectivity on a public infrastructure, extending geographic connectivity to telecommuters, mobile users and remote offices, as well as customers, suppliers and partners.
Cisco Systems expects revenues from Asia to increase annually by 30 to 50%. Cisco’s Senior Vice President, Asia Pacific Theater Richard Freemantle, told a Reuters News Service, “The opportunities that deregulation brings us are enormous.”
In Japan, the cellular telephone has already surpassed the personal computer as a viable platform for digital content sales to consumers, according to TKAI. (www.tkai.com). Digital content providers have won hundreds of thousands of paying subscribers, and are successfully collecting fees under a secure, robust, and cost-effective micropayment system that may well serve as a model for e-commerce throughout the rest of Asia.
Nokia reported the strongest annual operating results in its history. Net sales grew by 48% to EUR 19,772 million and operating profit increased by 57% to EUR 3,908 million.
The hard disk drive industry shipped a record 174.4 million drives in 1999, a 20% improvement from a sluggish 1998, according to TrendFOCUS, a Palo Alto research firm. Industry revenue was $26.0 billion, up only 1% from 1998, owing to extreme price pressures precipitated by manufacturing overcapacity. Improved industry conditions, including stronger PC shipments and lower inventories, should lead to an improved 2000.
'97 share '98 share '99 share Seagate Technology 23.1% 20.5% 21.0% Quantum 20.1% 17.4% 17.1% Western Digital 18.5% 13.5% 11.1% IBM 11.2% 12.2% 14.1% Maxtor 6.5% 11.6% 13.3% Others 2.5% 1.1% 0.4% TOTAL U.S. 81.9% 76.3% 77.0% '97 share '98 share '99 share Fujitsu 8.7% 11.8% 12.3% Samsung 3.5% 5.9% 5.2% Toshiba 4.1% 3.7% 3.5% Hitachi 1.0% 1.8% 1.9% Others 0.8% 0.5% 0.1% TOTAL NON-U.S. 18.1% 23.7% 23.0% Source: TrendFocus
As part of a worldwide reduction in work force announced last year, Seagate Technology will lay off 2,900 employees in Thailand.
Fuji using its new CCD sensor technology introduced new digital cameras with significantly higher resolution that previous standards. Their FinePix 4700 ZOOM ($999) has a .58-inch Super CCD that delivers a 4.3 million-pixel picture file (2400 x 1800 resolution) and their FinePix S1 Pro (under $4,000) has a 1.1-inch Super CCD sensor with 6.1 million pixels (3040 x 2016 resolution). It has a Nikon F mount for use with existing lenses. Digital camera technology is moving very fast!
SanDisk shipped more than three million CompactFlash memory cards in 1999, up 140% over 1998. Sales were driven primarily by digital cameras. Other applications include handheld computers, photo printers, Internet music players, medical monitors, set-top boxes, audio recorders and auto PCs.
DaimlerChrysler and Sirius Satellite Radio will bring satellite radio to DaimlerChrysler customers beginning next year. Sirius Radio will provide seamless coast-to-coast coverage of up to 100 channels of programming, including 50 channels of commercial-free music and up to 50 channels of news, sports and entertainment for $9.95/month.
Monitor maker ViewSonic will acquire Nokia Display Products' branded business. Nokia also announced that Elcoteq has acquired Nokia's monitor manufacturing unit in Pecs, Hungary. Elcoteq will provide contract-manufacturing services to ViewSonic for the Nokia branded display products.
U.S. retail sales of interactive console and PC games reached a new high with more than $7.4 billion in 1999, according to PC Data - a 20.7% increase over 1998 with most of the growth coming in the videogame market. Sales of console video game software were $3.75 billion and accounted for 50.5% of the industry's total revenues. Console video game hardware and PC game software split the remaining 30.9% and 18.6% respectively.
Printed Circuit Boards
Parlex is acquiring Poly-Flex Circuits from Cookson Plc for $19 million. . Poly-Flex has manufacturing operations in the United States and Great Britain. The addition of Poly-Flex's Polymer Thick Film technology and unique assembly products will further expand Parlex's flexible interconnect products offering.
Nelco announced the appointment of Mary Wathen to President of Nelco Technology, Tempe AZ. Mary was most recently the General Manager of QLP Laminates.
Park Electrochemical elected Christopher F. Johnson as Senior Vice President - Corporate Development of the company. Most recently, Chris was President of Compositech.
Epiq NV, the Belgian manufacturer of PCBs for use in the car, consumer electrical and telecommunications industries, has acquired FMC, a Nuremberg, Germany-based firm which designs and produces electronic modules. FMC had sales of 2.5 million euros in 1999 and supplies its products to companies like Diehl and Siemens AG.
Compeq, Taiwan’s HDI PCB output now represents 3% of total production, and will reach 16% of total production by end of this year. The firm now has 16 laser drills in Taiwan and 5 in Mainland China. It will add another 10 this year. Its current HDI PCB customers include Ericsson, Siemens and Nokia.
