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Component Shortages + Strong Demand = Price Increase Mentality?
November 9, 1999 |Estimated reading time: 9 minutes
Component Shortages + Strong Demand = Price Increase Mentality?
by Walt Custer
Nov. 09, 1999
This column appears monthly in CircuiTree magazine
A combination of the normal autumn seasonal pickup, globally strong economic conditions (Chart 1) and surging communications equipment demand (Chart 2) has pushed up PCB orders. And the near term looks even better. Chart 3 shows the annual and 3-month growth rates of key PCB/electronic equipment indicators. Notice that while September PCB orders were up 2.3%, total electronic equipment was up 13.0% and communication equipment up 28.5% on a 3-month basis. And rigid laminate square footage orders grew a remarkable 24.9%. Based upon this data and Chart 4 it would appear that PCB bookings would continue to improve at least through the fall - playing catch up with equipment.
A combination of strong end market demand, the supply repercussions of the Taiwan earthquakes and general shortages of key components (LCD displays, PCB chipsets, passive components, flash memory and DRAMs) suggest that broad price increases are likely. PCB raw materials may also come under upward price pressure. The laminators are reporting cost increases for glass cloth, resins, solvents, labor and energy. Selective laminate price increases are already being reported. Taiwanese and European laminators are especially active in trying to offset cost increases.
Domestically PCB consolidations continue. Tyco is buying Advanced Quick Circuits and Praegitzer (making Tyco the #3 PCB fabricator in N. America) and Pacific Circuits and Power Circuits have consolidated to form TTM (Time To Market) - with $125 million in annual sales. Chart 5 gives my opinion of the largest N American PCB fabricators. If I have missed or misrepresented someone please let me know.
I am writing this article just before leaving for Productronica. I’ll include a report on European PCB business conditions in my next article.
General Business Conditions
Taiwan personal computer and motherboard makers said in early November the end is in sight for supply chain delays blamed on September's earthquake, but competition with mobile phone makers for components showed no signs of easing. "Mobile phones are going crazy right now," said Mitac’s Billy Ho. "Phone makers are paying much higher prices" for memory chips than PC makers. Reportedly Nokia alone will make 80 million handsets worldwide this year.
Per IDC the worldwide Internet economy surpass $1 trillion in 2001 and approach $3 trillion by 2003.
South Korea's central bank sharply raised its forecast for GDP growth this year to 8.8%, but warned that the economy would likely face growing inflationary pressure from next year as strong crude oil prices translated into higher consumer prices and of other cost factors, such as wages.
Electronic Equipment
Intel CEO Craig Barrett said "We don't see any impact of the Taiwan earthquake on our fourth quarter results and we're expecting a record quarter." The fourth quarter is usually the strongest period for Intel and personal computer makers, owing to the holiday buying season. But PC makers have been cautious lately for a variety of reasons, including potential component shortages related to earthquake-damaged Taiwan factories and the year-2000 glitch.
Steady global consumer demand and the sustained rebound of the Asia/Pacific PC market drove Q3’99 year-over-year worldwide unit growth of 25%, according to IDC.
Top 5 Vendors, U.S. PC Shipments, Third Quarter 1999 (Preliminary) (Thousands of Units) Q399 Rank Vendor Q3 1999 Shipments Market Share Q3 1998 Shipments Market Share Growth 1999/98 1 Dell 2,119 18.1% 1,340 14.1% 58% 2 Compaq 1,865 15.9% 1,502 15.8% 24% 3 Gateway 1,081 9.2% 781 8.2% 38% 4 Hewlett-Packard 984 8.4% 809 8.5% 22% 5 IBM 920 7.8% 869 9.1% 6% Others 4,756 40.6% 4,220 44.3% 13% All vendors 11,725 100.0% 9,521 100.0% 23%
Top 5 Vendors, Worldwide PC Shipments, Third Quarter 1999 (Preliminary) (Thousands of Units) Q399 Rank Vendor Q3 1999 Shipments Market Share Q3 1998 Shipments Market Share Growth 1999/98 1 Compaq 3,844 13.8% 3,198 14.3% 20% 2 Dell 3,239 11.6% 2,033 9.1% 59% 3 IBM 2,268 8.1% 2,028 9.1% 12% 4 Hewlett-Packard 1,862 6.7% 1,481 6.6% 26% 5 NEC/PBNEC 1,376 4.9% 1,463 6.5% (6)% Others 15,298 54.9% 12,173 54.4% 26% All vendors 27,887 100.0% 22,376 100.0% 25%
The European personal computer market experienced robust growth in the 3Q’99, with PC shipments reaching 6.7 million units, up 23.5% from 3Q’98, according to Dataquest.
