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Downturn Continues, But More Data Exists to Track Recovery (July 2001)
July 13, 2001 |Estimated reading time: 15 minutes
Downturn Continues but More Data Exists to Track Recovery by Walt Custer July 1st, 2001
This second quarter is very bad horrible, but it should mark the bottom of this major downturn. In chaotic times when everyone wants to know “When will this downturn end?” two of our key data sets have undergone significant changes.
First, the N American PCB industry has seen some recent major factory closures. Viasystems, Multek, ACI/Honeywell, Tyco and Circuit Systems have all shut down at least one large facility. In total at least 8% of the CY2000 N American PCB capacity has been closed. These shutdowns have had a secondary impact – the IPC monthly statistical data for PCB bookings and shipments now have some historical discontinuities. The IPC will rapidly resolve these anomalies but the new book/bill, 12/12 & 3/12 data may look a bit different. Furthermore the April rigid PCB book/bill ratio
Chart 1 showed an even more extreme drop due to shutdown effects (a closing facility reporting significant shipments but no bookings).
The second major change is the U.S. Department of Commerce’s “factory orders” data – including electronic equipment and components. In May/June 2001 the DOC changed from the SIC to NAIC classification for electronic equipment and components. The "M3" historical data was revised back to 1/1982 for all categories. The resulting changes are substantial. Many of the electronic equipment/component charts now "look" significantly different. In particular seasonal/business cycle fluctuations are much more noticeable and communications equipment approached computers in market size for the recent years. A bonus to this DOC changeover is that semiconductor orders and shipments for U.S produced devices are now available.
How significant are these DOC changes? Compare Chart 2 (old) with Chart 3 (new) for 12-month average growth rates of the four major equipment categories. Notice the much larger size of communications equipment and also the sharpness of its downturn. Also note the substantially greater cyclicality in Chart 4 (new) vs. Chart 5 (old) for electronic equipment order growth. Many of PCB/equipment order imbalances of the past have now evaporated. PCB orders still grow more in boom times and decline more in recessions compared to electronic equipment but PCBs now “fit” the equipment cycle much better.
What about the future? Chart 6 shows the current 12/12 (annualized) and 3/12 (3-month) growth rates for key electronic industry indicators. Although equipment is down 6.3% (Feb-Apr 2001 compared to Feb-Apr 2000) communications equipment is the major culprit (down 22.5%). By contrast PCB orders are down 54/6% for the same 3-month time period. Some of this decline is due to PCB factory closings but the major effect is still inventory bulges. The OEMs are shipping equipment from stock rather than replenishing with new goods. Once the excess inventory is flushed PCBs should see an up-tick.
Chart 7 shows the magnitude of the equipment/PCB short-term order growth imbalance. Keep in mind that these comparisons are versus an inflated 2000 demand. I remain confident of a 2H’01 improvement but CY2000 PCB order levels SHOULD NOT BE THE BENCHMARK for recovery! 1999 levels may be a much more realistic target.
General Business Conditions
The Census Bureau released its first economic data using a new method of identifying and grouping companies and industries, the North American Industry Classification System (NAICS). By adding industries and renaming old ones, NAICS will give economists, business leaders and Federal Reserve policy-makers a better view of the changing economy. "More detail on high-tech and services is going to be a big plus," said Maurine Haver of the National Association for Business Economics in Washington. NAICS replaces the old SIC codes originating in the 1930s. The biggest changes will be in the new detail provided on high-technology businesses. Computers, for instance, will now have their own classification.
Sony revealed its procurement business opportunities available for manufacturers in Taiwan, with a potential of 500 billion yen (NT$150 billion) over the next two years. Sony EMCS’ list of its planned procurement items in Taiwan covers more than 500 components to be used in Sony's 35 product items such as notebook PCs, desktop PCs, PDAs, cellular phones, semiconductor products, and PS2 game machines.
Tyco International will sell $2.20 billion in common stock in a public offering to repay debt from recent acquisitions.
Electronic Equipment Computers
Dell Computer CEO Michael Dell was reluctant in mid-May to predict the timing of a rebound in personal computer sales, but promised that Dell would grow faster than the overall market. Dell said that he saw a PC replacement cycle gathering steam toward the end of this year, possibly ending a slide that started last year as the dotcom bubble burst and Y2K buying ended. "If you fast forward three years from the second quarter of 1999, you get to the second quarter of 2002, which is about the replacement cycle for all those machines installed for the anticipation of the year 2000," Dell said.
