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Double Bookings & Component Shortages...
but the End Markets Remains Strong (July)
July 5, 2000 |
Estimated reading time: 12 minutes
Double Bookings & Component Shortages... but the End Markets Remains Strong
In recent months I have "cried wolf" regarding possible overbooking of PCBs. Chart 1 shows the very strong rigid PCB book to bill ratio. March PCB orders, in particular, were well in excess of true electronic equipment demand as OEMs and CEMs ensured long-term capacity allocations with their favorite PCB suppliers. Deliveries for high layer count multilayers are being quoted into early next year! Long lead times are an excellent way to fill the order books!
PCBs are not the only culprit. Severe shortages of flash memory and tantalum capacitors and supply constraints for high-end Intel microprocessors have led to extended ordering of these items also.
For those who follow the Department of Commerce "Electronic Durable Goods" and "Factory Orders" reports you saw that March was a boom month for orders but April showed "the largest decrease on record." Chart 2 shows the US$9 billion drop in Electronic Durable Goods orders for March to April. A look at the key components of "Electronic Durable Goods"-components (Chart 3) and finished electronic equipment (Chart 4) shows what happened. On examination, versus the trend line, March Durable Goods were $6 billion overbooked and March was followed by an April correction. Per Chart 3 all of this correction was in components. Finished electronic equipment orders (Chart 4) actually increased in April. Good News-the end markets are holding!
Printed circuit board orders (Chart 5), one of the items making up "Components" also were overbooked in March and corrected in April. Since semiconductors are a much larger $ share of "Components" it appears that semiconductor orders were much more "overbooked" than PCBs and caused the large April "Electronic Durable Goods" order correction.
Chart 6 shows April's annual and three-month growth rates for key PCB related items. On a three-month basis, PCB orders were up 31% vs. Feb.-Apr. 1999, but April's one-month growth (not shown on this chart) was more moderate. On Chart 6 total electronic equipment was up 17.4% on a three-month basis with the month of April quite strong. Computers, communication equipment and instruments & controls all showed strong bookings.
Chart 7 shows the PCB orders are in excess of "equipment needs" and will probably correct in the next two months. Chart 8 shows the components of the equipment growth. Everything but military electronics is expanding.
Since we are moving out of the traditionally weaker springtime and into the personal computer-driven fall surge, it appears that any PCB downward correction will be short-lived. Unless higher interest rates really "cool off" electronic equipment demand (not likely in the near term), it would appear that long PCB lead times will persist into 2001.
At the same, time capacity limitations and shortages of many key components will most likely constrain overall growth. Prices will remain firm and anything that is consumed by the cell phone industry will be especially vulnerable.
Note the following news item:
Palm said that production of its handheld computers has slowed due to a shortage of key parts. The problem is related to the production of cellular phones, which contain the same flash memory and LCD screen parts used to make Palm devices, the company said. Some analysts have cited flash memory availability the deciding factor in near-term growth of cell phones, MP3 music players and other hot mobile devices.
Late 2000 and early 2001 should be quite interesting.
General Business Conditions
Electronic Outlook Corp. reported that U.S electronic equipment sales in Q1 2000 grew 9.3% while components grew 25.1%; electronic distributors grew 30% and CEMs 43% (upwardly biased due to acquisitions). Per EOC president Ralph Anavy, "Clearly the component (distributor & subassembly) sector is growing too fast relative to equipment. But equipment growth is fundamentally robust."
New orders for manufactured durable goods in April decreased $14.1 billion or 6.4% to $205.6 billion. "Electronic and other electrical equipment (orders) had the largest decrease, $9.0 billion or 20.1% to $35.7 billion. This is the largest decrease on record. Electronic and other electrical equipment had the largest (unfilled order) decrease," Anavy said.
Pioneer Investment Management highlighted three major trends driving long-term growth in emerging markets: o Widespread economic recovery-many emerging market nations have begun to climb out of deep economic recessions. o Outsourcing trend by developed market companies to emerging markets-many U.S., European and even Japanese companies are finding it more cost-effective to subcontract with developing nation companies for the production of high value-added goods and services. o Phenomenal growth of e-commerce-the Internet and telecom revolution are now reaching many emerging markets, and having a profound impact.
In late May I spoke at a PCB conference in St Petersburg, Russia, attended by 150 fabricators. Following a plunge in production in the early 1990s, the Russian PCB industry is now recovering from a very small base. My VERY rough estimate is that total Russian PCB production will be less than $200 million in 2000.
Volkswagen said its new online purchasing network could save at least 1 billion DM a year, reducing its purchasing costs by 200 DM ($100) per car.
Electronic Equipment
Nokia's CEO Jorma Ollila expects the number of U.S. mobile phone users to double by the end of 2002.
Per Dataquest, W. Europe's personal computer market will have a five-year CAGR of 10.5%, with PC shipments forecasted to surpass 45 million units in 2004.
