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Bleak Now but a Glimmer of Hope on the Horizon (April 2001)
April 1, 2001 |Estimated reading time: 12 minutes
Bleak Now but a Glimmer of Hope on the Horizon by Walt Custer April 1st, 2001
My news service subscribers have been making snide remarks - saying that they are tired of all the negative press. Virtually every company in the "electronic food chain" has issued a "guidance" cautioning of shortfalls in sales and earnings for the first (and often second) quarters of 2001.
The short-term outlook looks bleak both for the economy and the electronics industry. The February Purchasing Managers Index (PMI) and the corresponding Electronic Buyers News Index (EBI) charted new low ground in January and February as orders plummeted (Chart 1). Fortunately the EBI-L leading indicator held close to 50 indicating better times ahead. "These results have to be interpreted as a very deep, but probably short, inventory correction," wrote Jim Haughey, an economist and EBN's research director. "Deep because of the depth of the decline in the EBI, and short because the leading indicator remains at a neutral level."
Consistent with the EBI drop, the North America rigid PCB book/bill index dropped to 0.86 on a 3-month and 0.79 on a 1-month basis for January (Chart 2). Orders dropped sharply with only some quick turn and niche PCB producers avoiding major shortfalls. Volume producers tied to the communications and Internet infrastructure end markets were hit especially hard.
Globally the growth of semiconductor shipments dropped (Chart 3). Although January 2001 was still 13.7% above January 2000, it was 5.7% below December 2000. Monthly shipments are extremely volatile. Per Chart 4 January North American shipments were down 40% versus December! With chip sales dwindling the chip makers have cut capital spending on new plant capacity (Chart 5) as the semi equipment book/bill dropped to 0.81. Semiconductor equipment suppliers, which as a group grew 85% in 2000, must now prepare for a strong downturn.
NOW FOR THE GOOD NEWS: I concur that what we are experiencing is a very sharp but probably short lived downturn caused by the entire supply chain shedding inventories. Orders at the PCB producer level have been shut off but electronic equipment orders (in spite of all the negative guidance) are still holding. Per Chart 6 notice how PCB order growth was already "overcorrected" by January. Electronic equipment orders grew at a +10.8% rate versus -8% for PCBs.
Chart 7 & Chart 8 show actual orders (monthly and 12-month average) for both communications and the total equipment. Notice the January turnaround. We must be cautious as one month of data does not create a trend but these results are encouraging.
Assuming this downturn is indeed a severe inventory correction and that baseline equipment demand holds, we should see a recovery when the excess inventory is "flushed." Once the supply chain has reduced inventories to a minimum any hint of a demand increase could trigger a rather sharp rebound (as stocks are partially replaced).
My "PCB market" crystal ball is pretty hazy but it sees extreme softness in the first half of 2001 followed by modest but sustained growth in the second half. I hope its right but we need a few more months of data to confirm things.
Tracking Europe - For years I have recommended Kirk-Miller's Fabfile as an excellent database of North American PCB makers. Now a European group is developing Eurofile - an Excel spreadsheet that will contain similar content to Fabfile. More next month.
General Business Conditions
In early February Flextronics stated that the business environment was "pretty crummy," with large numbers of its clients trimming orders, and some cutting those orders "back to zero." But CEO Michael Marks went on to say that the company has typically seen its strongest periods of growth following recessions, and believed that it was set for a major upsurge next year. "When companies call us up and say they want to spend less, they are also asking what they can do to outsource more of their costs," said Marks. "They come along and say they have to restructure away from fixed costs to variable costs."
NEC plans to start buying all parts and materials online to help cut costs. NEC, which buys as many as 1.2 million individual parts worth about 2.5 trillion yen ($21 billion) a year, will use the online system as a marketplace connecting 25 domestic subsidiaries and 10 overseas parts and materials purchasing units with 6,500 suppliers throughout the world.
Electronic Equipment Computers
Nippon Telegraph and Telephone and NEC have agreed to jointly develop the basic structure for a quantum computer. Quantum computers are expected to take just one second to perform a calculation that would take supercomputers a year to complete, and many countries plan to use them from 2010.
Disk storage worldwide revenues will increase at a compound annual growth rate of 12%, to $53.3 billion in 2004 from $28.4 billion in 1999 per IDC.
Worldwide server shipments were 3.9 million units in 2000, an increase of 14% over 1999 per Dataquest. In $ it was $53.7 billion up 11% over 1999.
