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Robust Today But a Few Warning Signs (Nov 2000)
November 8, 2000 |Estimated reading time: 14 minutes
As I write this column in early October, all the available data (economic, PCB, semiconductor and electronic equipment) look good. Robust Today But a Few Warning Signs
by Walt Custer
November 1st, 2000
As I write this column in early October, all the available data (economic, PCB, semiconductor and electronic equipment) look good. Global industrial production growth is strong (Chart 1), this year’s electronic equipment production will exceed US$1.2 trillion worldwide (Chart 2) and $500 billion domestically (Chart 3), and current U.S. electronic equipment orders are growing in excess of their historical trend line and above their 12-month average (Chart 4). August’s North American rigid PCB book-to-bill ratio was a lofty 1.22 (Chart 5), and global semiconductor shipments are soaring (Chart 6). Everything looks great!
But there are worrisome signs. Recently, both Intel and a number of personal computer manufacturers talked of a softness in both business and consumer PC demand. Cell phone suppliers scaled back their year 2000 forecasts and, in some cases, suggested that prior sales estimates had been inflated to push the component manufacturers to expand production capacities. OEMs and CEMs reduced component orders – perhaps eliminating some double bookings now that supplies are more available. DRAM producers that were enjoying increasing prices and margins in a tight market are now concerned about future softness. My guess is that much of this “slowing” is really a correction for prior inventory builds and double/extended ordering. Our normally strong fall season may be a bit tempered by these corrections, but I believe our “Electronic Age” will continue for 2001/2002 and beyond.
Also, the U.S. dollar has grown exceedingly strong versus the euro and all the key European currencies (Chart 7), making our exported electronic equipment very expensive to many of our good offshore customers.
Returning to printed circuits: orders remain very strong – well in excess of electronic equipment (Chart 8). While +30% PCB order growth “feels good,” long-term PCB growth can’t exceed electronic equipment. While scarce high layer count multilayer capacity has caused extended ordering and firmer prices, my guess is that PCB order growth will cool a bit to match electronic equipment.
Currently (per Chart 9) all domestic electronic sectors are doing well. Henderson Ventures’ most recent global PCB forecast (Chart 10) shows a modest domestic growth reduction (to high single digits) in both 2001 and 2002. Still not bad!
Special thanks to Ralph Anavy of Electronic Outlook Corp. (www.electronicoutlook.com) and Ed Henderson of Henderson Ventures (www.hendersonventures.com) for their data.
General Business Conditions
OEMs appear to be easing back on orders for future component deliveries, believing that new plants added recently by manufacturers may soon relieve the severe components shortages of the last year. A late August Electronic Buyers News survey found a steep drop in new component orders. Reportedly, OEMs are becoming more comfortable with their components allocation. They may also be purposely holding back on component orders that they believe overstretched suppliers cannot fill
Sony is planning to shift production of high-technology consumer electronics products to Europe from Japan in order to offset the recent sharp decline of the euro against the yen. Sony President Kunitake Ando said, "In the long run, the only way to avoid the current situation is to increase local production (in Europe)." He also said the company would seek an alliance with a European semiconductor manufacturer to keep costs down and meet booming demand.
Electronic Equipment
Notebook-PC shipments are expected to jump 31.5% this year to 24.4 million units. Despite shortages of thin-film transistor LCD panels for notebooks in the early months of 2000, passive-matrix LCD sales continued to decline.
The LAN switching market remains one of the few bright spots in the enterprise hardware market. According to IDC, worldwide port shipments of LAN switches will increase from under 79,000 in 1999 to over 231,000 by 2004. During this period, revenues will jump from $13.2 million to $28.7 million. Vendors hoping to increase their LAN switching revenues should look beyond the United States. According to IDC, the domestic market will grow slower than any other region of the world and well below the overall market's rate. Because of its low growth, the U.S. share will decline from 52% of worldwide LAN switching revenues in 1999 to 33% in 2004.
Sun Microsystems said more than 100,000 desktop systems were shipped during Q2CY'00 because of consistently strong sales of its entire line of Sun Ultra workstations combined with record-breaking demand for its Sun Ray appliances. Sun was #1 in both units shipped and revenue in the Unix-based workstation market. Sun had a 60% share of all workstations shipped in the Unix market for Q2CY'00.
According to Gartner, by 2004, 70% of new cell phones and 40% of new personal digital assistants will use wireless technology for direct access to Web content and enterprise networks. Gartner says that Bluetooth is set to become a defining force in portable devices, but products using Bluetooth must develop with security in mind.
