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Bad News, Ray of Hope, More Bad News, A Few Positive Signs (June 2001)
June 1, 2001 |Estimated reading time: 11 minutes
Bad News, Ray of Hope, More Bad News, A Few Positive Signs by Walt Custer June 1st, 2001
I find myself vacillating on a daily basis when it comes to predicting future business conditions. One day I uncover some positive news and then reality sets in again - more layoffs, plant closings, order declines, etc.
As I stated earlier this year, I expect this current second quarter to represent the worst of this downturn. How deep and prolonged this downturn will really be depends upon whether it's a pure "inventory correction" or the precursor to a global recession. I believe we will see an imminent (but throttled) recovery. Clearly, 2000 was an inflated year and we can't expect to return to its 20-30% growth levels. But when can we hope to resume 5-12% growth again?
Per Chart 1 the March North American rigid PCB book/bill ratio dropped to 0.67 on a 3-month average and 0.63 on a 1-month basis. I believe this B/B has bottomed and we will now see ongoing but modest recovery. Unfortunately the main reason for the B/B improvement is that the denominator (billings) is now declining. Mathematically if shipments (billings) decline faster than orders the book/bill will increase!
How much of this sharp PCB decline is due to declining electronic equipment orders. Some . . . but not all. Chart 2 shows the 12-month rolling average orders for the four key electronic equipment sectors. Notice that computer & office, measurement & control and search & navigation orders have flattened and communications equipment has declined. Because Chart 2 depicts a 12-month rolling average it does not highlight short-term changes.
Chart 3 shows the combined 12-month average for the above four equipment categories. It also shows the monthly total. This chart highlights the short-term equipment order drop. After a "blip" in June 2000 electronic equipment orders peaked in October. In March 2001 they were down 8.5% from their October 2000 peak. By comparison March rigid PCB orders were down 65% from their July 2000 peak. Obviously PCBs have "overreacted. Electronic equipment orders have slowed but at nowhere near the rate of PCBs. Excess inventories built at the peak of 2000 is the culprit!
This type of "order imbalance" problem is not new. Chart 4 shows the 12-month growth rate for total electronic equipment versus PCBs for 1982 to the present. Notice how often the PCB order growth has "overreacted" to the equipment business cycle. As an industry we do a very poor job of managing our orders and inventory.
Now for a few bright signs. The April Purchasing Managers Index (Chart 5) appears to have bottomed. Unfortunately values below 50 indicate a decline but the downward trend is now moderating.
THE SIA released their March semiconductor shipments noting a large decline. However the SIA reports 3-month average data. If the monthly data is extracted (Chart 6) we see that North American chip shipments bottomed in January and improved in February and March. In fact March 2001 was UP 28% versus March 2000! Since this data fluctuates widely on a monthly basis it is too early to claim the March increase represents an "upward trend" but the SIA data is worth watching.
Chart 7 & Chart 8 summarize the performance of PCB versus equipment orders. PCBs are down much more than equipment. Therefore, assuming that we don't drop into a global recession, I believe that we will see a noticeable PCB order recovery in the second half of this year. Process consumable vendors to the PCB industry should see a similar recovery. Unfortunately vendors of PCB capital equipment will probably have to wait until 2002.
I realize that these are very painful times. But I do see better business conditions ahead. Don't expect another inflated boom like in 2000 but a 5-12% industry expansion is a reasonable expectation for next year.
General Business Conditions
"E-learning will be the killer application over the next two to three years, with over half of IT training being done remotely," said Sean Maloney, Executive VP of Intel.
Electronic Equipment Computers
Because of a maturing PC market and a downturn in the economy, the U.S. personal computer industry declined 3.5%, according to Dataquest. The weaker-than-expected growth in the U.S. market affected the worldwide PC market, which had shipments of 32.5 million units in the first quarter of 2001, an increase of 3.5% over the same period last year.
