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Rumbling and Rambling - Taiwan Earthquake Repercussions and Thoughts on China
October 8, 1999 |Estimated reading time: 12 minutes
Rumbling and Rambling Taiwan Earthquake Repercussions and Thoughts on China
by Walt Custer
Oct. 08, 1999
This column appears monthly in CircuiTree magazine
A lot has happened since I wrote my last article:
- I retired, sold our house and relocated to Sea Ranch, a coastal community 100 miles north of San Francisco.
- Nancy and I spent a week at the ECWC8 world PCB meeting in Tokyo followed by an IPC arranged tour of China.
- A major earthquake rocked Taiwan.
Taiwan
As I write this article in early October the massive September earthquake in Taiwan remains a key issue. Paramount was the tragic loss of life and personal hardships. Clearly it also affected the global electronics supply chain especially when many components (tantalum and ceramic capacitors, flash memory, DRAMs and flat panel displays) were already in short supply and PC manufacturers were gearing up for the Christmas season. While the biggest damage was to the chip foundries, PCB assembly will feel the affect for a while as assemblers scramble for semiconductors and passive components. Bare board manufacturers recovered quickly but the assembly industry will feel the effects for months. As background:
- Electronics make up about 30-35% of Taiwan's exports, which totaled about $111 billion in 1998.
- Taiwan has 28 wafer fabs, greater than half of the world's semiconductor contract manufacturing and more than 10% of the world's silicon area processing capacity.
- Taiwan accounts for about 60% of the motherboards, It is also is a key supplier of memory chips, flat-panel displays, small microprocessors used in toys and other consumer electronics, and core-logic chipsets, the chips that link the processor to the rest of the computer.
What will be the result? Shortages and price increases are likely. Reportedly a number of motherboard producers had already raised prices by about 5% by late September. The Taiwanese are typically quick to recover but expect repercussions throughout 1999.
China
Our one-week tour of China (Beijing, Xian and Hong Kong) retraced a trip I first made in 1979.
- China is growing at a dramatic pace. Downtown Beijing is a modern metropolis. The one-story shops of 1979 have been replaced with 5-star hotels and high rise office buildings.
- Capitalism is alive. The street vendors and small shop owners are prime examples. What is scary is their total focus on price in negotiations. Even if we had no interest in their wares they kept dropping the price. Price degradation in China-made PCBs is easy to understand if the same sales approach is used!
PCB Outlook
Electronic Equipment orders continue to grow (Charts 1 and 2). August orders were up 12.6% on a 3-month basis versus last year. August PCB bookings dropped a bit but strong equipment demand suggests that printed circuit orders should improve. Per Chart 2 Communication Equipment is clearly leading the charge - up 26.3% on a 3-month basis. Chart 3 shows the 12/12 (annual), 3/12 (3-month) and 1/12 (August 99 vs August 98) growth rates for key N. American electronic industry indices. The strong growth of most sectors reinforces my prediction that PCBs should improve from the August order slowing. Semiconductor shipments are up globally (Chart 4) although the Taiwan earthquake will certainly distort the September and October numbers. Lastly the Electronic Buyers’ News EBI (formerly Quest) index is at a 2-year high and the Purchasing Managers’ Index is up (Chart 5). Both indices suggest that business conditions will remain good into the fall.
Here is some more news:
General Business Conditions
September marked another milestone in the recovery of the electronics industry as the Electronic Buyers' News Index surged to 55.5, its highest level in two years. "The increase was driven by large gains in both orders and production, including export orders, which rose above 50 for the first time in four years," said Jim Haughey, EBN's staff economist. "These show that the pace of growth in the components market is still accelerating."
Two dozen foreign companies were told they would be cut out of money earned by their Chinese joint ventures. The companies, including Motorola, Nippon Telegraph & Telephone, France Telecom, Bell Canada International, Sprint and Cable & Wireless HKT have invested upwards of $1.4 billion in joint ventures with China United Telecommunications, or China Unicom, the country's No.2 telephone carrier. China Unicom, which used the money and the companies' technical expertise to build up its mobile-phone network, has offered to repay the invested money, plus a small amount of interest.
Durable Goods orders rose 0.9% in August, led by transportation. Orders for industrial machinery, including computers and machine tools, fell 2%, following a hefty 10.5% gain in July. And, orders for electronic and other electrical equipment, which includes everything from semiconductors, circuit boards and telecommunications equipment to home appliances, posted a 0.1% decline, following a strong 7.1% gain in July.
Singapore's electronics output gained 33.6% in August ’99 vs August ’98 due to "strong demand for cellular phones and ICs. The production of disk drives was slightly higher than a year ago, despite restructuring efforts by manufacturers.
Natsteel Electronics is seeing some shortages in supplies of tantalum capacitors, which will limit the company's ability to increase production in some products like personal computer motherboards.
Makers of mobile phones, hand-held computers and other electronic goods may not be able to meet demand due to a shortage of flash memory chips, the Financial Times reported in September.
The 400 richest Americans for the first time have collectively amassed $1 trillion, a figure greater than the gross domestic product of China, according to Forbes magazine. Bill Gates once again led the list with a net worth of $85 billion, up from last year's $59 billion.
