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Shades of 1995: Booming orders, Longer Lead Times & a PCB/Equipment Order Imbalance (June 2000)
June 1, 2000 |Estimated reading time: 12 minutes
Shades of 1995: Booming orders, Longer Lead Times & a PCB/Equipment Order Imbalance
by Walt Custer
June 1st, 2000
Business is good - perhaps too good. The March North American rigid PCB book/bill ratio reached 1.34 on a 1-month basis - the highest it has been since 1987 (Chart 1). March rigid PCB orders were up 44% and flex up 47% versus March 1999 (Charts 2 and 3).
Unfortunately some of this massive PCB order growth may be "false" - the result of double ordering due to long lead times. In mid-1995 PCB orders grew 45% while electronic equipment growth was slowing (Chart 4). The PCB "over order" situation of 1995 led to a slowdown in 1996. Fortunately, this year's equipment growth is healthier - 16.1% current 3-month growth rate per (Charts 4 & 5), but PCB bookings are still clearly ahead of equipment.
PCB lead times have stretched out and there are concerns about available PCB capacity as well as potential shortages of some glass yarns, laminate, passive components and microprocessors. Component shortages will most likely worsen this fall as personal computers and cell phones experience their traditional holiday season spurt.
Capacity and component availability concerns could drive short-term PCB orders too high - beyond the reasonable needs of electronic equipment. If this happens a downward correction is inevitable. Watch the balance between PCB and electronic equipment growth. My Web site www.custerconsulting.com will always have the updated version of Chart 4.
You may not like this warning when business is booming, but a PCB/equipment order imbalance will only bring short-term joy.
General Business Conditions
New orders for manufactured durable goods in March increased US$5.5 billion, or 2.6%, to $215.2 billion. Electronic and other electrical equipment, led by electronic components, had the largest increase, $4.0 billion, or 9.7%, to $44.8 billion.
AMD, Compaq, Gateway, Hitachi, HP, Infineon, NEC, Quantum, Samsung, SCI Systems, Solectron and Western Digital have formed an independent company to operate as an open Internet exchange to serve the needs of the high-tech supply-chain community. Goals include:
- lower manufacturing and purchasing transaction costs through process efficiencies;
- reduced inventory levels throughout the entire supply chain by better matching supply and demand via the online marketplace;
- increased customer satisfaction by delivering products more quickly and predictably;
- expertise on supply-chain "best practices" to help participants achieve better results from product design to customer delivery.
Electronic Equipment
Per IDC, the worldwide 1Q 2000 PC market volume expanded 20% year over year. Healthy consumer demand and continued expansion of the Asian markets propelled worldwide volume to 30.4 million units.
U.S. PC Shipments, First Quarter 2000 (Thousands of Units)
Rank Vendor Q1'00 Shipments Q1'00 Share Q1'99 Shipments Q1'99 Share Growth 2000/1999 1 Dell 1,980 17.1% 1,454 14.7% 36% 2 Compaq 1,890 16.3% 1,597 16.1% 18% 3 Hewlett-Packard 1,414 12.2% 847 8.5% 67% 4 Gateway 1,038 9.0% 981 9.3% 13% 5 eMachines 521 4.5% 284 2.9% 83% Others 4,753 41.0% 4,813 48.6% -1% All Vendors 11,596 100.0% 9,913 100.0% 17%
Worldwide PC Shipments, First Quarter 2000 (Thousands of Units)
Rank Vendor Q1'00 Shipments Q1'00 Share Q1'99 Shipments Q1'99 Share Growth 2000/1999 1 Compaq 3,969 13.1% 3,556 14.1% 12% 2 Dell 3,200 10.5% 2,451 9.7% 31% 3 Hewlett-Packard 2,468 8.1% 1,579 6.2% 56% 4 IBM 1,866 6.1% 2,171 8.6% -14% 5 Fujitsu Siemens 1,691 5.6% 1,589 6.3% 6% Others 17,162 56.5% 13,958 55.2% 23% All Vendors 30,356 100.0% 25,304 100.0% 20%
Shipments are branded shipments and exclude OEM sales for all vendors. Source: IDC, 2Q 2000
According to IDC, worldwide server revenue declined 6% in 4Q99 to $14.9 billion, compared to 4Q98. A significant revenue weakness, due largely to Y2K, was felt throughout the market. However, one bright spot occurred in the entry server market, which posted a modest gain of 2% to $7.9 billion in 4Q99 over 4Q98. The midrange and high-end server markets declined 6% and 27% to $4.5 billion and $2.5 billion, respectively.