Preliminary PC Vendor Unit Shipment Estimates for 1Q01 (Thousands of Units) 1Q'01 Market 1Q'00 Market Company Shipments Share % Shipments Share % Growth % World Dell 4,160 12.8 3,087 9.9 34.3 Compaq 3,943 12.1 3,931 12.5 0.3 Hewlett-Packard 2,381 7.3 2,467 7.9 -3.5 IBM 2,000 6.2 1,869 6.0 7.0 NEC 1,455 4.5 1,463 4.7 -0.5 Others 18,580 57.1 18,582 59.2 0.0 Total Market 35,520 100.0 31,410 100.0 3.5 USA Dell 2,525 23.0 1,932 17.0 30.7 Compaq 1,530 13.9 1,863 16.4 -17.9 Hewlett-Packard 1,075 9.8 1,427 12.6 -24.7 IBM 935 8.5 1,029 9.1 -9.1 NEC 570 5.2 479 4.2 19.1 Others 4,334 39.5 4,639 40.8 -6.6 Total Market 35,520 100.0 11.369 100.0 3.5 Note: Data includes desk-based PCs, mobile PCs and PC servers. Source: Gartner Dataquest (April 2001)
Japan's domestic PC shipments are expected to grow 13% in the business year beginning April 1, a significant slowdown from the previous year's 20% gain. Feeble consumer sentiment and corporate investment are limiting PC sales.
Mobile Communications
Matsushita will raise its global mobile phone production capacity to 55 million units/year, up from 30 million units/year currently. It will open a new plant in the Czech Republic by December 2001.
Nokia plans to outsource 20% of its handset manufacturing by 3Q'01.
Ericsson and Sony created a new company Sony Ericsson Mobile Communications to develop and market cell phones.
Servers & Infrastructure
The optical transport market is forecasted to be $57.3 billion in 2005, up from $23.5 billion in 2000, according to a Dell'Oro Group.
The photonic switches and switch matrices market is forecasted to be $16.1 billion by 2010, up from $308 million in 2000, according to ElectroniCast. The growth will be helped by fiberoptic transport and access networks. In 2000, consumption of photonic switches and switch matrices was highest in N America, with $250 million, or 81% of the global market.
Intel is acquiring three privately held companies that make components for optical networking equipment - Cognet and nSerial, which develop high-speed electronic components and high-speed optical transponder maker LightLogic.
Consumer Electronics
Sony is selling a version of its PlayStation 2 video game console in Japan featuring slot for a hard disk drive.
Worldwide digital set-top box sales are expected to grow from 26 million units in 2000 to at least 36 million this year, before reaching 94 million units by 2005. This is according to Allied Business Intelligence.
Samsung SDI said production at its $700 million Hungarian plant would start in 2004. The plant at God, north of Budapest, will make glass tubes used in televisions and will employ as many as 800 workers. The plant will manufacture about 1 million tubes annually, with 90 percent exported to Western Europe.
Other
Gartner Dataquest said the worldwide semiconductor packaging/assembly equipment market grew 81% in 2000.
Top 10 Worldwide Semiconductor Packaging/Assembly Vendors by Revenue (Millions of U.S. Dollars) 1999 Rank 2000 Rank Company 1999 Revenue 2000 Revenue Market % 2000/1999 Growth % 1 1 Kulicke & Soffa 315 610 13.2 93.5 2 2 Tokyo Seimitsu 236 450 9.7 90.7 3 3 ASM Pacific 228 426 9.2 86.6 4 4 ESEC 217 357 7.7 64.4 5 5 Shinkawa 179 357 7.7 99.9 8 6 Tokyo Electron 135 264 5.7 95.3 7 7 TOWA 152 256 5.5 68.7 9 8 Disco 115 220 4.7 90.5 6 9 Dai-Ichi Seiko 160 210 4.5 31.3 11 10 Electroglas 95 191 4.1 102.4 Others 722 1,287 27.8 78.3 Total Market 2,554 4,627 100.0 81.1 Source: Gartner Dataquest (April 2001)
Sales of car navigation systems are growing rapidly. Global shipments last year rose 42.6% to 2.7 million units, according to Nikkei Market Access. This year they are expected to grow 30.7% to 3.53 million units.