Japanese shipments of digital still cameras almost doubled to 5.8 million units versus the previous 12 months, the Japan Electronic Industry Development Association said. JEIDA attributed the strong increase to both the launching of 2 & 3-megapixel models, and also the sharp increase in sales of personal computers for Internet access and e-mail. Exports of digital still cameras rose 107% to 4.1 million units, worth 177.7 billion yen, up 83% from a year earlier. Domestic shipments rose 56% to 1.68 million units, worth 78.15 billion yen, up 51% from a year earlier.
Compaq Computer said it plans to buy nearly $4 billion of S. Korean-made computer components this year, up 50% from 1998.
Printed Circuit Boards
AT&S, Austria, a maker of PCBs for cel phones, increased sales by 54.3% to 233 million euros in the 1999/2000 financial year. Profits tripled to almost 27 million euros. AT&S reportedly is planning to build or buy a plant in China. It is considering acquiring a Taiwanese or Hong Kong PCB manufacturer or, if this fails, hiring about 15 Chinese-speaking personnel and training them in Austria for the Chinese venture. The Chinese venture would proceed in two construction phases and require an investment of about 130 million euros (US$116.5 million) and a workforce of up to 800 people.
Aspocomp, Finland, will raise capital by issuing up to 1.19 million new shares to domestic and international investors. In addition, two of its current stock owners, the European Strategic Investors Holdings NV and mutual insurer Kaleva, would sell up to 570,000 of their shares.
Circuit Systems' common stock was delisted by NASDAQ but will continue trading on the OTC Bulletin Board. The delisting occurred due to the noncompliance with NASDAQ Continued Inclusion Requirements for the minimum market value of public float and minimum net tangible assets.
Merix's $25 million plant investment will increase production capacity by about 30%. A portion of the new capacity will come online this fall with full project completion expected within 12-14 months.
Coretec, Toronto, acquired Point 2 Point Design as part of its strategic plan to be a "One-Stop" solutions provider of PCB services to leading EMS and OEM customers. Point 2 Point is a specialist in the design of high-end multilayer and HDI PCB's.
M-Wave will purchase a 50,000 SF facility on five acres in the western suburbs of Chicago. Joseph Turek, Chairman and CEO stated, "This building will double the size of our existing facilities and satisfy the expanding requirements of Lucent Technologies and new customers that we are developing." The new facility will allow operations to consolidate under one roof with a capacity of approximately $50 million in annual sales.
Parlex received a purchase order for double-sided flexible circuits for a high volume cellular phone application. The award for the initial production is valued at $6.1 million. Volume production shipments are expected to commence in August and continue into early 2001.
Hadco announced a $22 million capital expansion of its Owego, N.Y., facility-increasing innerlayer capacity by more than 50% and improving production capability for high technology products.
Assembly
The CEM industry's world sales will increase to $106 billion in 2001, $126 billion in 2002, and $149 billion in 2003, according to Technology Forecasters.
SCI Systems plans to invest $10 million in a new plant in Jalisco, Mexico, where it first arrived five years ago. One of its clients is Dell, for which it manufactures motherboards.
Motorola signed an outsourcing pact with Flextronics worth more than $30 billion for a five-year period and took a small (5%) stake in the company. The deal is the largest outsourcing agreement between a name-brand electronics company and a contract manufacturer. By 2005, the companies expect Flextronics to make more than $10 billion of cellular phones, two-way pagers, set-top boxes, wireless-communications gear and components for Motorola. That would be nearly twice Flextronics' total revenue of $5.7 billion in the fiscal year ended March 31.
Manufacturers of computer disk drives and components in Thailand are teaming up to make it the hub for drive parts and components in Asia.
Sanmina acquired Scandinavian EMS supplier Essex AB. Established in 1989, Essex, a privately held company with over $170 million in revenues in 1999, has four manufacturing facilities in Sweden and Finland and employs about 1,000 employees.
Solectron will acquire IBM's manufacturing operations in Hortolandia, Sao Paulo state, Brazil. It will gain 140,000 SF of manufacturing capacity, and will offer employment to approximately 220 IBM employees.
Celestica has completed the acquisition of IBM's PCB assembly and system assembly operations in Vimercate and Santa Palomba, Italy.
Solectron will acquire Bluegum Group, Australia's leading CEM. It will offer employment to Bluegum's 700 employees and add approximately 317,000 SF of manufacturing capacity.
Manufacturers' Services, Concord, Mass., is strengthening its European presence by building a 60,000 SF plant in Galway, Ireland.
Plexus completed the acquisition of Mexican CEM Elamex S.A. of Juarez for $53.7 million cash.
Sanmina purchased a 24-acre site in Toronto, Ontario, and began Phase 1 construction of a $15 million facility, which will contain enclosure design, manufacture, integration and test capabilities.
Avail Networks and MCMS announced a strategic partnership for manufacturing services.
Jabil Circuit began its $40-million 200,000 SF expansion in Auburn Hills, Mich.
Semiconductors
Worldwide sales of semiconductors reached an all-time record high of $15.2 billion in April 2000, increasing 35.6% from $11.2 billion from April 1999. "April sales show continued industry growth and are surpassing our expectations for 2000," stated George Scalise, SIA president. "Coupled with strong PC sales, industry growth is being driven by an explosion of worldwide demand for cellular phones, and the wireless communications infrastructure. While PC's and consumer electronics have strong seasonal demand trends, cellular phones are in demand year-round." Semiconductor sales are also being boosted by the Internet and the e-commerce revolution.
