-
- News
- Books
Featured Books
- pcb007 Magazine
Latest Issues
Current IssueThe Growing Industry
In this issue of PCB007 Magazine, we talk with leading economic experts, advocacy specialists in Washington, D.C., and PCB company leadership to get a well-rounded picture of what’s happening in the industry today. Don’t miss it.
The Sustainability Issue
Sustainability is one of the most widely used terms in business today, especially for electronics and manufacturing but what does it mean to you? We explore the environmental, business, and economic impacts.
The Fabricator’s Guide to IPC APEX EXPO
This issue previews many of the important events taking place at this year's show and highlights some changes and opportunities. So, buckle up. We are counting down to IPC APEX EXPO 2024.
- Articles
- Columns
Search Console
- Links
- Events
||| MENU - pcb007 Magazine
Big Time Slowdown or Extended Inventory Correction? (Mar 2001)
March 1, 2001 |Estimated reading time: 18 minutes
How's business? Where do you want to start? Big Time Slowdown or Extended Inventory Correction?
by Walt Custer
March 1st, 2001
How's business? Where do you want to start? Our "slowdown" warnings of the last few months have become painfully true. The December North American rigid PCB book/bill ratio (Chart 1) dropped to 0.91 on a 3-month average basis and 0.85 for the month. Looking behind the book/bill ratio to actual shipment and order data highlights the magnitude of the problem. Chart 2 gives rigid PCB shipments and orders for a 60-company sampling. Notice that orders peaked last summer and began a fairly steep decline starting last September. For December 2000, they reached a 2-year low. Although CY2000 was an excellent year with $ shipments up 18%, the "wind was certainly knocked out of the sails (and sales)" at year-end.
Chart 3 (a 3-month (3/12) growth comparison of electronic equipment vs. PCB orders) remains our best forecasting tool. Through 2H'00, I was warning of a coming slowdown because PCB order growth exceeded that of electronic equipment. In December, both 3/12 growth rates plunged. The "excess/extended" PCB orders of mid-2000 are now being downwardly corrected, and at the same time the equipment makers are tightening their belts. Total electronic equipment orders (Chart 4) based upon Commerce Department "Factory Order" data show a noticeable slowing. The white line is the trend, the yellow line the 12-month rolling average, and the green line the monthly orders.
We have all read stories about excess post-Christmas personal computer inventories, less than expected cell phone growth, an automotive slowing, etc. All this shows in the Factory Orders data. Looking at the individual sectors (Chart 5) reveals some surprising results. The 3-month growth rate for communications equipment has plummeted. Just a few months ago, communications was the "darling of the industry" driving the electronic economy with +25% growth. Partially offsetting the December communications shortfall are measurement & control and computer & office equipment with growth still over 20% each. But computer growth is slowing, and measurement & control has been driven by two shaky components - semiconductor fab and general factory automation. Semiconductor fab investment will slow, and the higher interest rates of the past will halt this current round of factory investments. The probable result - continued short-term slowing in all equipment sectors.
Looking to the future, both the general Purchasing Managers Index and our industry-specific Electronic Buyers' News Index both plummeted in January (Chart 6), suggesting that a turnaround is not just around the corner.
So... where's the good news? Fortunately, the Fed is aggressively dropping interest rates to reheat the economy. From past history, we know that lower rates take about 18 months to affect our business. However, I believe that this present, pronounced slowdown is primarily a large inventory correction throughout the supply chain. Well before lower interest rates spur our business, I believe we will see a pick-up just because the excess inventories have been flushed from the food chain. My guess is the first half of 2001 will be difficult and then we'll see relief. Our "Electronic Age," the relentless increase in data transmission and storage, and new mass-market devices will ensure ongoing demand. We're just taking a painful and somewhat extended breather!
Changing subjects, Chart 7 shows my best guess (with help from Harvey Miller and Naka) for the top North American PCB makers ranked by CY2000 $ sales. If I missed your company or I have your sales wrong, e-mail me and I will correct the chart.