Mobile Communications
ARC Group expects that total handset sales worldwide will reach 491 million units in 2001, a year on year increase of about 86 million
World Handset Sales - 2001 - (Units Millions)
Type
Units (millions)
GSM 2/2.5G
313.3
CDMA 2/2.5G
75.5
TDMA 800/1900
47.8
PDC
40.3
Analog
13.6
3G
0.5
Total
491.0
Source: ARC Group
Nokia grew its world market share to 35.3% in 1Q’01 from 33.9% in 4Q’00, nearly three times more than number two Motorola which had 13.2 %. Ericsson lost its number three position to Siemens, which kept its share stable at 6.9% while the Ericsson's fell to 6.8% from 8.7%. Gartner Dataquest said 96.7 million cell phones were shipped to consumers in the first quarter, on track for total sales to end-users of 500 million units in the full year. However, this did not mean cell phone makers would ship as many phones to their customers, such as the mobile telecoms operators, because 30 to 35 million handsets were lying in warehouses at the beginning of the year and still waiting to be sold. Also, between five and 10 million cell phones of brandless producers were carried over as factory inventory. On average mobile phone makers expect to ship some 450 million phones this year.
China's mobile phone market will catch up this year to the USA. "We foresee that by the end of this year China will be on a par with the US with the largest mobile subscription rate in the world," Nokia chairman and chief executive Jorma Ollila said in mid-May.
The growth of mobile Internet services would drive growth of mobile users and cellular phones would replace personal computers as the main tool for using the Internet in the world, Ollila said.
Consumer Electronics
Microsoft plans to have 600,000 to 800,000 Xbox consoles at launch in November, in hopes of avoiding shortages that plagued Sony's PlayStation 2 last fall. Microsoft expects to sell 1 million to 1.5 million consoles by the end of the year, the company said.
Gartner Dataquest forecast sales of 43 million digital video game consoles in 2004, compared with 36 million in 2000. The research firm said digital video disc players for showing movies will be sold to 92 million people in 2004, compared with 20 million in 2000.
Semiconductor Fab
N American chip-equipment orders plunged 41% to $711.8 million in April from the previous month amid the worst slump in the semiconductor industry since 1985. SEMI said the book-to-bill ratio for April was 0.42, the lowest in the last 10 years.
PCB Fabrication
AT&S, Austria, broke ground on a 145 million euro HDI facility in Shanghai. It expects its Shanghai plant, scheduled to start production in mid-2002, to contribute 20% of its worldwide revenue by 2004. AT&S, one of the biggest PCB makers in Europe, is expecting revenue to reach "a little over EUR700 million" by 2004. According to AT&S CEO Willi Dõrflinger, their expansion is far from finished. ”We will continue to grow stronger, open locations in South and North America, and simultaneously reinforce our technological leadership. We would like our turnover to reach at least 1 billion euros (approx. US$877 million) in the next couple of years.”
World Wiser Electronics is merging with Unicap Electronics Industrial and Bestmult Industry. WWEI, which is part of silicon foundry United Microelectronics Corp., expects the merger will boost sales to $2 billion in 2005, helping it achieve its goal to be the world's No. 3 PCB maker, said Robert Tsao, chairman of WWEI and the UMC Group.
"Each of the companies has different customers and different technology," said a spokesman for WWEI. "The combination will offer a comprehensive line of products including PCB and enhanced BGA," and will bring WWEI's total production capacity to 2.85 million sq. meters per month, he added.
Chin-Poon, Taiwan entered into a joint venture agreement with Finland's Aspocomp Oyj to form a new company, ACP Electronics Co. Ltd, in Suzhou, China. The new plant will manufacture HDI multiplayer PCBs for mobile phones. Mass production is scheduled to begin in 4Q’01. ACP is expected to reach a monthly capacity of 10,000 square meters this year. This will be expanded to 20,000 square meters next year. Vincent Huang, general manager of Chin-Poon Ind., said that the new JV plant would also make single-sided PCBs for use in communications, computers and consumer products, with a monthly capacity of 40,000 square meters. In Taiwan, Chin-Poon will build another 2,424-square-meter plant in Pincheng, Taoyuan Hsien. The new factory will also make HDI 6-layer PCBs with a monthly capacity of 3,500 square meters. Huang said that the capacity will be increased during the second quarter of 2002. Currently, Chin-Poon has three plants in Taiwan with monthly capacities of 120,000 square meters of single-sided PCBs and 40,000 square meters of double-sided and multilayer PCBs.
