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Continued Optimism - but Some Concerns about the End Market Data
December 7, 1999 |Estimated reading time: 11 minutes
Continued Optimism but Some Concerns about the End Market Data
by Walt Custer
Dec. 07, 1999
This column appears monthly in CircuiTree magazine
Global business conditions remain strong based upon recent industrial production growth data (Chart 1). Most areas of the world continue to expand. In particular SE Asia is booming and Taiwan appears to have quickly recovered from its September earthquakes. Only Germany and Italy are slowing a bit. With ongoing global economic growth and continued expansion in PCB orders I have been openly optimistic about domestic printed circuit prospects. Then in late November the U.S. Department of Commerce released the October Electronic Durable Goods orders dropping over 15% versus September. Are PCB orders about to plummet?
The Factory Orders report released in early December offered an explanation for the Durable Goods drop. A sharp drop in components (semiconductors?) appears to have been the culprit. Finished electronic equipment orders actually improved. For example comparing October 99 vs. October 98 electronic equipment was up 20.7% while components dropped 15%. Since PCB orders were up 4.5% then semiconductors and/or non-PCB passive components must have dropped dramatically.
OCT 99 / OCT 98 OCT 99 / SEP 99 3/12 Electronic Components -15.0% -28.4% +13.1% Communication +33.6% + 3.2% +30.0% Computer& Office +16.8% +16.1% + 9.8% Search & Navigation (primarily military) + 7.8% + 2.6% + 1.5% Measurement & Control + 9.1% - 1.1% + 8.4% Total Elec Equipment (above 4) +20.7% + 7.5% +14.3% Rigid PCB $ + 4.5% - 3.3% + 2.2% Electronic Durable Goods - 3.0% -15.4% +12.1%
Chart 2 compares Electronic Durable Goods to Electronic Equipment and Electronic Equipment plus Component orders. The equipment + component data closely follows the durable goods orders, based upon the DOC data communications equipment (Chart 3) is booming as wireless growth exceeds earlier expectations (Chart 4). Even computer & office equipment orders (Chart 5) recovered from a September downturn. Keep in mind these electronic equipment orders are derived from a Department of Commerce statistical sampling and might be in error. In particular Ralph Anavy of Electronic Outlook Corp’s analysis suggests that the DOC growth data may be especially optimistic regarding computers. Ralph advises the DOC is re-evaluating its statistical sampling group.
Turning to PCBs Chart 6 shows the key PCB growth indicators for October. Business cooled a bit as the 1-month rigid book to bill ratio dropped to 0.98 but orders were still up 4.5% versus October 1998. Chart 7 shows N. American rigid PCB orders on a $ index basis from 1996 to the present. The trend line is clearly up. Chart 8 gives the 3/12 (3-month) growth of rigid PCB versus equipment orders. With total electronic equipment growing at a +14.3% rate and communications equipment up 30% the future looks bright. But we’ll have to wait for the DOC to re-evaluate their data collection to see how good this model really is. Keep watching!
General Business Conditions
Durable Goods orders dropped dramatically in October. Much of the decline came from the electronics and electrical-equipment category where its15.3% drop was the biggest decrease since July 1997.
Major currencies have been gyrating in value recently. Since May the dollar has strengthened 6% against the euro and weakened 18% against the yen. Other currencies have had even bigger changes in value. Recently the euro dropped below $1 for the first time. On analysis the euro is stable, the dollar strong and the yen too strong.
Due booming development of electronic equipment and components, many manufacturers moved into government-developed industrial parks in the northern region of Taiwan, causing the price level of factory sites to rise exorbitantly by 20-40% in the past three years. Factory site prices of the Hsinchu Industrial Park have risen by 30-35% from NT$42,000-NT$50,000 per ping (1 ping=36 sq. ft.) in 1996 to NT$60,000-NT$65,000/ping at present. For factory sites in the Chungli Industrial Park in Taoyuan County, prices have hiked by 23-28% from NT$65,000-NT$70,000/ping to NT$80,000-NT$90,000/ping.
Electronic Equipment
Jorma Ollila, Nokia's Chairman and CEO raised the company's global mobile subscriber estimates from more than 450 million subscribers worldwide by the end of 1999 and 1 billion by the end of 2002 (Chart 4). Nokia's previous estimate had projected that 1 billion would be reached in 2003.
Lucent Technologies will acquire the remaining 30% of its joint venture with Tesla a.s. in order to better address business opportunities in the Czech Republic and surrounding countries. The transaction will be completed in early 2000.
U.S. Retail sales of personal computers were down nearly 10% for the month of October, a drop of 25% from a year ago.
Japan's domestic shipments of personal computers surged 34% to 4.4 million units in the April-September period, driven by purchases of home-use PCs by people eager to access the Internet, the Japanese Electronic Industry Development Association (JEIDA) said.