Nice Words About a Friend Many of you may have received my recent letter about Ray Pritchard and his new book, People Skills. Ray was the first Executive Director of the IPC. He is a great guy and a superb motivator. Ray has the unique ability of getting people involved in a project; guiding and motivating them and making them want to continue. Ray's book deals with his life experiences regarding "People Skills." If you want a copy, e-mail Ray at RJPritch7@aol.com or visit his website www.yourpeopleskills.com. Order a copy and I bet you can get Ray to autograph it when you see him! General Business Conditions
STMicroelectronics cut its forecast for 2001 global chip sector growth to 8% from last autumn's far more bullish 25-30% forecasted increase. STM Chief economist Jean-Philippe Dauvin said these adjusted forecasts indicated continued deceleration of world economic growth. But he added that the trend should be reversed in 2H'01. Dauvin said the anticipated slowdown would force semiconductor makers worldwide to reduce their capital expenditures by at least 10% from around $56 billion in 2000 to $50 billion in 2001. However, he said the spending cuts could be even deeper. "I may revise this extremely in the next few weeks," Dauvin warned. "I won't be surprised to see a 13% drop in capital expenditures for 2001," he said.
For the eighth consecutive year, IBM was awarded the most U.S. patents (2,886) in 2000.
U.S. companies will invest heavily in their Internet infrastructure in the coming years, according to Cahners In-Stat. It projects that Internet-specific investments of U.S. businesses will account for nearly 26% of their total IT spending in 2004, up from just 15% in 2000.
The marriage of biology and microelectronics that may cure diseases and create designer babies will create trillions of dollars of new wealth. Scientists at the World Economic Forum said that nanotechnology, genomics and robotics are going to be the hot technology growth areas in the years to come, but many are also unnerved about its impact on society.
Electronic Equipment
Computers
Dataquest reported that worldwide PC shipments totaled 134.7 million units in 2000, up 14.5% over 1999. U.S. PC shipments grew 10.3% in 2000. "The PC industry was hurt by a sluggish 2000 fourth quarter when worldwide PC shipments increased just 10% and U.S. shipments increased 6.4%," said Charles Smulders of Dataquest.
Preliminary PC Vendor Unit Shipment Estimates (Thousands of Units)
World
Company 2000 1999 Growth % Shipments Market Share % Shipments Market Share % Compaq 17,203 12.8 15,870 13.5 8.4 Dell 14,536 10.8 11,459 9.7 26.9 HP 10,237 7.6 7,600 6.5 34.7 IBM 9,162 6.8 9,331 7.9 -1.8 NEC 5,848 4.3 6,045 5.1 3.3 Gateway 5,110 3.8 4,745 4.0 7.7 Others 72,642 53.9 62,577 53.2 16.1 Total 134,738 100.0 117,626 100.0 14.5
US
Company 2000 1999 Growth % Shipments Market Share % Shipments Market Share % Dell 9,430 19.1 7,263 16.2 29.8 Compaq 7,615 15.4 7,234 16.1 5.3 HP 5,641 11.4 3,939 8.8 43.2 Gateway 4,271 8.6 4,021 9.0 6.2 IBM 2,674 5.4 3,290 7.3 -18.7 Others 19,800 40.1 19,065 42.5 17.4 Total 49,432 100.0 44,811 100.0 10.3
Data include desk-based PCs, mobile PCs and PC servers.Source: Gartner Dataquest (January 2001)
2001 OEM orders by Compaq Computer will top $10 billion in Taiwan, up from $9.5 billion in 2000. Compaq is Taiwan's top PC OEM client, outsourcing everything from motherboards and monitors to power supplies and notebook systems. Notebook OEMs will gain the most from Compaq's increased spending. Inventec will make Compaq's Armada business notebooks, while Arima Computer will produce most of the Presario consumer notebooks. Quanta is also a potential notebook supplier. Mitac and FIC will produce desktop PCs and CTX monitors and TFT-LCDs.
Taiwan's notebook computer manufactures project their total 2001 shipments should reach 15-16 million units, up 30-40% year-on-year, but expect profit margins to fall below 10%. Taiwan's Institute for Information Industry is less optimistic than the notebook makers, saying 2001 annual growth of notebook computer shipments is unlikely to exceed 23%.