Preliminary Worldwide Server Vendor Unit Shipment Estimates for 2000 (Thousand Units) Company 2000 Shipments 2000 Market Share % 1999 Shipments 1999 Market Share % Growth % Compaq 1,066 27.1 962 28.0 10.7 IBM 658 16.7 594 17.3 10.8 Dell 573 14.6 403 11.7 42.2 HP 440 11.2 423 12.3 4.2 Sun 287 7.3 178 5.2 61.2 Others 906 23.2 875 24.9 3.6 Total Market 3,930 100.0 3,435 100.0 14.4 Source: Gartner Dataquest 2/01
Worldwide Server Vendor Revenue Estimates for 2000 (Billions of Dollar) Company 2000 Revenue 2000 Market Share % 1999 Revenue 1999 Market Share % Growth % IBM 13,736 25.5 13,728 28.3 0.1 Sun 9,711 18.1 6,793 14.0 43.0 Compaq 8,599 16.0 6,767 14.0 27.1 HP 7,157 13.3 6,975 14.4 2.6 Dell 3,436 6.4 1,988 4.1 72.9 Others 11,122 20.7 12,198 25.2 -8.8 Total Market 53,761 100.0 48,448 100.0 11.0 Source: Gartner Dataquest 2/01
The Asia/Pacific personal computer market experienced robust growth in 2000 with unit shipments reaching 17.3 million units, a 30%increase over 1999 shipments.
Asia/Pacific PC Vendor Unit Shipment Estimates for 2000 (Thousand Units) Company 2000 Shipments 2000 Market Share % 1999 Shipments 1999 Market Share % Growth % Legend 1,822 10.5 966 7.2 88.6 Samsung Elec 1,464 6.4 784 5.9 86.8 IBM 1,397 8.0 1,092 8.2 27.9 Compaq 1,171 6.7 966 7.2 21.2 TriGem 880 5.1 440 3.3 100.1 Others 10,607 61.1 9,131 68,2 17.1 Total Market 17,607 100.0 13,378 100.0 29.6
Source: Gartner Dataquest 2/01
Notes: Table includes desk-based PCs and notebooks. China, first in the region, grew 33% with shipments of 6.6 million units. Korea followed China with 76% growth and 3.6 million units.
Mobile Communications
Worldwide mobile phone sales totaled 412.7 million units in 2000, a 45.5% increase over 1999 results, according to Dataquest.
Worldwide Mobile Phone Sales Estimates for 2000 (Thousands of Units) Company 2000 Shipments 2000 Market Share % 1999 Shipments 1999 Market Share % Growth % Nokia 126,369 30.6 76,335 26.9 65.5 Motorola 60,094 14.6 47,818 16.9 25.7 Ericsson 41,467 10.0 29,785 10.5 39.2 Siemens 26,989 6.5 17,687 6.2 52.6 Panasonic 21,511 5.2 15,581 5.5 38.1 Samsung 20,639 5.0 12,982 4.6 59.0 Others 115,662 28.0 83,393 29.4 38.7 Total Market 412,731 100.0 283,581 100.0 45.5 Source: Gartner Dataquest 2/01
China's cellular phone users doubled last year to 85 million and will reach 240 million in five years. Wu Jichuan, Minister of Posts and Telecommunications stated that in 2005 China would be the biggest mobile phone and Internet market in the world, surpassing the USA. 42% of China's telecommunications income last year came from users of mobile phones.
Alcatel Microelectronics has put a Bluetooth transceiver complete with antenna into one chip package. It has integrated the resistors and capacitors required for the bandpass filter alongside an antenna made up of copper wiring. The components are placed into the layers of FR4 circuit board used as the top of a ball grid array package.
Microsoft will begin consumer tests of a "smart phone" this summer.
Telecom
Communications-equipment manufacturer Harris cut its FY2001 earnings forecast, citing reduced network spending and increased financing problems for CLEC (competitive local exchange carriers).
Top Eight Worldwide Telecommunications Equipment Manufacturers' Estimates for 2000 (Billions of Dollars) Company 2000 Revenue 1999 Revenue Growth % Based on Revenue Local Currency Revenue Growth % Nortel 29.8 21.0 41.6 41.6 Ericsson 27.7 24.0 15.4 28.1 Nokia 27.2 20.1 35.4 57.0 Lucent 25.8 33.8 -23.5 -23.5 Cisco 23.9 15.0 59.3 59.3 Siemens 22.8 20.0 14.5 32.5 Motorola 22.8 19.7 15.3 15.3 Alcatel 21.6 17.1 26.6 46.8 Top 8 Total 201.7 170.7 18.2 - Source: Gartner Dataquest (March 2001) Servers & Infrastructure
The high-speed router hardware market grew 23% in the last three months of 4Q'00 vs. 3Q'00 with Cisco Systems maintaining its wide lead, Dell'Oro Group said. Cisco sold 65% of routers in a total market of $836 million in 4Q'01. Juniper Networks was second with 34%.