Dataquest reported that cell phone sales operated at close to a 400 million-unit annual rate in the second quarter of 2000. Nokia remained the number one supplier, but many of the smaller share suppliers are gaining ground.
Q2, 2000 WORLDWIDE SALES, MARKET SHARES Units (millions) shipments % share Manufacturer Nokia 26.95 27.50 Motorola 15.29 15.60 Ericsson 10.13 10.30 Panasonic 5.51 5.60 Alcatel 5.47 5.60 Siemens 5.43 5.50 Samsung 5.42 5.50 NEC 3.46 3.50 Kyocera 3.32 3.40 Mitsubishi 3.11 3.20 Philips 2.69 2.70 Others 11.21 11.40 Total 97.98 100.00
Motorola and Palm agreed to jointly develop co-branded mobile smart phones that provide access to e-mail and can store calendars and contact databases. The new phones will be similar to other mobile phones but with larger screens. The phones, available in early 2002, will be initially distributed through Motorola's existing sales channels.
Teledesic ended its agreement with Motorola to provide the satellites to transmit its proposed high-speed Internet service.
Hughes Electronics sold its satellite manufacturing operations to Boeing for $3.75 billion. "Hughes is now a more focused company, competing in fast-paced and rapidly growing markets," said Michael T. Smith, chairman and CEO. " Hughes’ goal is being the premier global provider of integrated digital entertainment and information services."
Maxtor and Quantum HDD will merge to create “Maxtor Corporation.” The company will have a combined ship rate of more than 50 million hard drives annually.
Victor Company of Japan, a leading international manufacturer of CD and DVD players, digital video printers, home theaters and other related products, recently announced that its orders placed with Taiwan component suppliers will increase to a total of 20 billion yen, or NT$6 billion, next year. The projected annual purchases of 20 billion yen for 2001 is double the 10 billion yen of last year.
Annual worldwide computer printer shipments will top 100 million units in 2003, according to Lyra Research. Lyra forecasts market growth from nearly 78.5 million units in 1999 to approximately 104.5 million by 2004.
Worldwide Growth of Printer Shipments and Installed Base 1999 2004 Shipments, millions 78.5 104.5 Installed base, millions 303.0 534.9
Massive improvements to the infrastructure for TV-centric information appliances over the past few years and lower costs per home for interactive service deployment will foster an interactive TV revolution. IDC forecasts that U.S. NetTV unit activations will increase tenfold, from about 1 million in 1999 to more than 10 million in 2004.
Matsushita Electric Industrial Co will provide 1 million set-top boxes to customers of AT&T Broadband, the entertainment business of AT&T, over the next three years. Through the cable set-tops, the companies expect to introduce new broadband video, voice and data services.
Digital camera sales now represent 13% of total worldwide camera sales. Per InfoTrends Research, worldwide shipments of low-end digital cameras (sub-$1,000 models, not including toy digital cameras) are growing at 50% annually through 2005, and the market is forecast to reach over $13 billion in revenues in 2005. Olympus, Sony, Kodak, and Fuji are the worldwide market leaders with over 60% combined unit market share.
PCB Fabrication
3M acquired the Eau Claire, Wisconsin-based single chip module substrate business, also known as the high density, multilayer integrated circuit packaging business of W.L. Gore & Associates. "This business is an important strategic fit, complementing our integrated circuit packaging business," said Rich Iverson, division vice president, 3M Electronic Products Division. "When coupled with the 3M flexible circuit business, it extends our technological offering, providing one of the most comprehensive portfolios in IC packaging. We're excited about this opportunity, which provides both parties broader solutions to our customers in high-end computing and telecommunications."
Dai Nippon Printing and Toshiba have set up a PCB joint venture called D.T. Circuit Technology, which will begin operations on Nov. 1 to develop, produce and market build-up boards and functional circuit modules.
Parlex elected Eric Zanin Corporate Vice President - Marketing and Sales. Congratulations Eric!
Park Electrochemical appointed Dr Edward J. Reardon as Vice President - Research and Development. Ed was a colleague of mine at Morton Electronic Materials, where he was Vice President, Technical Operations.
Shipley Company, Rexam Image Products, and Union Petrochemical Corporation, an affiliate of MITAC International, will form a partnership to produce dry film photoresists in Zhongshan, China, for distribution throughout Asia. The 3-way joint venture is scheduled to begin production in 2002.