Wus Printed Circuit, Taiwan had sales of NT$640 billion in December 1999, the highest monthly figure ever for the company. The revenue last month was 18.96% more than the NT$538 million posted a year earlier and 3.23% more than the last record high of NT$620 million registered in the preceding month.
Gold Circuit, Taiwan had revenue of NT$700 million in December, up 37% from the same month of 1998 and the second highest monthly level next to the record high of NT$735 million posted in November last year.
Compeq Manufacturing, Taiwan expects sales in 2000 to rise to 18 billion NT$ from 12.97 billion in 1999. The company is set to expand its capacity for PCBs meant for cellular phones this year, with 2000 output estimated at 35 million units or 10% of global supplies. The company's Huizhou plant in Mainland China has also started producing PCBs meant for communications products, which are expected to account for one-fourth to one-third of its capacity this year. Separately, Hung said the company's flip chip plant in Tayuan of Taoyuan county is expected to break even this year after posting a 600 million NT$ loss in 1999.
Thailand’s PCB manufacturer KC electronics will move ahead with plans to more double its full capacity of 600,000 square feet of medium and high-end PCBs. Citing strong global demand as motivation, KCE’s executive director Panja Senadisal told Reuters News Service, "PCB prices are stable and may rise slightly this year after it fell by 5-10% early in 1999. Falling supplies from Taiwan (after a major earthquake there) also helped boost prices.” The company is currently constructing a plant at central Ayudhya province which will have a total monthly PCB output of up to 900,000 square feet."
Elec & Eltek has entered into a $58 million joint venture investment with a Chinese firm Kaiping City Mechanical & Electrical Industrial Co. to build a multi-layered printed circuit board plant in China. Late last year, Elec & Eltek said it planned to sell its entire PCB business. It reiterated that there was no assurance that the proposed disposal of its PCB business would proceed.
Viasystems has allocated HK$300 million to expand the production capacity of the Mainland China plants, acquired from Termbray in August for US$325 million. President Timothy Conlon said the unit's annual output would be increased by 50% to 2.25 million square feet by the end of the year to meet growing worldwide demand. He said the firm would hire leading mobile communications technology experts from Europe to help convert the plants' machinery to produce high-end PCBs, particularly for telecoms.
e2E Corporation purchased Tyco Design, a division of Tyco Printed Circuit Board from Tyco International. The purchase included the assets and operations of all eight design centers located in Seattle, WA; Portland, OR; San Diego, CA; Dallas, TX; Nashua, NH; Allentown, PA; Tel Aviv, Israel and Edinburgh, Scotland. e2E was originally founded in 1988 as Praegitzer Design, Inc., a sister company to Praegitzer Industries. The CEO is Matt Bergeron, formerly of Praegitzer.
Applied Materials will buy Etec Systems in a stock exchange worth roughly $1.8 billion.
AT&S Austria accelerated capacity expansion plans by more than a year. Focused on making PCBs for mobile phones, it will invest eur$58 million in its recently opened Austrian Hinterberg II plant, which should lead to a tripling of capacity during the fiscal year 2001. Specifically, the investment will increase production capacity to 200,000 circuit boards per day. The total price if the plant, including this investment will be eur $140 million. The company also said it will take over production of PCBs for Austria's Kapsch AG from Jan. 1. AT&S is also eyeing acquisitions.
Innovex announced its Board of Directors has discontinued the Company's cash dividend. It stated that its transformation into one of the world's leading flexible circuit manufacturers and its new strategic direction presents it with numerous high growth opportunities. Investment in these opportunities represents the most effective use of the Company's cash. "We are investing heavily in a number of expansion efforts, including: new FSA and flexible circuit finishing capacity in Lamphun, Thailand; a new materials factory and R&D center in Maple Plain, Minn.; and additional flexible circuit fabrication capacity in Litchfield, Minn. and Chandler, Ariz.," commented William P. Murnane, Innovex's President and Chief Executive Officer. "
Assembly
Viasystems Group will acquire the cable-assembly and power-supply unit of Marconi plc, the British electronics company, for $115 million. The acquisition of Marconi's Network Components & Services business came just two weeks after Viasystems filed for a $500 million IPO. Viasystems, created four years ago as a focused PCB maker, has since expanded its strategy. It indicated in its filing for an initial public offering that it wants to become a global, full-service contract electronics manufacturer.
Flextronics International will acquire Palo Alto Products, a full service product development company. The newly acquired company will be renamed Flextronics Design. In addition to design and engineering services, Palo Alto Products has three manufacturing operations. The company operates a manufacturing facility in Thailand, an injection mold and die building operation in Taiwan as well as a manufacturing and plastic injection molding facility in Texas.
Cabletron Systems and Flextronics International have entered into a definitive agreement in which Cabletron will divest manufacturing and repair services operations located in Rochester, New Hampshire and Limerick, Ireland to Flextronics. Under terms of the agreement, Flextronics will acquire manufacturing-related assets and inventories for approximately $100 million, and will hire Cabletron's worldwide manufacturing workforce of approximately 1,000.