Consumer Electronics
MRG forecast that global sales of digital Set top Boxes should exceed $11.5 billion in 2004, driving the installed global base to over 140 million. Growth of related digital services should exceed $11 billion annually, resulting in aggregated new revenues of over $54 billion by 2004. Most service revenues will come from advanced versions of
Electronic Program Guides, Personal Video Recorders, Video-on-Demand, Interactive TV and Pay per View TV.
Marconi Online Systems announced a pilot project in Europe for "Dial-a-Coke" which allows consumers to pay for their beverages from vending machines using their cellular phones.
Automotive
Delphi Automotive Systems is committing $1 billion to diversify - finding customers in the cellular phone, medical, computer and other industries for the electronic components it now sells chiefly to auto manufacturers.
Semiconductor Manufacturing Equipment
2000 was a great year for manufacturers of chip making equipment.
Top 10 semiconductor equipment suppliers grew 85.6% in 2000 2000 Rank 1999 Rank Supplier 2000 Revenues ($M) % Change from 1999 1 1 Applied Materials 10,460 89 2 2 Tokyo Electron 5,142 89 3 3 Nikon 2,432 70 4 5 Teradyne 2,044 69 5 4 ASM Lithography 2,016 58 6 6 KLA-Tencor 2,003 91 7 7 Advantest 1,865 95 8 8 Lam Research 1,627 82 9 10 Canon 1,418 90 10 11 Dainippon Screen 1,390 115 Source: VLSI Research Inc. PCB Fabrication
The Interconnection Technology Research Institute (ITRI) appointed Jerry Siegmund as CEO. Congratulations Jerry!
DDi Corp. acquired PCB maker Thomas Walter Limited, of Marlow, England. Thomas Walter provides complex, quick-turn rigid and rigid-flex PCBs.
Viasystems Group is investing $30 million to upgrade its Richmond, Va., PCB plant, after announcing it will move less-complex PCB manufacturing to China. Viasystems said production of lower-layer-count boards would be transferred to company operations in Beijing, Guandong, Hong Kong, TongZhou, and Xiaolenzhen.
Kenneth Pastewka joined Viasystems Group as VP, global supply management and is responsible for all aspects of supply chain integration and optimization of the company's materials throughout each of the Viasystems' locations.
Dr Hayao Nakahara commented, "Cell phone PCB business is down 30% on average in Japan, Korea and Taiwan. Sales of RCC are also down accordingly by 30%. The only company in Japan, which is still at full capacity, is Sony's captive shop, thanks to Playstation 2 boards.
Merix promoted Douglas W. Trobough to Chief Technology Officer. Congratulations Doug!
AT&S, Austria entered into a three-year cooperation agreement with Canadian Research In Motion or RIM. AT&S will become the major supplier of HDI microvia printed circuit boards for RIM's newly developed "BlackBerry" wireless, handheld personal computer.
AT&S will expand HDI production both in Austria and China. Production of HDI boards used in mobile phones will be expanded at one of its three Austrian plants through an investment of 18 million euros, said CEO Doerflinger. "Once the expansion is complete in the autumn we will manufacture 170,000 HDI-microvia circuits every week, with our entire production capacity for the next three years already sold out." AT&S is proceeding with a Chinese PCB plant. Work on the new Shanghai-area facility will commence before summer, with production to start in early 2002. "Fifty percent of all mobiles use HDI microvia circuitry and by 2002, 80% of our output will be HDI-microvia boards," Doerflinger said. "AT&S has a 40% market share for circuit boards used in mobiles in Europe and a 10% share worldwide". Doerflinger also said that the search for a suitable takeover target in the U.S. would continue, although no possible candidates had yet been identified.
Sanmina announced its investment in a dedicated HDI 100,000 sf factory and manufacturing research center in Costa Mesa, California.
Park Electrochemical ended talks for the sale of its Nelco Technology mass lamination business to Flextronics' Multek.
Transformer and electronic controller manufacturer, PNE Industries of Singapore, acquired about 43% of Malaysian PNE PCB for S$52 million (US$1=S$1.74) from Print N Etch Pte.