Electronic-commerce company PartMiner signed a 3-year agreement with Dell Computer to provide the computer maker with content technology and online procurement services for hard-to-find computer parts. Dell's venture-capital arm, Dell Ventures, agreed to make an unspecified equity investment in PartMiner.
Dell announced a major capacity expansion in Malaysia and may use factories there to build notebook PCs for American customers. The new facility will initially focus on manufacturing for Asia-Pacific markets, excluding China and Hong Kong.
According to NPD Intelect Market Tracking, U.S. sales of personal digital assistants, such as the popular Palm Pilot, more than doubled in 2000. Total PDA sales rose 16.1% to $1.031 billion in 2000, up from $436.4 million in 1999. All vendors sold 3.5 million units vs. 1.3 million in 1999. Palm had a 72% CY2000 share.
Global PDA makers are evaluating outsourcing in Taiwan. According to local press, Palm is considering outsourcing orders to Inventec.
Intel is acquiring Xircom for $748 million. Xircom supplies PC cards and other products connecting mobile computing devices to corporate networks and the Internet.
Broadband access will continue to grow, creating a total market of nearly 36 million subscribers in 2005 and surpassing dial-up access.
Residential High-Speed Households by Technology, 1999-2005 (millions)
1999 2000 2001 2002 2003 2004 2005 Cable 1.25 4.11 7.12 9.57 11.88 14.19 16.13 DSL .58 1.93 4.22 6.88 9.38 11.87 14.22 Wireless .01 .06 .19 .95 1.96 3.04 4.71 Other 0 .01 .1 .15 .3 .5 .8
Source: The Strategis Group, Inc.
IBM will close its hard disk manufacturing plant in Ireland and shift production to Germany and the U.S. IBM will not reduce jobs in Dublin and is seeking to recruit a further 500 people to develop and builds computer chips for mobile phones and other handheld devices.
Communications
Slackening demand and maturing markets are key causes of below-forecast cell phone sales from Nokia, the world's largest maker of mobile phones. Nokia sold 128 million cell phones last year, up 64% from 1999. Nokia's initial estimates put global handset sales from all manufacturers at 405 million last year, up 45% from 1999. Nokia had a global market share of around 32%. It has forecast global handset sales of 500-550 million units in 2001, down from its earlier estimate of 550 million units.
Nokia's estimated the total global mobile phone subscriber base had climbed above 700 million users by year-end 2000, representing global penetration of 12%.
Nokia will shift mobile phone manufacturing done at Ft Worth, Texas to its facilities in Korea and Mexico. Nokia will also double the number of cell phones made by its subcontractors to 20% in 2001.
Motorola will stop making cellular phones at its Harvard, Illinois plant and lay off about 2,500 plant employees. Additional outsourcing to CEMs is planned.
Nortel Networks plans layoffs of 5,200 people, mainly in its Canadian circuit-switch operations, while hiring in other areas will keep overall employment flat this year.
Korea's exports of mobile handsets and wireless systems reached $4.54 billion in 2000, a 28.6% growth year-on-year. The figure doesn't include handsets that Nokia produced in Korea and sold overseas. Nokia exported a total of $2.875 billion of mobile phones manufactured in Korea last year.
Bluetooth products are expected to generate worldwide revenue of US$2.5 billion in 2001, according to Frost & Sullivan.
Marconi, U.K.'s biggest phone-equipment maker, will spend 150 million ringgit ($39.5 million) over two years in Malaysia, as it concentrates on high-speed telecommunications equipment.
Ericsson will outsource its cell phone manufacturing to CEMs - mainly Flextronics. Manufacturing will take place primarily in low-cost locations beginning approximately April 1, 2001. Flextronics will be responsible for:
- Industrialization and new product introduction of Ericsson-designed mobile phones
- Management of the supply chain on a global basis, including the use of Flextronics-produced PCBs and plastics;
- Manufacture of mobile phones designed by Ericsson
- Customization, pack-out and logistics management
GVC, Taiwan will also make cell phones for Ericsson.