There was a small overall decrease in the total worldwide workstation market in Q3 1999, according to IDC. For Q3, total branded workstation shipments (Unix plus Windows NT) were 412,900 units, down 3% over Q2 but up 23% over Q3 1998.
Top Vendors, Worldwide Branded Personal (Windows NT) Workstations, 3Q99 U.S. Shipments U.S. Market Share Worlwide Shipments Worldwide Market Share Dell 49,592 37% 71,047 27% HP 29,673 22% 63,390 24% Compaq 19,025 14% 47,104 18% IBM 13,975 10% 31,800 12% Other 21,291 16% 18% 47,950 Total 133,556 100% 261,291 100%
Top Vendors, Worldwide Traditional (Unix) Workstations, 3Q99 U.S. Shipments U.S. Market Share Worldwide Shipments Worldwide Market Share Sun 47,930 64% 85,590 56% HP 10,638 14% 23,125 15% IBM 6,921 9% 20,355 13% SGI 5,306 7% 9,475 6% Compaq 2,062 3% 6,064 4% Other 1,300 2% 7,000 5% Total 74,157 100% 151,609 100% Source: International Data Corporation, November 1999
According to IDC, the worldwide Internet appliance market will reach 93.7 million units, or $18.8 billion in sales, by 2003, up from an expected 13.8 million units, or about $4.6 billion, in 1999. This includes appliances, handheld devices such as 3Com Palm VII with wireless Internet access; Sega’s Dreamcast gaming console with Internet access; Web-enabled TVs and Web cell phones.
According to Peripheral Research worldwide disk drive shipments will increase from 143.9 million units in 1998 to 238 million in 2002. About 15% of these shipments in 2002 will be into the nonconventional storage markets such as GPS systems, digital cameras, laser printers and other applications. The forecast head requirements through 2002 are as follows: (Units in millions)
Head type 1998 1999 2000 2001 2002 Inductive 151.8 27.7 9.3 3.1 -- Magneto Res. 619.4 519.0 328.3 83.8 15.7 Giant MR. 52.1 384.1 735.2 1,087.1 1,361.1 Totals 823.3 930.9 1,072.8 1,173.9 1,376.9
Western Digital will close its Chai Chee, Singapore manufacturing facility and transfer all hard drive manufacturing from that site to its facility in Kuala Lumpur, Malaysia, by end of January 2000.
Fujitsu announced today plans for a staged reduction in the use of lead in its products, with the goal of making all its products lead-free by December 2002. This initiative includes not only components internally produced at Fujitsu but also parts supplied by outside vendors.
Printed Circuit Boards
Tyco completed its $5.50 per share cash tender offer for all outstanding common shares of Praegitzer Industries.
Compeq, Taiwan’s largest PCB manufacturer will suspend its PCB expansion projects next year. Due to a current oversupply of PCB products in the market, Compeq decided not to expand its overall PCB production volume next year. The firm expects the production volume from its Taiwan plant to total 1.2 million square feet per month by the end of the year and its Mainland China plant will churn out 450,000 square feet per month at the same period. Presently, the firm's BGA plant, which began production on a small scale in the first quarter of the year, is now able to produce 200,000 square feet of IC substrates per month. A mass production project will be put into practice beginning in the second quarter of 2000.
AT&S Austria expects annual growth of 40% in group sales over the next three to four years. Sales in the six months to September 30 rose to 96.55 million euros from 69.46 million with net profit almost quadrupling to 9.19 million. Nokia and Siemens account for 57% of net sales.
Amkor was pursuing a $1.3 to $1.4 billion deal to include buying three of Anam's packaging and test factories in Korea for about $800 million, and buying $500 million to $600 million in newly issued Anam shares.
According to IC Insights, Scottsdale, AZ, the market for BGA substrates will more than double in 1999 to 700 million units and by 2003 will reach 4.7 billion BGA packages. ChipPAC, spun off from Hyundai Electronics hopes to expand its already significant presence in the market by adding BGA-package production capability to its 400,000 sf plant in Shanghai. AlliedSignal Substrate Technology & Interconnects (ASTI) will expand its fledgling BGA-substrate manufacturing through an agreement with Samsung Electro-Mechanics. The partners expect this agreement will lead to production in SEMCO's plant in Pusan, Korea.
Unicap Electronics of Taiwan said the firm's pretax profit would grow by 209% next year as sales of BGAs (ball grid arrays) and high-level PCBs will increase dramatically. Unicap's projected revenue is NT$7.12 billion in 2000.
Matsushita Electric Works will raise by 50% the production capacity of multilayer PCBs mainly used in cellular phones and other digital electrical appliances by 2001. The company currently manufactures in Japan, the U.S., Taiwan and China, with combined capacity of 1.3 million square meters per month. Under the plan, this figure would rise to 2 million square meters.