Per DisplaySearch, notebook computer Q4'99 shipments rose 12.7% sequentially and 32.5% Y/Y. For all of 1999, notebook PC shipments rose 24.6%. In the case of the notebook computer OEM market share (based on shipments of the top 11 producers), Toshiba had the highest output at 14.4%, followed by Quanta at 14.0%, IBM at 12.0%, Acer at 9.2% and Inventec at 8.3%. By region, Taiwan-based suppliers had the highest market share at 45.5%, followed by Japan at 33%, United States at 20.2% and Korea at 0.8%.
Trigem Computer is building new production lines in S. Korea to raise its annual desktop and notebook computer production capacity by about 44% to 13.8 million units by the end of September from 9.6 million at present. The total includes 4.2 million units produced at its factories in China and Europe. Trigem supplies about 40% of its annual output to its U.S. affiliate, eMachines, and a similar amount to Hewlett-Packard.
DaimlerChrysler has developed computer software that constantly monitors and analyzes a driver's maneuvers, such as acceleration, braking and steering, then classifies the driver by style. The program then adapts the engine and transmission to accommodate the individual's driving style.
Per InfoTrends Research Group, digital camera sales in North America will reach $1.9 billion this year. Digital camera unit sales will exceed film cameras by 2002, growing from 6.7 million in 2000 to 42 million in 2005.
Printed Circuit Boards
Sanmina and Hadco agreed to merge in a $1.3 billion transaction. The merger is intended to be a tax-free exchange of common shares and to be accounted for as a pooling of interests.
Aspocomp wishes to purchase a PCB manufacturer in China to support the fast-growing Chinese cellular phone market. "China is the main target for acquisitions as growth in the mobile phone sector there is fast and the demand for local production is strong," said CEO Jarmo Niemi. Aspocomp also expects to finalize the transfer of car electronics production to Thailand from a plant in Evraux, France, by this autumn. "Production in France was not profitable, transferring it to Thailand should make the business profitable as labor costs there are remarkably lower than in France," Niemi said. He said Aspocomp will boost capacity at the French Evraux plant, with the aim of making it the group's second plant after Salo, Finland, for the production of PCBs for mobile phones. Aspocomp reported 1Q'00 sales of 59.6 million euros and net income of 4.7 million euros.
Andy Lietz, CEO Hadco, was elected to semiconductor supplier Clare's board of directors.
Sheldahl is reportedly for sale. By late April an Irwin Jacobs-led investment group had curtailed its purchase efforts but, according to a Dow Jones report, 3M, International Flex Technologies and Molex were still interested.
Cookson is acquiring the PCB laminates division of Taiwan's ACHEM Technology Corporation for US$134 million. ACHEM Laminates manufactures copper clad laminates, unclad reinforced laminates and reinforced bonding materials for the PCB fabrication market. It has three manufacturing facilities, two in Taiwan and one in the People's Republic of China. ACHEM Laminates sales are approximately US$100 million annually.
Compeq Manufacturing said it is ready to implement expansion plans or undertake new plant projects in the U.S., Guangdong and Taoyuan in line with demand from the PCB market.
Canadian PCB fabricator Coretec is partnering with SAS Circuits, Colo., as part of Coretec's plan to establish prototype centers in each of the four major time zones in the U.S. and one in the European market. Coretec has also acquired a new 100,000 square foot building in order to "greenfield" separate prototype and HDI facilities under one roof. Within 12-18 months, this new technical center will employ 150-200 technicians and house much of Coretec's sales, administration, design and front end engineering services, as well as its R&D team and QRT (Quick Response Team) operations.