Tyco closed three of its PCB plants - Fremont, CA, Stockton, CA and White City, OR.
Production at White City will be transferred to Dallas, OR. Work at the company's Fremont and Stockton plants will be shifted to its Santa Clara, CA or Logan, UT plants.
Aspocomp may close its unprofitable plant in Espoo, near Helsinki. A closure could cut 137 jobs. Aspocomp said the Espoo plant generated 5% of 2000 net sales and had 7% of the workforce.
Matsushita Electric Industrial has linked-up with Japanese CAD maker Zuken and U.S. PCB prototype maker Dynamic Details Inc. The three firms will cooperate in selling Matsushita's ALIVH PCBs in N America. DDi will promote ALIVH, targeting cellular phone and network-related makers. Matsushita and Zuken will provide DDi with the circuit boards and systems needed to make prototypes.
DDi acquired Olympic Circuits Canada, located in Toronto, Ontario. Established in 1988, Olympic Circuits was a privately held quick-turn prototype PCB manufacturer serving electronics, medical, automotive and telecommunications customers in Canada and the Northeastern region of the U.S.
Stratos Lightwave will purchase Advanced Interconnection Technology. AIT designs and manufactures optical flex circuit products and equipment and related software used in the manufacture of these products. "AIT's optical flex circuit design and manufacturing expertise is synergistic with Stratos’ high-density ribbon connectivity products. This depth offers lightwave equipment manufacturers an unsurpassed resource with which to design and implement miniaturized optical connectivity in their next generation platforms," says Phil Schofield, Stratos' COO.
Materials
Park Electrochemical is establishing a business center in China to support advanced multilayer printed circuitry materials in China. The business center will operate under the name Nelco Products (Wuxi) Co. The materials will be produced by Nelco Products in Singapore and shipped to the Nelco Wuxi facility, which will provide local materials stocking, as well as finishing, customization and value-added manufacturing services for the China market.
Park Electrochemical plans a $25 million expansion of Nelco Singapore. This Singapore plant currently has manufacturing capacity of about $120 million a year. When completed, the expansion program is expected to increase the annual manufacturing capacity of the Nelco Singapore plant to about $200 million.
Mitsui Mining and Smelting will launch a new company in the southern Chinese province of Guangdong in July to process and sell copper foil. Capitalized at 3.15 million dollars, the new firm will be wholly owned by Mitsui Mining's Hong Kong unit. The plant will start operations in April 2002 to process 200,000 square meters of resin-coated copper foil and 100 tons of ordinary copper foil a month.
Sheldahl plans to sell a portion of its technical materials business based in Northfield, Minnesota. Included would be the company's vacuum deposited materials, unidirectional tape and specialty laminates used in the electronics industries. "The sale of this portion of our materials business is consistent with Sheldahl's long-term growth strategy," said Donald Friedman, President and CEO of Sheldahl. "This transaction will improve our balance sheet and sharpen our focus on key strategic business opportunities."
PCB Assembly
Solectron will buy privately held Singapore Shinei Sangyo Pte. Singapore Shinei designs and makes enclosures for electronics products, and its customers include Cisco Systems, Hewlett-Packard and Apple Computer. Shinei has more than 3,000 employees worldwide and business operations that include locations in Singapore, Malaysia, China, Scotland and the USA.
Solectron acquired Cisco Systems' Dense Wave Division Multiplexing multiplex, demultiplex, and add/drop optical module manufacturing capabilities located in Cisco's West Columbia, SC facility.
Sanmina will offer $2 billion of common stock, preferred stock, depositary shares and debt securities from time to time. Net proceeds will be used for general corporate purposes, including capital expenditures, working capital and possible acquisitions.
Sanmina approved a shareholders’ rights plan to fend off a hostile takeover but said that no suitors were in sight. Analysts said the company could be an appealing acquisition target given its demonstrated manufacturing efficiency and still-depressed share price.
Flextronics International and Japan's Kyoden have formed an alliance to jointly procure contracts in Japan while leveraging their information, design, and procurement systems to service their OEM customers. Japan is now a key market for EMS providers seeking relief from the weak N American electronic industry. Analysts expect more Japanese electronic equipment manufacturers to increase the percentage of their production that they currently outsource to EMS companies.