European PC Vendor Shipment Estimates, 3Q’99 (Thousands of Units) Company Q3/98 Shipments Q3/98 Market Share (%) Q3/99 Shipments Q3/99 Market Share (%) Growth (%) Compaq 918 16.8 1,086 16.1 18.3 Dell 440 8.1 654 9.7 48.7 Siemens 344 6.3 485 7.2 40.8 IBM 433 7.9 482 7.1 11.2 Hewlett-Packard 325 5.9 435 6.5 34.0 Others 3,002 55.0 3,602 53.4 20.0 Total Market 5,462 100.0 6,744 100.0 23.5
Note: PCs only (desktop, deskside, notebook, ultraportable, laptop, and transportable). Server-marketed PCs are not included.
China is adopting aggressive policies to aid its local mobile phone industry while limiting foreign market leaders Motorola, Nokia and Ericsson, the official Shanghai News reported. The state earlier this year stopped approving new foreign investments in the sector, threatening the overseas giants' ability to keep their production in step with more than 50% annual growth in demand. All foreign projects green-lighted by local governments since 1994 must now be re-submitted to the state for approval, raising the possibility of their cancellation, the report said. China is concerned about the staggering 90% market share controlled by the "big three" overseas firms, the daily said, adding that Beijing had taken a "concerned and protective" stance toward nine domestic makers chosen by the State Planning Commission to champion local brands. China added 11 million mobile phone subscribers in January-September this year, bringing its total to 36 million, the Shanghai News said. The country is expected to overtake Japan as the world's second-largest market in coming months.
Nokia and Palm plan to jointly develop a pen-based "Smart phone."
Per Dataquest mobile telephony in Latin America is rapidly evolving into a viable substitute for inefficient, expensive landline services, with Latin American mobile handset sales forecast to reach 24.5 million units in 1999.
Microsoft reportedly may invest billions of dollars over four years into developing and promoting a home video game console, code-named X-Box. The proposed machine, a hybrid akin to a PC that plugs into a television to play games, is expected to be manufactured to the company's specifications by PC makers or subcontractors. A software executive described the device as "a console machine with PC innards" which may use AMD's Athlon microprocessor.
Printed Circuit Boards
Litton Interconnect Technologies (formerly Advanced Circuitry) in Springfield, MO completed a major innerlayer expansion to support its rapidly growing customer base (backplanes, communication & high speed data transmission OEMs). The new facility is very impressive.
Thayer Capital Partners and Brockway Moran have formed a new PCB fabricator TTM by merging their Pacific Circuits of Redmond, Washington, with Power Circuits of Santa Ana, California. On a combined basis, TTM will have more than 950 employees and annual revenues in excess of $125 million.
Tyco purchased Advanced Quick Circuits, Melbourne, FL from CIVC Partners, a private equity investment affiliate of Bank of America and Tangram Partners, a Chicago-based private equity firm.
Tyco will acquire for cash Praegitzer $5.50 per share ($72 million total). Tyco had $250 million in PCB sales in fiscal 1998 and has subsequently bought Advanced Quick Circuits and Praegitzer.
Capacity at Hitachi Chemical's circuit boards plant in Singapore is to be expanded by 60% in a 5 billion yen investment.
Taiwan's Pou Chen and PC Chip Group will jointly produce PCBs in Guangdong province, China from the second quarter next year. The facility is part of a half-completed 12-plant complex, believed to be the largest PC manufacturing center in the world. Pou Chen is the largest shoemaker in Taiwan while PC Chip is one of the island's leading PC makers.
Compeq, Taiwan's largest PCB maker, said its September sales fell to NT$1.15 billion ($1=NT$31.784) from NT$1.39 billion in the year-ago period. Sales for the first nine months of 1999 dropped to NT$9.49 billion from NT$10.2 billion a year earlier.
Chemitalic, the Danish PCB manufacturer and other electronic components, entered a strategic agreement with the Italy’s Somacis - replacing a former cooperation agreement with Italian-based FSA Spa.
NEC’s recent notebook computers use lead-free motherboards. NEC replaced solder with an alloy of tin and zinc.