Compeq Manufacturing's January sales rose to T$1.422 billion, up 8.9% from T$1.306 billion in January last year. Compeq will invest US$10 million in central or northern China for the design, manufacture and marketing of PCBs and will invest an additional US$17 million in its Huizhou PCB unit and US$5.4 million in NPL Taiwan (Guangzhou) Co.
In May 2001 a new production facility for flexible printed circuits is due to be brought on stream in Thailand by Tohoku Fujikura. Thailand's overall flex capacity will be increased by 40% when the unit is completed.
3M acquired Robinson Nugent, an Indiana-based manufacturer of electronic interconnect products.
Tyco Electronics Printed Circuit Group expanded its Hayward, CA backplane assembly and system integration facility with an 117,000sf addition. This brings the total square footage at the facility to 200,000.
Aspocomp, Finland raised its stake in Thai PWB firm P.C.B. Center (Thailand) Co., Ltd to 51% for some 4.2 million euros ($3.86 million).
Materials
Taconic will sell its Advanced Dielectric business to Rogers Corp. Rogers will acquire offices and plants in Petersburgh and in Mullingar, Ireland.
PCB Assembly
Flextronics International expects to spend between $200 million and $800 million to acquire inventory, equipment and other assets from LM Ericsson Telephone. Ericsson is outsourcing its mobile phone manufacturing through a strategic alliance with Flextronics.
Flextronics will likely produce next-generation UMTS mobile telephone networks at its Gdansk, Poland factories. Flextronics, which will handle mobile handset production for Ericsson, does not plan any handset production at its Polish factories, which are to focus on base stations and other network equipment.
ACT Manufacturing established a global, "straight-through" manufacturing process from circuit board manufacturing through final assembly, for Fisher-Rosemount Systems, the process management division of Emerson. As part of this agreement, Fisher-Rosemount Systems will divest its Leicester, England manufacturing business to ACT.
Boundless Manufacturing Services will provide contract manufacturing and related services to Comdial Corporation of Charlottesville, VA.
APW Ltd acquired Mayville Metal Products for $225 million in cash, 1.509 million shares of APW common stock, subject to adjustment of up to 0.755 million shares, upward or downward, depending upon Mayville's actual 2001 calendar year revenue performance, and the assumption of certain liabilities.
Avaya will outsource most of the manufacturing of its communications systems and software assets to Celestica in a transaction valued at $4 billion over a five-year term. Avaya will get $200 million for the assets it is transferring to Celestica. As part of this arrangement, Celestica will acquire Avaya's manufacturing, repair and supply chain operations in Denver, Colorado, and Little Rock, Arkansas, and certain other operating assets.
Celestica completed the acquisition of manufacturing assets in Dublin, Ireland and Mt. Pleasant, Iowa from Motorola. Celestica has also entered into a strategic EMS alliance and supply arrangement with Motorola worth more than US$1 billion over a three-year period.
Manufacturers' Services Ltd. Was chosen by Honeywell Aerospace Electronics Systems to provide manufacturing services for circuit card assemblies used in high end electronic products for commercial and private aviation.
Semiconductors
VLSI Research dropped its growth projection for the worldwide chip market to 1.2% in late February. Only last fall, the firm had forecast 11% growth in 2001, but cut that figure to 5% in January.
Worldwide semiconductor sales in January showed a very noticeable pattern of decline.Per the SIA January, 2001 sales in billions were:
Month-to-Month Sales Market December 2000 January 2001 % Change Americas 5.55 5.23 -5.8 Europe 3.73 3.62 -2.7 Japan 4.31 4.05 -5.9 Asia Pacific 4.30 3.97 -7.9 Total 17.89 16.87 -5.7
Three-Month-Moving Average Sales Market Previous 3 Months Current 3 Months $ Change Americas 5.90 5.23 -11.3 Europe 3.79 3.62 -4.5 Japan 4.35 4.05 -6.9 Asia Pacific 4.60 3.97 -13.9 Total 18.65 16.87 -9.5
The DRAM market will decline sharply this year. According to IDC, total DRAM revenue will reach $23.8 billion in 2001, a revenue decrease of 18% and severe 46% price erosion compared with 2000. "The DRAM market suffers from a combination of sluggish demand in the PC industry and a harsh inventory correction in the overall supply chain," said Soo Kyoum Kim, manager for IDC's semiconductor program. "Inventory carryover will continue to plague demand and supply conditions until the middle of the third quarter, making it difficult to maintain current pricing levels. Seasonal price recovery is expected by the end of the third quarter, but will not be strong enough to turn the n