Pentex-Schweizer Circuits, Singapore reported a FY2000 net profit of $14.97 million against a $16.32 million loss in 1999. Deputy chairman and group managing director Kik Teng Guan said the solid profit stemmed from better margins on higher layer count multilayer PCBs and improved factory utilization. Sales dropped 8% to $122.76 million due to a July 1999 rationalization exercise that helped cut operating and overhead costs and boost productivity.
Compeq Manufacturing, Taiwan’s September sales rose to NT$2.19 billion ($1=NT$31.298) from NT$1.15 billion in September 1999. Sales for the first nine months grew to NT$14.1 billion from NT$9.49 billion in the year-earlier period.
Innovex introduced its Flex Gimbal Suspension Assembly product line, which it said provides significant improvement in suspension performance for disk drives. It eliminates the suspension assembly stainless steel gimbal component, which has been used almost exclusively since the early days of disk drive technology. The conventional stainless steel gimbal is replaced by a proprietary flexible circuit gimbal with superior performance.
Hitachi Ltd will shift its captive PCB production for high-performance servers to a new, wholly owned subsidiary. The separate unit, based in Kanagawa Prefecture, will be capitalized at 300 million yen with expected sales of 5 billion yen in fiscal 2001.
Saigon Post and Telecommunications Services (Saigon Postel) is seeking to collaborate with foreign partners to produce PCBs used in computers. By mid-September, three companies from the U.S. and Europe had shown interest in this project, which requires some US$50 million.
Quantum Communications Group acquired Delru/Rigi-Flex, Anaheim, CA. Newly formed Rigid-Flex Technologies, a wholly owned subsidiary of Quantum, provides custom fabricated PCBs for the military and aerospace markets.
Hon Hai Precision Industry Co will invest an additional US$2.99 million into its wholly owned unit in Shenzhen, China that makes PC casings and PCBs.
PCB Assembly
DDi Corp acquired Texas-based Golden Manufacturing, a privately held manufacturer of commercial precision sheet metal and machine parts serving the networking and telecommunications industries.
Sanmina acquired the San Jose system integration and fulfillment operation of Lucent Technologies.
Solectron will add approximately 600 new jobs and expand its Charlotte facility to handle increased production demand. Solectron has acquired a 225,000-SF building adjacent to its Charlotte manufacturing and operations center, bringing the facility to about 1.1 million SF.
SCI Systems cut its sales forecasts in September due to seasonal weakness in personal computers and consumer electronics, mainly set-top cable TV boxes. SCI has much higher exposure to volatility in these markets than its peers, which are better positioned in the network and telecommunications equipment sectors, analysts said.
SCI Systems and ERG Group announced a global telecommunications manufacturing services alliance. SCI will acquire ERG's telecommunications manufacturing businesses in Perth, Western Australia and Belgium.
SCI Systems acquired Telrad Networks Ma'a lot, Israel facility and signed a multiyear supply agreement worth more than $500 million of Telrad Networks' products.
Flextronics International completed its acquisition of electronic packaging systems provider
Chatham Technologies in a transaction valued at $633.2 million.
The National Development Bank BNDES will finance 47% of Flextronics‘ total 54.2 million real investment in Brazil. Flextronics intends to increase by 60% its Brazilian capacity to assemble PCBs and sets to 420,000 boards a year from 260,000, for the telecommunications, information technology and banking automation sectors.
The European Commission cleared the acquisition by Flextronics of the hardware-manufacturing unit of Italy's Italdata (a joint venture between Siemens Nixdorf, Telecom Italia and Siemens Informatica).
C-MAC Industries offered to purchase DY 4 systems. DY 4 designs and develops embedded, real-time computing solutions for use in harsh environments.
C-MAC Industries will acquire Kavlico with manufacturing operations in Moorpark, CA, and Minden, Germany. Kavlico is the largest independent supplier of precision sensors worldwide.
C-MAC Industries completed the acquisition of Invotronics Mfg. "Invotronics has expertise in design, engineering and manufacture of electronic body controllers, electromechanical systems and intelligent switches.
Plexus will acquire e2E Corp., a privately held printed circuit board design and engineering service provider, for about $20.5 million in stock. E2E, headquartered in Hillsboro, OR, has annualized revenue of about $20 million.