Cookson Group PLC is buying the PCB materials business of Dexter Corp for $33 million in cash. Cookson said the business had sales of $39 million for the year ended Sept. 30.
Assembly
Dii will buy the manufacturing assets of Hewlett-Packard's storage systems unit. This is expected to add nearly $200 million in revenue for Dii in the first year, and more than $500 million in the next five years. Dii generated $925 million in revenues during 1998.
Dovatron International will invest US$80 million through its subsidiary, Multek, to set up an additional (PCB assembly) factory at the San Jorge industrial park in Jalisco state, Mexico.
Sanmina completed its acquisition of Nortel Networks' Wireless Electro-Mechanical Subsystem Assembly operations in Chateaudun, France.
Sanmina acquired Devtek Electronic Packaging Systems Division of Devtek Electronics Enclosure. The cash transaction includes ISO certified manufacturing facilities in Toronto, Canada and an integration/assembly and distribution plant in Raleigh, N.C. Approximately $26.5 million were paid for the operations, including the assumption of debt. DEPS designs and produces custom electronic enclosure systems for the telecommunications and networking industries.
Solectron opened a new full-service, high-volume, low-cost manufacturing unit in Rumania. The 200,000 sf facility is in the western city of Timisoara.
Solectron has formed a partnership with Acer to build custom-designed personal computers, servers and workstations for OEMs. Acer will design desktop PCs and servers for Solectron. It will also consider farming out manufacturing orders to Solectron, particularly from its European clients, Acer said.
Solectron opened a new 370,000 sf facility in Suwanee, Georgia on a 50-acre campus with 1,500 employees and 11 surface mount technology lines. The site will be Solectron's East Coast center for medium to low complexity, medium to high volume systems assembly and New Product Introduction (NPI) services for PC, server, workstation, telecommunication and networking equipment customers.
Asustek Computer, Taiwan's largest computer motherboard maker, expects its planned China plant to produce 100,000 square meters of PCBs per month after production begins in 2001. The US$12 million PCB plant will be in Jiangsu, southern China.
Semiconductors
Semiconductor sales grew 6.4% in September to $12.7 billion compared with $11.93 billion in August, according to the SIA. September's sales figure was 24% higher than the same month last year (Chart 6), when the industry was starting to dig itself out of a recession. The SIA's 1999-2002 industry forecast calls for semiconductor sales to top $144 billion with 15% growth this year.
Motorola unveiled a new chip that could make use-anywhere mobile phones a reality by the end of next year, enabling overseas travelers to use a single phone instead of carrying two or more. Motorola said its new DSP56690 processor supports all of the most common wireless standards.
Micron Technology struck a 5-year deal to supply memory chips to Gateway Inc in a deal similarly to the pact Micron reached with Compaq Computer that analysts estimated to be worth up to $20 billion over five years. Gateway said the agreement would help it fight a worldwide shortage of computer memory after a devastating earthquake in Taiwan last month hit supplies, keeping its computers loaded with memory during the lucrative holiday shopping season.
Intel said that while microprocessors would continue to provide most of its revenue, it was aggressively investing in communications networks and Internet services to profit from the explosion in e-commerce.
Compaq Computer and Micron Technology announced a strategic 5-year supply alliance where Micron will become Compaq's single largest memory provider. Industry sources put its value at up to $20 billion over five years.
The N American-based manufacturers of semiconductor equipment posted a September 1999 Book-to-Bill ratio of 1.08.
Displays
IBM researchers have created a thin, flexible kind of transistor that could one day be used to make, for instance, a computer screen that could be rolled up. Their invention is cheap and can be sprayed onto plastic, making it useful in a variety of areas, they said.
According to IDC, serious shortages of key LCD components such as motherglass, display driver ICs, condensers, color filters, polarizing filters, and capacitors and resistors will hamper This will impact both the portable PC and LCD desktop monitor markets, which are both in a transitory period toward new LCD sizes and technology. IDC projects that19.2 million portable PCs and 3.9 million LCD monitors will ship in 1999, although the widening LCD supply crisis could affect these projections.
Samsung announced an 8.5 billion dollar deal to supply Dell Computer with liquid crystal displays, while Dell provides the financing necessary to build a state of the art manufacturing plant.
Walt Custer Sponsored by Shipley Ronal Phone: 707 785-1777
E-mail: America Online waltcuster@aol.com Internet wcuster@mindspring.com