Servers & Infrastructure
Dell'Oro Group projects the WAN Router market will grow from $3 billion in 2000 to $26 billion in 2005. Increasing traffic and bandwidth will drive demand.
Consumer Electronics
Scientific-Atlanta will boost production capacity at its Juarez, Mexico plant for digital interactive set-top boxes to 6 million per year - a six-fold increase in less than two years.
McDonald's and Compaq have developed a computer system for customers to play the latest video games in McDonald's restaurants.
Other
Ricoh is acquiring Lanier Worldwide, Inc. Ricoh is a provider of office automation solutions, with 67,300 employees worldwide and sales in excess of $14 billion in 2000.
PCB Fabrication
Aspocomp with a $32.3 million investment formed a PCB manufacturing JV with Chin-Poon. The group will invest 40 million euros in the JV, of which Aspocomp owns 51%. "Production will start 3Q'01 with expected sales of 100 million euros in the next five years,"
Thailand PCB maker KCE Electronics' total sales this year are expected to reach $95 million, 42% higher than in 2000. Key reasons include expanded production capacity, increased demand from the automobile and telecoms sectors, and new contracts.
LG Electronics will build an industrial complex in Brazil to produce PCBs for cell phones and other products.
According to Dr Hayao Nakahara, Brazil's CY2000 PCB production was $180 to $200 million. Adiboard is the largest Brazilian PWB manufacturer with capacity of about 350,000 sf per month of DSB and 500,000 sf per month of SSB. Adiboard is building a MLB facility also. Multek Brazil is the second largest with revenue about $40M annually as of July of 2000.
Taiwan's Unicap Electronics Industrial, Vertex Precision Electronics, World Wiser Electronics, Uniplus Electronics and CSUN Mfg. are all setting up production plants in China. At present China/Hong Kong is the world's fourth-largest PCB maker, behind Japan, the USA and Taiwan. If Taiwanese PCB manufacturers continue moving to China at the current rate, the mainland will soon replace Taiwan as the world's third-largest producer.
Compeq Manufacturing had December revenue of NT$2.24 billion (US$1=NT$32.6), up from NT$1.10 billion a year ago. Full-year revenue for 2000 totaled NT$20.8 billion, up 60% from NT$13.0 billion in 1999.
Sheldahl reorganized following its merger with International Flex Technologies. It will combine its Longmont, Colorado operation with the former IFT operation in Endicott, New York and will call the new business unit International Flex Technologies. It also created a second business unit, Sheldahl Materials and Flex Interconnects. Donald Friedman, in addition to being Sheldahl CEO, became acting President of IFT. William Offenberg is president of SMFI.
Per Hayao Nakahara, "Although (global PCB) bookings slowed down considerably toward the end of the year, 2000 was a good year with estimated world production of about $42 billion, growing10.5% from 1999's $38 billion. The winner was again Taiwan. Its output grew about 26% from 1999 to 2000, a triumph of capacity increases made in 1999 and 2000. China and South Korea did well also. With this growth, Asia's PCB share increased to 60% globally. With so many plants under construction, China will grow considerably in 2001 amidst a global slowdown because of China's large capacity and cheaper pricing. When digital TV "kicks in" some time in 2002 to 2003, China will become a "dynamite" for 4 and 6 layer multilayer boards. 40% of cell phone microvia boards will be made in China by 2005 (40% of 1 billion sets)."
Dennis Kozlowski, chairman and CEO of Tyco, received total compensation of more than $105 million last year, mostly in stock options. Tyco noted that Kozlowski led Tyco to a "successful" fiscal 2000 with a 42.5% jump in earnings and 48.6% increase in operating cash flow.
DDi named Ed Johnson president of Value Added Operations. DDi's wholly-owned subsidiary, Zlin Electronics, is doubling its manufacturing facility to 60,000 sf in Tewkesbury, Gloucestershire, England. Zlin manufactures prototype HDI PCBs. DDi is investing $10.3 million, 50% of which is designated for new equipment. The company estimates that this expansion will create 50 new jobs.