PCB Fabrication
Nan Ya Printed Circuit Board will set up the "world's largest" PCB plant in Kunshan, Jiangsu Province, mainland China. It will cost about US$220 million during the initial period. Nan Ya expects the new plant will reach the world's largest production capacity within five years
DDi formed a joint venture with Zuken, a global supplier of advanced electronic design automation based in Yokohama, Japan. "Zuken brings a complementary technology, strong research, development and engineering and a significant sales presence in Japan to DDi's core competencies in complex design and rapid delivery," said DDi's CEO, Bruce McMaster. "In addition, Zuken's blue chip customer base consists of many companies that need the products we produce. As we integrate our high density direct imaging and microvia technology into Zuken's HDI solution, our customers and Zuken's volume partners will benefit from streamlined design consulting and verification, and advanced PCB layout, prototyping and assembly solutions, for enhanced product and service offerings and significantly improved time to market performance."
AT&S, Austria is starting construction of its new factory in Shanghai. The total investments will be 7.8 million Euros.
Viasystems is permanently closing its Richmond, Virginia, PCB facility and also shutting down its plant in San German, Puerto Rico for at least 8 weeks.
Park Electrochemical sold its Arizona-based Nelco Technology mass lamination business to Dynamic Details (DDi). NTI had net sales of approximately $39 million of mass lamination product.
Circuits Plus (Asiatic), a wholly-owned subsidiary of Singapore's Circuits Plus Holdings, set up a JV with China's Wei Fang Ju Li Mechanical Plant and local firm Federal Capital Holdings (both investment holding companies). The new company, called Shan Dong Ju Li Circuits Plus Technologies, will manufacture PCBs in Wei Fang, Shandong province.
World Wiser Electronics, Taiwan will merge with three other PCB makers - Unicap Electronics Industrial and two unlisted companies, Bestmult Industry and UniMicron Technology. Sales of these four PCB companies totaled T$20 billion (US$606 million) in 2000.
Materials
Park Electrochemicals integrated its Metclad SA business of Lannemezan, France into its Neltec, Tempe, Arizona operations and plans to expand its RF/microwave materials business into North America.
Rogers Corporation is acquiring Taconic's Advanced Dielectric (high-frequency PCB laminate) business. Rogers will acquire the manufacturing facilities and offices located in Petersburgh, NY, and Mullingar, Ireland.
Matsushita Electric Works spent 5.5 billion yen to boost its global laminate capacity. It allocated 3.0 billion yen to build a new factory in Fukushima prefecture, northern Japan, which came on stream April 16. The Koriyama Nishi plant produces MLB laminates at a rate of 100,000 square meters a month at its peak, which will boost the overall domestic capacity to 750,000 sqm from the present 650,000 sqm a month. Matsushita also spent 500 million yen to upgrade the capacity of an Austrian plant operated by Multicon Electronics, which it acquired last year to 25,000 sqm a month from 15,000 sqm at present. In addition, it allocated 2 billion yen to triple the capacity of an Italian plant, operated by Multicon, to 210,000 sqm a month. Matsushita Electric Works said that with the planned upgrades, it hopes to increase its global market share to 23% in 2003 from 19% at the end of 2000.
PCB Assembly
Manufacturing Market Insider (www.mfgmkt.com) reported that the world's top 50 EMS companies combined for $79.8 billion in sales in 2000 up 68% from 1999. It estimated the total EMS market in 2000 was $112 to $115 billion. MMI's top-ten EMS providers were Solectron, Flextronics, Celestica, SCI Systems, Sanmina, Jabil Circuit, Elcoteq Network, Manufacturers' Services Ltd., Benchmark Electronics and C-MAC Industries.