Sanmina has filed a registration statement for the sale of 4,500,000 shares of Common Stock. The underwriters are Morgan Stanley Dean Witter, Banc of America Securities LLC and Donaldson, Lufkin & Jenrette.
Sanmina and Harris Corporation have signed a three-year strategic manufacturing agreement. Harris will outsource its commercial PCB assembly manufacturing to Sanmina. In addition, Sanmina is acquiring Harris' PCBA manufacturing assets and inventory and will lease Harris' manufacturing facility in San Antonio, Texas.
Celestica will buy three PCB assembly operations from IBM for $500 million and has entered into a supply agreement with IBM worth $1.5 billion a year. The plants are in Rochester, Minn., and in Vimercate and Santa Palomba, Italy.
The Dii Group will purchase Ascom Business Systems' manufacturing facility and related assets in Solothurn, Switzerland. The 400,000 sf Solothurn plant employs about 550 people and produces private branch exchanges and phone terminals, including DECT, ISDN and GSM satellite telephones. A long-term supply agreement, in which Dovatron will supply PCB assembly, box build, and various engineering support services, is included.
SCI has purchased an equity interest in Taiwanese notebook computer maker Uniwill. In addition, SCI and Uniwill have entered into a joint manufacturing and distribution agreement involving notebook computers and Internet appliances.
Boundless Corporation through its subsidiary, Boundless Manufacturing Services is pursuing the $90 billion+ electronic manufacturing services marketplace by entering into a contract manufacturing agreement with Boca Research. BMS will assume the manufacturing services, lease and other support services of Boca Research's, Florida based, 70,000 square foot manufacturing facility and will staff the facility from Boca Research's current team of manufacturing and supply chain associates.
Hitachi Computer Products (America) Inc. will invest $3 million in new equipment to expand PCB assembly capacity at its Norman, OK facility.
Jabil Circuit will build an $80 million plant in Tiszaujvaros, Hungary.
Semiconductors
Taiwan 64M DRAM spot price was under US$7 in early February due to insufficient CPU supply and delayed PC shipments, according to local DRAM traders. The DRAM industry is in a traditional slow season during 1H’00 but is expected to be booming afterwards through 2001.
IBM scientists have reported the discovery of a “nanocircuit” method to transport information on the atomic scale using the wave nature of electrons instead of wiring. The phenomenon, called "quantum mirage," might enable data transfer in atom-scale integrated circuits without the use of conventional interconnects, suggested IBM.
Intel will purchase Rockwell’s Colorado Springs, CO wafer fabrication facility. It will begin construction and installation of manufacturing equipment at the site in the near future and expects to invest $1.5 billion at the location.
Amkor Technology is continuing to negotiate for the acquisition of Anam Semiconductor's three remaining semiconductor assembly factories, known as K1, K2 & K3, despite the fact that Anam's creditor banks have rejected Amkor's initial offer.
The top consumers of semiconductors are computer manufacturers, but communication companies increased their purchases of semiconductor products in 1999, according to Dataquest.
Compaq was the No. 1 OEM spending $8.5 billion on semiconductors in 1999. IBM and Dell each spent $5.9 billion, HP $5.5 billion, Siemens $4.9 billion, Motorola $3.2 billion, Ericsson $2.4 billion, Nokia $2.3 billion, Lucent $2.2 billion, and Intel $2.2 billion.
Intel will build a new plant in Chandler, AZ for an estimated $2 billion. Construction of the plant, which will use 12-inch wafers will last five to eight years. Intel is hoping this move will cut manufacturing costs by as much 30%.
The Japanese government will spend an estimated $50 million for research in packaging. Japanese groups are taking the unusual step of reaching out to counterparts in the United States to expand cooperation in a variety of interconnect, mounting, assembly and packaging fields, lumped under the umbrella Japanese term of jisso.
Taiwan’s United Microelectronics, IBM, and Germany’s Infineon Technologies will develop technologies aimed at enhancing the production of semiconductors. In particular, the companies will focus on the development of 0.10 and 0.13 micron copper wiring fabrication techniques. The ultimate goal of this research is the production of a single chip containing both logic circuitry and dynamic random access memory (DRAM).
Hyundai Electronics, Infineon Technologies, Intel, Micron Technology, NEC and Samsung Electronics will cooperatively develop a high-performance advanced DRAM technology targeted for potential applications in 2003 and beyond.
Displays
DisplaySearch expects the $18.5 billion FPD market to grow at a 24.8% CAGR to reach $69.9 billion in 2005. DisplaySearch also forecasts that FPDs will surpass cathode display tubes in 2004 and account for 54% of the $130 billion 2005 display market.
Walt Custer CusterConsulting Group Phone: 707 785-1777FAX: 707 785-1988 http://www.custerconsulting.com
E-mail: America Online waltcuster@aol.com Internet wcuster@mindspring.com