Innovex is ceasing manufacturing operations in Chandler, AZ (former AdFlex facility) and moving all prototyping and production activities to its factories in Maple Plain and Litchfield, MN. The transition will eliminate 260 positions in Chandler. Approximately 60 employees will remain in Chandler supporting customer fulfillment and supply chain management activities. The company will be adding 120 new employees in Minnesota to support the prototyping and production activities transferred from Chandler. Innovex currently employs approximately 4,750 people worldwide, including 320 in Chandler, 300 in Litchfield, 130 in Maple Plain and 4,000 in Thailand.
Materials & Services
Kyocera is acquiring PCB drill bit maker Tycom. Tycom has the largest share of the North American market and the second largest share globally.
Mentor Graphics acquired the PCB CAD software division (ECAD division) of CADIX, a Japanese company.
The global electroplating business of McGean was acquired by Atotech USA (the electroplating chemicals operation of Atofina). Atotech reported global sales of more than EUR 600 million in 2000.
Furukawa Electric will invest 12 billion yen to boost production of electrolytic copper sheets in Japan and Taiwan. It will spend 8.8 billion yen in Taiwan to build a second plant at its JV with Nichimen and a local firm, to double the venture's monthly output to 1,300 tons by mid-2002.
Assembly
NEC, as part of a broader restructuring, will sell at least eight overseas factories over the next two years. Target buyers are CEMs. The NEC plants under consideration for sale are in Australia, Mexico, Portugal, Vietnam, Thailand and the Philippines. NEC wants to consign manufacturing of low-profit and commodity products to other makers while it concentrates on high-valued products, such as semiconductors and next-generation cellular-phone technology.
Marconi and Jabil agreed on the divestiture of certain Marconi Communications manufacturing operations in the United States, UK, Italy and Germany to Jabil. Jabil will purchase five operations of Marconi Communications and enter a 3-year product supply agreement to manufacture existing and new products. The agreement will yield Jabil revenue exceeding $4 billion over three years.
SCI Systems completed a multi-year, multi-billion dollar outsourcing agreement with Ericsson, whereby SCI will assume production of Ericsson radio base stations in Lynchburg, Virginia.
SCI Systems acquired Nortel Networks' Physical Design Implementation Rapid Systems Laboratory. SCI and Nortel Networks entered a multi-year, multi-million dollar supply agreement to provide early prototyping services.
SCI Systems and Hitachi Media Electronics entered into a multi-million dollar agreement for SCI to manufacture optical devices for Hitachi at SCI's Kunshan, China plant.
Intel will phase out all operations at its computer systems manufacturing plant in Puerto Rico by mid-2001. The plant has about 1,360 workers and produces motherboards for desktop PCs and network interface cards.
APW, a provider of integrated electronic enclosure systems, acquired the metal, plastics and tooling manufacturing assets of Lucent Technologies' Global Provisioning Center located in Bydgoszcz, Poland. As part of the agreement, APW will supply electronic enclosure cabinets, power distribution frames, and injection molded plastic components to Lucent locations globally.
SCI Systems formed a strategic partnership with the Sohwa of Japan to jointly provide design engineering and electronic manufacturing services to customers in Japan.
Flextronics International will spend $1.1 million to expand the airport at Nyiregyhaz, in northeastern Hungary, to allow larger cargo planes to land. Flextronics will manufacture Microsoft's Xbox video-game console at its plant in Hungary, where it makes mobile phone parts for Motorola. Foreign companies have invested more than $22 billion in the East European country since 1989 and have been one of the main drivers of economic growth during the last 10 years.
Lucent Technologies will sell two manufacturing operations in Oklahoma City and Columbus, Ohio within the next six months. They are seeking an EMS purchaser. The plants have a combined workforce of 8,400. Lucent plans to funnel between $8-10 billion in business through EMS channels, increasing the level of products made by outside contractors from 10% in 2000 to at least 45% by the end of next year. The move is expected to save the company $2 billion annually in manufacturing costs.
APW will acquire Mayville Metal Products for $225 million cash plus 1.509 million shares of APW common stock. Mayville is a leader in the design, manufacture and integration of large outdoor enclosures for the telecom industry.