Solectron acquired Centennial Technologies. This acquisition is another step in enabling Solectron to strengthen its Technology Solutions Business Unit, which includes SMART Modular Technologies, Inc. and Force Computers. Solectron gained Centennial's design, manufacturing and marketing capabilities, which include memory module and memory card solutions based on SRAM and flash technologies.
EFTC signed a merger agreement with K*TEC Electronics Corp. that will result in a business combination of these two electronic manufacturing services companies.
Flextronics, which has taken over production of Ericsson's mobile phones, is likely to win further orders if Ericsson's joint venture with Sony goes ahead.
Flextronics is moving some of its production facilities from Singapore to Malaysia and China. Flextronics, which acquired Singapore-based JIT Holdings Ltd. and Li Xin Industries Ltd. in 2000, has four production plants in Singapore. Most of the production facilities that will shift out of Singapore involve those in the plastics industries.
Six months after it invested HUF 600m in the construction of a plant in Zalalovo (SW Hungary), Flextronics plans to shut it down. Flextronics manufactured components for household appliances in the 4000 sqm plant, but orders began to fall back dramatically. As a result, the plant will be closed and Flextronics ' remaining production will be moved to its factory in nearby Zalaegerszeg.
Alcatel will outsource its production of mobile phone handsets in Europe to Flextronics. Alcatel will transfer its Laval production site and its 830 employees to Flextronics, which will acquire the plant's assets. Alcatel said that the partnership doesn't affect its mobile handset manufacturing plants in China.
Jabil Circuit opened its first East European factory in the industrial park of Tiszaujvaros, 160 km east of Budapest. Jabil will invest USD 80 million in the Tiszaujvaros factory, which employs 400 people and has so far cost USD 35 million.
Flairis Technology America and Olivetti Tecnost de Mexico SA de CV have set up a joint venture PCB assembly plant in Mexico.
Marconi will outsource most of its communications networks manufacturing to Jabil Circuits and transfer up to 2,900 employees to Jabil.
Sheldahl will shut down its Britton, S.Dakota assembly facility by the end of 2001. The Britton facility, which currently employs approximately 55 workers, specializes in electronic assemblies for the automotive and computing industries.
Semiconductors
The SIA reported that worldwide sales of semiconductors were $14.40 billion in March 2001, down 4.5% from $15.07 billion a year ago, and down 7.0% from $15.48 billion reported last month. "Since last November, we have witnessed worldwide semiconductor sales continually decline due to an inventory overhang and macroeconomic factors," stated SIA president, George Scalise. "We continue to believe that the industry will complete the inventory correction in the third quarter and the recovery will commence in the fourth quarter."
Global sales by companies that supply manufacturing technology and materials to chip makers reached US$48.4 billion in 2000, growing 90% over the previous year and totaling more than the previous two years combined, SEMI reported.
A consortium of 11 Japanese chipmakers and one South Korean firm formed "Asuka" - a five-year, $675 million research project to develop new materials and basic technology needed to make chips with 70 nanometer design rules. The project's 12 participants are Fujitsu, Hitachi, Matsushita Electric Industrial, Mitsubishi Electric, NEC, Oki Electric Industrial, Rohm, Samsung Electronics, Sanyo Electric, Sharp, Sony and Toshiba.
Hynix Semiconductor (formerly Hyundai Electronics Industries) is spinning off its cellular phone handset and its ADSL chip operations into two new companies.
Philips Semiconductors plans to invest US$1 billion in the Suzhou Industrial Park to build an IC plant.
Taiwan's UMC set up a Singapore company, UMCi Pte Ltd, to operate a 300-mm wafer fab. UMC says the Singapore operations will cost $3.6 billion.
Coming Events
See you at the EIPC Summer Conference 2001 June 18-19, 2001 in Copenhagen, Denmark. I will speak on the Business Outlook for the Global Electronics Industry.
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.