DDi Corp. went public with an offering price of $14.00. DDI is the parent of Dynamic Details Incorporated.
Ibiden will jointly develop technology for next-generation PCBs with Hadco. The firms will pool resources to hold down R&D costs and shorten the time to mass production. They aim to set design standards as well as establish an efficient production process for the PCBs.
HADCO expanded its CompactPCI product line to include fully configured rack-mountable enclosure sub-systems.
Circuit Foil Luxembourg is building a $130-million plant copper circuit foil in Granby, Quebec, Canada. The plant is to open next year.
Electronic Buyers News reported that Viasystems Group plans to send its low-cost PCB production to its China plants. The article noted that Viasystems' president Tim Conlon said the company's Far East facilities are fully certified and can accommodate OEM demand for PCBs.
Wong's Circuits had a 28% profit increase in 1999 to $29.3 million. It said that its memo of understanding to sell its PCB business to a third party was "not legally binding," and that due diligence by the intended purchaser was still ongoing. Sales in 1999 rose 2.3% to $210 million.
Kuraray, Nippon Steel Chemical and Rogers have set up a partnership to make printed circuit supports to sell in Japan, the U.S. and Europe. Kuraray is to supply the liquid crystal polymers, and Nippon Steel Chemical and Rogers is to coat them with copper.
Assembly
Viasystems Group agreed to buy Top Line Electronics Corp. for an undisclosed sum. San Jose-based Top Line Electronics provides full turnkey electronics manufacturing services.
Within 18 months, the top 5-6 CEMs will have a combined revenue of $43 billion - almost half of the $90 billion global electronics manufacturing services industry, said Jerry Labowitz of Merrill Lynch & Co. The larger CEMs have increasing leverage with their suppliers and most likely better access to short-supply components (tantalum capacitors, flash memory, microprocessors, etc). An excellent monthly analysis of the global CEM industry is provided by John Tuck of Manufacturing Market Insider http://www.mfgmkt.com In his March 2000 issue, Tuck reported 1999's top CEMs per Chart 6.
Celestica will purchase Alventive's Online Design Community to enhance Celestica's e-business strategy and expand its design service offerings. Celestica continues to aim for $10 billion of revenue in 2001. Celestica reported $5.3 billion of revenue in 1999, up 63% from last year. It is also scheduled to close an acquisition from IBM near the end of the second quarter that should add $1.5 billion of annual revenue.
C-MAC, Canada and Wong's Electronics, Hong Kong have formed a partnership to make electronic systems and sub-assemblies from a shared facility in Mexicali, Mexico. The newly formed C-MAC Wong's Electronics Mexico has a 50,000-sq.-ft. facility that began its first production run last month.
Flextronics International may build an industrial park in the Czech Republic's southeastern city of Brno.
Flextronics International acquired the Dii Group in a tax-free, stock-for-stock agreement. Stated benefits include:
- Expands Flextronics' network of global manufacturing facilities - gaining a manufacturing presence in Ireland, Germany and the Czech Republic, and expanding its PCB assembly capacity in China Malaysia, Mexico, Austria and the United States.
- Enhances its PCB fabrication offering by adding the capability of manufacturing larger multilayer boards of up to 68 layers and provides advanced PCB manufacturing capabilities in California, Minnesota, Texas, Germany, China and Brazil.
- Provides semiconductor design centers in California, Arizona, India and Israel.
- Expands Flextronics' backplane fabrication and manufacturing assembly capabilities.
- Provides new customer relationships; and strengthens existing relationships.
Flextronics will acquire Uniskor Ltd., an Israel-based EMS provider specializing in telecommunications, networking and wireless communications for approximately $20 million. It will assume Uniskor's 8000 square meter facility, in Migdal Haemek, Northern Israel, and will continue to employ the 500-person workforce.
Flextronics is establishing an industrial park in Poland. It will purchase 100 acres of land south of Gdansk. The first building to be constructed will be a 160,000 square foot electronic manufacturing factory to be completed in November.
Flextronics completed its acquisition of Palo Alto Products, a full-service product development company that provides industrial design, mechanical engineering and manufacturing services.