The Year 2000 computer glitch is likely to rock world trade and may end more than eight straight years of U.S. economic growth, a special Senate panel studying the problem said in September. The committee listed its greatest concerns as China, Russia, and Italy plus U.S. oil suppliers: Venezuela, Nigeria, Saudi Arabia, Colombia and Kuwait.
Sales on the Internet are expected to reach $60 billion in 1999 and top $100 billion by 2001, according to Simba Information.
Electronic Equipment
Driven by continued growth in the digital handset market, U.S. mobile handset sales surpassed 10.3 million units in the second quarter of this year, according to Dataquest. Digital handsets accounted for 77.8% of U.S. mobile handset sales in the second quarter, while analog handsets totaled 22.2% of sales.
U.S. Mobile Handset Market Share Estimates by Unit Sales, Second Quarter 1999 COMPANY Q2/99 MARKET SHARE (%) Nokia 31.7 Motorola 22.4 QUALCOMM 12.2 Audiovox 10.3 Ericsson 10.2 Others 13.2 Total Market 100.0 Source: Dataquest 9/99
Xerox agreed to buy Tektronix’s color printing operation for $950 million in cash, making Xerox the No. 2 player in office color printers behind Hewlett-Packard.
Motorola is buying General Instrument for $10.66 billion in stock. General Instrument dominates the market for cable TV set-top boxes - one of the key ingredients for delivering broadband services to consumers.
Printed Circuit Boards
Dovatron International will invest $80 million through its subsidiary, Multek, to set up an additional factory at the San Jorge industrial park in Jalisco state. The company will manufacture multilayer PCBs for the local electronics industry at the new factory. Dovatron has already invested 74 million dollars in the same park.
Merix promoted of Mark Hollinger from Chief Operating Officer and President to Chief Executive Officer. Congratulations Mark!
Totalfina, one of the world's largest oil companies, won a hostile $48 billion takeover battle with Elf Aquitaine the parent company of Atotech. Atotech’s sales were $514 million in 1998, according to the company's Web site.
The Fujitsu Computer Products of Vietnam has put its third PCB plant into trial operation. The new plant, located at Bien Hoa Industrial Park 2, has three lines for PCB assembly with a combined monthly capacity of 300,000 items. In the first nine months of 1999, the company’s Vietnam facilities have exported US$320 million of PCBs to Japan, Thailand and the Philippines.
Gul Technologies Singapore Ltd., the new owner of Accudyne, a Raleigh, VA manufacturer of circuit boards, plans to triple sales to $23 million and double production in the next few years as part of a new company growth strategy. Gul Technologies formed Gultech North America to operate Accudyne. Gul sales were $152 million in 1998. Pre-tax profit was $18 million.
CIVC Partners, a private equity investment affiliate of Bank of America Corporation and Tangram Partners, a Chicago-based private equity firm, have sold Melbourne, FL-based Advanced Quick Circuits, L.P. to Sigma Circuits (part of Tyco).
Methode Electronics will sell most of the assets of its Chatworth, CA Graphic Research PCB business. The purchaser will operate under the name Graphic Research, LLC managed by the same group that currently manages Delta Circuits Technology, Inc.
Dynacircuits, Franklin Park, IL increased its plant size by 45,000 sq. ft. to a total of 110,000 sq. ft. The plant features Viatek technology, a process for the manufacture of double-sided PCBs that replaces standard copper electroplated through-hole processes with a proprietary nickel electroless system.
Taiwan's PCB manufacturers expect sales to rebound next year thanks to growing global demand for Rambus and flip-chip boards. The industry has been losing money since the fourth quarter of 1998. Chant World International, Yeti Electronics, Shea May Enterprise, and Cadac Electronic reported losses for first half of this year due to cutthroat competition triggered by over capacity. Compeq Manufacturing, Gold Circuit Electronics, and WUS Printed Circuit saw their profit margins decline in the same period.
Gultech (Suzhou) Electronics will increase its total investment by at least US$10 million to US$50 million to take advantage of lower operating costs in the China-Singapore Suzhou Industrial Park (SIP).
Circuit Systems acquired Infovision for $3,750,000. Infovision specializes in consulting and programming services as well as the development and licensing of the software program, docISO, which documents a company's ISO procedures and has internet/intranet capabilities.
Dexter Corp. reportedly plans to sell its $43 million annual sales volume PWB business and has retained Donaldson, Lufkin & Jenrette to help with the sale.
ASAT has qualified Innovex as a supplier for flex circuits used in their fine-pitch ball grid array (fxBGA) applications. Both companies anticipate a production ramp to begin in the March 2000 quarter.
"Dii-Multek" completed the acquisition of MicroEletronica, the major Brazilian manufacturer of multilayer PCBs. The purchase price was $27 million, plus an earn-out provision not to exceed $9 million over a six-year period.