Onex will buy BAE Systems Canada (formerly Canadian Marconi) for US$399 million. BAE Systems develops avionic equipment such as aircraft satellite antennas, military radios, space electronics, infrared cameras, and marine electronics.
Solectron acquired Sony's facility in Kaohsiung, Taiwan. In October 2000, Sony and Solectron announced a cooperation agreement that included Solectron's acquisition of Sony Nakaniida in Miyagi, Japan, and Sony Industries Taiwan in Kaohsiung. Solectron will provide Sony with a full range of EMS services.
Sanmina will acquire Sweden's AB Segerstrom & Svensson, a global supplier of integrated enclosure systems to the communications sector for approximately US$511 million).
Semiconductors
The North America-based manufacturers of semiconductor equipment posted $2.5 billion in orders in December 2000 and a book-to-bill ratio of 1.03, according SEMI.
Shipments and bookings figures are in millions of U.S. dollars.
Shipments Bookings Book-to-Bill July 200 2,373.0 2,901.5 1.22 August 200 2,431.0 2,984.1 1.23 September 2000 2,475.9 2,887.6 1.17 October 2000 2,573.8 2,993.0 1.16 November 2000 (rev) 2,438.7 2,723.5 1.12 December 2000 (prelim) 2,380.0 2,461.5 1.03
Spot DRAM prices have been falling, with this trend likely to continue in 1Q'01. The PC market is at the bottom of the seasonal transition period, and a major increase in demand isn't foreseen. A recovery of DRAM prices is expected only after 2Q'01.
China surpassed Taiwan as the top market for semiconductors in Asia-Pacific (excluding Japan) for 2000. "China's [semiconductor] market grew 35% last year said Ben Lee of Dataquest. China's growth was driven by consumer electronics like microwave ovens and television sets. Personal computers and communications equipment were also key markets.
Mitsubishi Electric will build a 200 billion yen ($1.7 billion) semiconductor plant in Kochi prefecture to manufacture advanced DRAMs and LSI chips for electronics devices such as mobile phones.
Taiwan Semiconductor Manufacturing Chairman Morris Chang said his company wouldn't invest in China for at least another three years because of corruption on the mainland and U.S. regulations that limit technology transfers to China.
Amkor Technology will open its first semiconductor assembly and test manufacturing facility in China. Amkor's new facility will provide packaged IC components for the Chinese cell phone, PC and laptop markets. The China factory, which will deliver its first products in 3Q'01, is located in the Waigaogiao Free Trade Zone, Pudong, Shanghai.
Taiwan chipset designer VIA Technologies expects to capture more than 50% of global chipset market share in 2001, up from about 40% in 2000. In 2000, VIA sold 46-47 million chipsets. Its sales of CPUs will also rise to a 7-10% global market share in 2001, up from 5% in 2000, VIA reported.
Materials
DuPont and Air Products and Chemicals formed a 50/50 JV (DuPont Air Products NanoMaterials) to develop, manufacture, and market colloidal silica-based slurries for electronic precision polishing or planarization applications such as silicon wafer polishing and chemical mechanical planarization processes used in the manufacture of semiconductors. The JV will serve a $500 million annual market growing at 25% per year.
DuPont iTechnologies and Shipley signed a joint development agreement to produce fully formulated 157 nanometer photoresists and anti-reflective coatings for future generations of semiconductor chips. As part of the agreement, Shipley becomes the first licensee of DuPont proprietary fluoropolymer binder resin technology.
Other
Lucent Technologies formed a new venture, InPhase Technologies, which is developing holographic data storage media and systems.
IPC Printed Circuits Expo 2001
See you in Anaheim, CA April 3-5, 2001. Visit Custer Consulting Group's booth #656. Also listen to my annual "Industry Outlook" presentation at the free IPC Expo forum "Industry Market Trends and Statistics" held from 9:30 am to 11:00 am on Thursday, April 5th.
Track Our Industry on a Daily Basis
To follow our fast-changing market on a daily basis, take a look at my daily news service and Business Outlook products. Look under Custer Consulting Products on my website. E-mail me for a free 30-day 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.