April 2000 ($ Billions)
Month-to-Month Sales
Market Last Month Current Month Change Americas 4.54 4.57 0.7% Europe 3.28 3.32 1.1% Japan 3.35 3.43 2.2% Asia Pacific 3.82 3.89 1.6% Total 15.00 15.20 1.3%
Year-to-Year Sales
Market Last Year Current Month Change Americas 3.64 4.57 25.7% Europe 2.48 3.32 33.6% Japan 2.43 3.43 41.1% Asia Pacific 2.66 3.89 46.0% Total 11.21 15.20 35.6%
Three-Month-Moving Average Sales
Market Last 3 Months Current 3 Month Change Americas 4.51 4.57 1.4% Europe 3.16 3.32 5.1% Japan 3.29 3.43 4.2% Asia Pacific 3.85 3.89 0.9% Total 14.81 15.20 2.7%
The global semiconductor market is forecast to increase 30.6% in calendar 2000 to $195 billion following an 18.9% increase in 1999. Per the WCTS the worldwide semiconductor market is expected to then rise by 20.2% in 2001 to $234 billion, by 13.6% to $266 billion in 2002 and by 8.5% to $289 billion in 2003. The market for DRAMs will increase by 37% to $28.4 billion in 2000 after 47.8% growth in 1999. The WSTS estimated the growth rate of the DRAMs market in 2001 at 28.6% (from $36.5 billion in 1999) and projects 14.9% growth to $42 billion in 2002 and 6.9% growth to $44.8 billion in 2003.
Intel's recently announced sixteen "Preferred Quality Suppliers" included PCB manufacturers Kalex & Nan Ya PCB and chip carrier suppliers Ibiden & Shinko.
Toshiba and SanDisk created a new semiconductor company FlashVision LLC to produce advanced flash memory utilizing fabrication space at Dominion Semiconductor in Manassas.
Motorola has applied to Chinese authorities to build a $1.9 billion complex to produce semiconductors and telecommunications equipment. If the planned complex in the northern city of Tianjin is approved, Motorola's total investments in China will increase to $3.5 billion by the end of the year.
French-Italian chipmaker STMicroelectronics forecast that the global semiconductor market would expand 30% in 2000 (and could reach 34-35%). STM chief economist Jean-Philippe Dauvin said the digital consumer sector would grow 60% in 2000, telecoms 40% and personal computers 30%. "I am forecasting 50 million set-top sets in 2000, against 35 million in 1999, and 13 million DVD (digital video disk) shipments against six million in 1999."
Rohm and Haas bought the semiconductor photoresist business of Tokyo's Mitsubishi Chemical.
Intel will invest $2 billion to expand wafer-manufacturing operations in Rio Rancho, N.M. It will use a 0.13-micron process and 300-millimeter wafers.
MicrochipTechnology acquired Matsushita Semiconductor of America's 92-acre Puyallup, Wash., semiconductor manufacturing complex.
Nan Ya Technology will spend in excess of $800 million to construct its newest 200-mm DRAM fab in Linkao, Taiwan.
Fujitsu and AMD will spend $1.31 billion to build a plant in Japan to produce 13 million flash memory chips per month by March 2002 and up to 52 million chips by March 2003.
Other
Per Stanford Resources, the worldwide market for desktop and workstation TFT-LCD flat panel monitors will grow from 7 million units in 2000 to 63.4 million units in 2006 and the worldwide OEM value for all TFT-LCD flat panel monitors will grow from $5.7 billion in 2000 to $28.6 billion in 2006. The overall unit penetration rate of flat panel monitors as a percentage of the total desktop and workstation monitor market will increase from 3.8% in 2000 to 31.6% in 2006.
Photobit Corporation has designed a sensor for use in an ingestible capsule. This new application is made possible by the ultra-low power requirements (less than 3 milliwatts) and ultra-small silicon die size of the sensor, which produces color video of the gastrointestinal tract. The disposable product can be swallowed like a pill and takes images of the stomach and small bowel as it passes through them unaided.
Japan's shipments of PC cards rose 14% from a year earlier to 5.22 million units in the year ended on March 31 due to increased demand for digital cameras and personal computers. The shipments' value rose 83% to 30.20 billion yen ($277.7 million), the Japan Electric Industry Development Association said. The figures are based on a survey of 48 Japanese distributors and makers of PC cards including Iwatsu Electric, NTT Data, Kyocera, Omron, SanDisk, Canon, Sharp, Toshiba, Matsushita Electric Industrial, NEC, Hitachi and Murata Mfg.
Tyco is acquiring the connectors and components business of Thomas & Betts for $750 million.
Have you tried Custer Consulting Group's daily industry news service? Send me an E-mail for a free 1-month trial.
Walt Custer Custer Consulting Group Phone: 707 785-1777 FAX: 707 785-1988http://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.