Thayer-BLUM Funding LLC agreed to acquire 5.625 million shares of common stock of EFTC. This is the third and final stage of the recapitalization of EFTC, which began in March when Thayer-BLUM invested a total of $54 million in the company. EFTC, based in Denver, CO, assembles complex PCBs (using both surface mount and pin-through-hole technologies), cables, electro-mechanical devices and finished products. The company had sales revenue of approximately $252 million last year.
CEM Nam Tai Electronics purchased 500,000 shares of Deswell Industries, a Hong Kong contract assembler.
Kimball International’s electronic contract assemblies unit acquired the Poznan, Poland manufacturing assets of Alcatel SA. Kimball will manufacture Alcatel's telecommunications equipment at the 80,000-SF Poznan facility, which currently offers system and board level assemblies within the Central European region.
Semiconductors
Worldwide sales of semiconductors reached an industry high of $18.2 billion for August 2000, an increase from $11.9 billion in August 1999, which represents a 52.7% year-over-year growth.
DRAM demand may soften due to a weak PC market; slowing corporate as well as consumer PC purchases in Europe; and persistent concerns that the traditionally strong end-of-year sales in North America may disappoint just like the back-to-school season did in September. Speaking in early October, “There are serious concerns for DRAM suppliers moving ahead, and a lot will depend on whether PC demand recovers before Christmas,” said Jamie Stitt, director of business development, DRAM products, at the semiconductor group of Toshiba America Electronic Components. “There was an artificially rosy picture for DRAM heading into the fourth quarter, and now during the last few weeks we've been seeing downward pressure as the PC market slows down.” Only a few months ago, the DRAM market appeared solid second. Forecasters spoke of shortages, firming prices, and higher capital expenditures as suppliers prepared to meet 2001 demand.
Semiconductor Equipment and Materials International (SEMI) reported that North America-based manufacturers of semiconductor equipment reached another milestone in August 2000, posting record average monthly bookings of more than $3 billion with a resulting book-to-bill ratio of 1.24.
Intel plans to ship its Pentium 4 processors by the end of the year, following a report that some of its clients are frustrated by delays.
Elpida Memory, a JV created by Japan's NEC and Hitachi, aims to become the world's No.1 maker of DRAMs. It plans to start mass-producing next spring 256 MB DRAMs using 0.18-micron process technology.
China consumes about 25 billion semiconductor and 15 billion integrated circuits per year. Its semiconductor market is growing at 17% per year and could reach 151 billion Yuan ($18.24 billion) by 2004, according to industry officials. The country is expected to become the second largest consumer of semiconductors over the next five years. Major new chip fabs will include Motorola’s $1.9 billion chip making/telecom investment and a joint Taiwan/China $1.6 billion chip foundry in Shanghai.
Shipments of semiconductor manufacturing equipment to Taiwan in the first half of 2000 rose almost three-fold year-on-year to US$4.8 billion, surpassing Japan's consumption in the same period and pushing Taiwan into the No. 2 position worldwide for consumption of chip-making equipment. The world's largest chip equipment market is still North America, where shipments in 1H '00 were US$5.5 billion. However, that region's year-on-year growth rate of 72% was less than half Taiwan's 188% growth in the same period, according to figures released by SEMI. "With accelerated investment in manufacturing capacity and new technology, 2000 is shaping up to be the all-time record growth year for our industry. We expect to see Taiwan account for about 22% of the total global market," said Stanley T. Myers, president of SEMI, the global trade group representing chip equipment and materials companies.
Other Components
3M will acquire Robinson Nugent, a New Albany, Indiana-based manufacturer of electronic interconnect products for approximately $115 million, including the assumption of debt.
Hitachi Ltd will set up its first Chinese LCD production unit next month at a cost of $28 million. The new company, Hitachi Display Device (Suzhou) Co Ltd, will be capitalized at $15 million and be owned 75% by Hitachi with Hitachi group firms taking the other 25%. Production will start in October 2001, with targeted output of 75,000 LCDs per month for use in personal computers and one million color LCDs per month for use in cellular phones.
Murata Electronics North America increased production of their new High Capacitance tantalum replacement ceramic capacitors. Available for use in all electronic circuits, these ceramic capacitors are increasingly popular with cell phone and computer manufacturers. Recognizing this demand, Murata has doubled production capacity over the past 12 months, and reduced lead times to an average of 16 weeks. This compares to Tantalum capacitor lead times of 52 weeks or more.
Stay Informed
If you would like to receive this type of market information on a daily basis, ask for a free 30-day trial of my news service. E-mail me.
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.