Hitachi Chemical will invest 5 billion yen to raise capacity 60% at a Singapore plant making multilayer PCBs. The firm targets monthly output equivalent to 80,000 sq. meters by April 2001, and will also start producing compact circuit boards for cellular phones there by January, at an initial rate of 2,000 sq. meters a month. Hitachi Chemical will shift the Singapore plant's production of single-side boards (200,000 sq. meters per month) to an Indonesia subsidiary by April 2002, to make these products more price competitive. Hitachi Chemical said it is the world's fifth-largest maker of circuit boards, with 2.3% of a global market hitting 4 trillion yen a year.
Toppan Printing Co. will build a new plant in California to expand PCB production in the U.S. Target completion is June 2000. Toppan has already purchased about 100,000 sq. meters of land in California. The new factory, to be constructed by wholly owned Toppan Electronics Inc. in San Diego, is expected to mass-produce multilayer and high-density circuit boards. Along with its existing plant in San Diego - this boosts capacity in the U.S. by 50% from the current level.
AlliedSignal completed the $425 million sale of its laminates business to Germany's Rutgers AG. Rutgers, Isola’s parent, is a US$2.7 billion industrial company.
Parlex promoted Darryl J. McKenney to corporate vice president and general manager for its Corporate Headquarters and Flexible Circuit Products operation in Methuen, MA. Congratulations Darryl!
Assembly
Sanmina completed its acquisition certain operations of Nortel Networks Wireless ElectroMechanical Subsystem Assembly operations. This transaction, which relates to manufacturing operations in Calgary, Alberta, Canada, includes a multi-year supply agreement. The acquisition of certain Nortel EMSS operations in Chateaudun, France is expected to close about the first of November.
Solectron completed a worldwide manufacturing agreement with IBM where it assumes New Product Introduction and manufacturing responsibility for the PCB assemblies manufactured in IBM's Greenock operations for its Netfinity servers. As part of the agreement, Solectron will gain access to IBM intellectual property rights included in the design and manufacture of PC server motherboards. Volume PCB assembly services will be transferred from IBM's Greenock facility into Solectron's existing global manufacturing operations.
Flextronics International announced the further expansion of Tab, Hungary facility to support Flextronics' growing customer base in Central and Eastern Europe and meet the needs of current customers, which include Philips, Honeywell, Whirlpool and Bosch.
Paul Fox of Banc of America Securities reported that in 1998 electronics manufacturers spent $627 billion worldwide to produce their products, but only $80 billion of that total, or 13%, on the outsourced contract manufacturing. Fox projected that by 2002, contract manufacturers are expected to garner 24% of the total amount spent on manufacturing, or $211 billion. The top ten contract manufacturing companies are expected to grow their revenues from $23 billion in 1998, to over $76 billion by 2002, said Fox.
Taiwan's First International Computer expects its PCB assembly volume in the 3C Technology Park in Guangzhou will hit 600,000 square feet (equivalent to 1.5 million motherboards) by next June. This will make FIC one of top ten PCB assemblers in the world.
Solectron will acquire Smart Modular Technologies Inc. for about $2 billion worth of stock. Smart Modular, with 1998 revenue of $714.7 million, makes memory modules, embedded computers and PC cards.
Dii-Dovatron completed the purchase of Ericsson's electronics manufacturing and distribution assets in Kindberg, Austria.
Semiconductors
Worldwide sales of semiconductors jumped to $11.96 billion in August, increasing 3.5% from July 1999. Year-to-year chip sales exhibited a 21.7% total growth.
Year-to-Year Semiconductor Sales Market Last Year Current Month % Change Americas 3.32 3.92 18.1% Europe 2.23 2.45 9.9% Japan 2.01 2.64 31.7% Asia Pacific 2.26 2.94 30.1% Total 9.82 11.96 21.7%
Per Semiconductor Equipment and Materials International the chip equipment industry is staging a sustained recovery and period of growth that should continue through the rest of the year and into the first years of the next century. All of this optimism is in large part due to the explosive growth of the Internet and the rush to connect various computer systems and networks, plus the growth in wireless communications and use of sophisticated electronic devices.
Brett Hodess of Banc of America Securities said that the semiconductor industry is poised for growth as a result of the demand created by "free" PCs and cheap bandwidth and the need for new technology that drives the performance, lower power and lower cost necessary to deliver these computing and communications improvements. Hodess predicts that new fab activity should drive spending growth of over 20% in 2000 and 40% in 2001.
Flat Panel Displays
Display Technologies, the 50%-50% joint venture of Toshiba and IBM, will spend 10 billion yen ($94.7 million) to upgrade production capacity at two local plants. The additional production will mostly cover IBM panels. Display Technologies will bolster monthly production capacity at its Yasu plant in Shiga Prefecture by 50%, and will raise production at its Himeji plant in Hyogo Prefecture by about 20%.
Matsushita Electric Industrial is tripling capital spending on liquid crystal displays to 60 billion yen this year to boost output. Matsushita's current monthly production of LCDs amounts to the equivalent of 170,000 10-inch screens. Global sales of LCDs are expected to jump by 75% in the year through March 2000 to 129.9 billion yen, the Semiconductor Equipment Association of Japan forecast in early August.
Walt Custer Sponsored by Shipley Ronal Phone: 707 785-1777
E-mail: America Online waltcuster@aol.com Internet wcuster@mindspring.com