Nan Ya PCB is expanding the PCB production capacity of its No. 4 factory with investment of NT$2.5 billion to reach a monthly total production volume of 1.9 million square feet of PCBs early 2000. Nan Ya PCB will have four factories' with an aggregate monthly production capacity of 1.9 million square feet of PCBs including 1.1 million square feet for a domestic factory, 200,000 square feet for a factory in U.S., and 300,000 square feet for a factory in mainland China. At that point Nan Ya says it will exceed Compeq, which has a monthly capacity of 1.6 million square feet
SMTEK International, Thousand Oaks, CA sold its Northern Ireland PCB operation, Irlandus Circuits Ltd., to a local management buy-out group for approximately $US 4.5 million cash. The sale represented the divestiture of the last PCB operation from the former DDL Electronics and will enable the company to focus on its core competencies in electronics manufacturing services.
Innovex will move operations from its factory in Agua Prieta, Mexico to its new facility in Lamphun, Thailand. The Agua Prieta facility was acquired by Innovex as part of the September acquisition of ADFlex Solutions.
Assembly
Flextronics International and DII Group agreed to merge in a $2.4 billion deal. The merger creates the No. 4 player in terms of global revenues at $3.8 billion, behind No. 1-ranked Solectron, No. 2 SCI Systems and No. 3 Celestica.
Fujitsu Siemens Computers has become the latest of several personal computer OEMs to outsource its manufacturing with the signing of Flextronics International to a long-term supply contract. Under terms of the agreement, worth an estimated $350 million, Flextronics will take over Fujitsu Siemens Computers' facility in Paderborn, Germany, where it builds network servers. Fujitsu Siemens Computers has been jointly owned by Fujitsu and Siemens since it was formed two months ago.
Handheld computer maker Psion signed a deal with Flextronics International to allow the U.S. electronics maker to take over the manufacturing of some of Psion's key products.
Solectron completed its acquisition of SMART Modular Technologies, a designer and manufacturer of memory modules and memory cards, embedded computers and I/O products.
SCI Systems plans to spend about $15 million to expand by 60,000 square feet its Rapid City, S.D. manufacturing plant. About 400 jobs will be added to the plant in the next 12 to 18 months.
Manufacturers' Services Ltd. acquired 3Com's manufacturing operations in Salt Lake City, Utah, and announced a multiyear supply agreement with the major communications OEM.
Hitachi Computer Products is aggressively pursuing the contract electronics manufacturing business at its operations in Norman, Okla.
Taiwan's Acer Peripherals will make wireless handsets on an OEM basis for Motorola Inc. The contract calls for up to 4 million units next year.
The Dii Group and Hewlett-Packard signed a memorandum of understanding in which Dii's contract electronics manufacturing division, Dii-Dovatron, will purchase the manufacturing assets of HP's Storage Systems Division (SSD) in Greeley, Colorado.
The Dii Group completed the acquisition the assets of the Manufacturing and Quality Assurance division of Stanford Telecom, and the associated supply agreement with Newbridge Networks, which has plans to purchase Stanford Telecom.
Semiconductors
Motorola said it has built the world's thinnest transistor, which could some day put the processing power of a desktop computer into a device as small as a wireless phone. It used a class of material called perovskites, which will allow future transistors to be smaller and faster while consuming less power. The material would replace silicon dioxide.
After spending more than $7 billion buying other companies in 1999 Intel is diversifying. CEO Craig Barrett is driving the company into newer, faster-growing businesses. Intel has made several acquisitions to boost its presence in the fast-growing networking and data communications industries, and it is spending more than $1 billion to build Internet hosting centers.
NEC and Hitachi said their new joint venture to develop and market DRAMs would start operations in April 2000.The new company plans to start with development of 256-megabit and 512-megabit DRAMs based on a 0.13 micron process.
The North American-based manufacturers of semiconductor equipment posted an October 1999 Book-to-Bill ratio of 1.09. "The October numbers show that equipment orders are back on track for full recovery," said Stanley Myers, president of SEMI. "The resurgence of the global semiconductor industry, coupled with positive economic and industry forecasts for 2000, appear to be finally spurring growth in capital spending."
Intel said it has been seeing stronger than expected fourth-quarter demand for its computer chips and reiterated comments that it would have trouble filling orders beyond its existing commitments. "We built for a seasonally strong fourth quarter," Intel spokesman Michael Sullivan said. "The reality is that it's stronger even than that," he said, referring to demand outstripping the supply of chips manufactured at its plants.
Personal Comments
I have formed Custer Consulting Group to provide business analysis and market research relating to the global electronics industry. My activities will continue to include my CircuiTree articles, IPC TMRC presentations and speaking at various industry meetings. In addition I have an extended business relationship with Shipley Ronal and will work in cooperation with Ralph Anavy and Ed Henderson of Electronic of Outlook Corporation on industry related research.
Walt Custer CusterConsulting Group Phone: 707 785-1777
E-mail: America Online waltcuster@aol.com Internet wcuster@mindspring.com