Flextronics International has been selected as a Microsoft EMS partner to assist in the development and manufacturing of X-Box (video game console) due to ship in fall 2001.
Nortel Networks will sell its manufacturing plants in Calgary, Research Triangle Park, N.C.; Monterrey, Mexico; and Istanbul, Turkey, to Solectron. The 4,200 workers at Nortel's plants will keep their jobs. Nortel, which expects to make $900 million from the sale, will sign a four-year, $10 billion supply deal with Solectron.
SCI Systems and Nokia announced that Nokia's Multimedia Development Group located in Motala, Sweden, will be transferred to SCI.
Solectron completed the acquisition of Alcatel's manufacturing assets in Aguadilla, Puerto Rico. Solectron will assume full manufacturing responsibility for Alcatel's PCB products focused on the networking and telecommunication industries. Solectron's acquisition of Alcatel's manufacturing assets in Longview, Texas, is expected to close during the second quarter of 2000.
Solectron will move 850 jobs (50% of the work force), from its cell phone manufacturing plant in suburban Atlanta to its plant in Guadalajara, Mexico. Fred Forsyth, president of Solectron Americas, said the company was forced to move the jobs to Mexico to stay competitive in the cell phone business. Solectron employs about 6,700 workers in Guadalajara. ``Simply put, most of our competitors and customers have already moved cell phone manufacturing to lower labor-cost geographies,'' Forsyth said.
Plexus completed its acquisition of Agility Inc., a privately-held Boston-area electronic manufacturing services provider.
Semiconductors
Amkor Technology completed the acquisition (for approximately $1.4 billion including an equity investment) of three semiconductor assembly and test factories (known as K1, K2 and K3) from Anam Semiconductor. Factory details:
K1 Seoul, Korea 646,000 ft2 3,300 employees K2 Buchon, Korea 264,000 ft2 1,800 employees K3 Bupyung, Korea 404,000 ft2 1,500 employees
IBM has developed a process to make chips up to 30% faster using copper circuits and an advanced insulation material - a low-k dielectric. With the new process, 0.13-micron designs are possible.
Per IDC the large integrated semiconductor manufacturers are turning to foundries to outsource semiconductor production at an unprecedented rate. This will generate a $36 billion-plus market worldwide by 2004 - up from under $7 billion in 1999.
Intel plans to invest $6 billion this year to increase production capacity for computer chips and flash memory chips,
The North American-based manufacturers of semiconductor equipment posted a fifth-straight month of record orders in March 2000 and a Book-to-Bill ratio of 1.45. Shipments and bookings figures are in millions of U.S. dollars.
MONTH SHIPMENTS BOOKINGS BOOK-TO-BILL October 99 1,484.3 1,609.5 1.08 November 99 1,528.5 1,694.5 1.11 December 99 1,597.9 1,907.6 1.19 January 2000 (final) 1,603.5 2,227.3 1.39 February 2000 (revised) 1,595.1 2,293.8 1.44 March 2000 (prelim.) 1,685.3 2,451.7 1.45
Source: SEMI
Samsung Electronics completed development of a 512MB DRAM and expects to market the new chips in 2001.
Yageo, Taiwan's largest maker of capacitors and resistors is buying the global passive components unit of Philips Electronics for 650 million euros.
Other
Per DisplaySearch Q4'99 notebook display shipments rose 12% sequentially and 35% Y/Y. On a revenue basis, notebook display shipments rose 19% sequentially and 120% Y/Y. For all of 1999, notebook display shipments rose 26% in units and 82% in revenues. The top 5 suppliers of TFT LCD modules were:
Rank Supplier Market Share 1. Samsung 22.7% 2. LG.Philips 16.0% 3. Hitachi 13.6% 4. Sharp 8.4% 5. IBM 8.2%
Fujitsu has developed a new type of recording media, called LEXIS (Layer Exchange Interaction Stabilized), which has the potential to achieve three times the density of the current theoretical limit governed by thermal fluctuation of magnetization. The new media technology will be used to expand the capacity of hard disk drives.
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
This article was originally published in CircuiTree magazine and is reprinted here with permission.