Plexus acquired Qtron, a privately held San Diego-based, EMS provider for approximately $30 million in cash. Qtron has over 300 employees and a current annual revenue run rate between $70 million and $80 million.
Celestica formed a strategic agreement with SAGEM with focus on the communications, automotive and defense industries. As part of this arrangement, Celestica will acquire SAGEM CR s.r.o. a subsidiary of SAGEM SA, which operates in Kladno, Czech Republic. The deal positions Celestica as SAGEM's primary EMS provider and includes a three-year supply agreement worth approximately US$500 million in total revenue over the course of three years associated with the manufacture, repair and related supply chain services for mobile handsets and other communications products. About 850 SAGEM employees at the facility are expected to join Celestica.
Celestica is acquiring Primetech, an EMS provider based in Kirkland, Quebec.
Delphi Automotive Systems is buying Specialty Electronics Inc. for about $21.8 million. Specialty is a provider of electronic connector products and customized interconnect solutions to the telecom, computer, industrial electronics, medical and automotive markets.
Singapore CEM Beyonics Technology will purchase Seagate Technology's assets in Batam, Indonesia, and supply the world's largest disk drive maker with PCBs.
SCI Systems will triple the size of its Kunshan, China manufacturing facility.
Philips Electronics opened a new plant on the U.S. border to manufacture television components. The company said that the $3 million plant in Ciudad Juarez would generate 1,005 jobs producing printed circuit board assemblies. Philips has 13 plants and 12,000 employees in Mexico.
Semiconductors
Worldwide sales of semiconductors were $13.7 billion in April, a decrease from $15.3 billion a year ago, the SIA reported. On a month-to-month basis, April sales were 4.7% below the March 2001 level of $14.4 billion. "The overall demand continues to reflect the inventory correction that began in the fourth quarter of 2000," stated SIA president, George Scalise. He added, "For the first time since the September quarter of 2000, Asia Pacific sales had a modest increase on a sequential basis reflecting improved supply-demand balance in the PC market."
Dataquest expects chip revenues to be $188 billion in 2001, a 17% decline from 2000. In mid-May it forecast a fairly slow recovery in 2002, with revenue growing 13% to $213 billion. The semiconductor industry won’t see revenue totals match the results in 2000 until sometime in 2003 when the industry is projected to reach nearly $265 billion, Dataquest said.
The memory chip market could be poised for an upturn soon despite a large downturn in global chip sales this year, said Ulrich Schumacher, head of Infineon Technologies, the leading European memory chip maker. Prices on memory chips have begun to stabilize and inventory levels are close to normal levels, setting the stage for a possible upturn soon, he said.
The Semiconductor Equipment and Materials International (SEMI) trade slashed its forecast for the chip production tool shipments in 2001, saying that the business will decline by 27% from revenues last year. Citing the downturn in the semiconductor and equipment markets, SEMI said worldwide chip equipment revenues would drop from $47.7 billion in 2000 to $35 billion in 2001. SEMI is also now projecting that sales of semiconductor materials will decrease 6% in 2001 from revenues last year.
Other
Scientists at the Carnegie Institution of Washington created a new form of nitrogen by subjecting ordinary nitrogen gas to pressures of up to 2.4 million atmospheres. At these pressures, the nitrogen is transformed into an opaque semiconducting solid. The scientists also said that, once created, the semiconducting solid can remain stable even when the pressure returns to normal.
Bell Labs is researching materials for economically making plastic-transistor circuits. Such circuits could be used in flexible displays, smart cards and other low-cost electronics applications. The manufacturing process would be similar to ink-on-paper printing. The Bell Labs material, known as F15, is both stable and soluble at room temperature, which means that, like ink, it can be dissolved in a solvent and then used to print electronic features on a plastic sheet. After the solvent evaporates, the F15 remains and is extremely stable.
Led by Europeans Gemplus and Schlumberger, worldwide chip card sales last year grew 12% to 1.8 billion units. Smart card shipments last year totaled 628 million units, up 45% over 1999. By contrast, memory card shipments last year reached 1.1 billion, down 0.4% over the previous year. "Smart card shipments were significantly boosted by mobile operator demand for SIM [subscriber identity module] cards [used in GSM mobile phones] in the fourth quarter of 2000," said Andrew Phillips, analyst for Dataquest's semiconductor group.
h2Toppan Printing Company and E Ink Corporation, a developer of electronic ink technology for paper-like displays, announced a strategic partnership to develop color electronic ink displays.
Walt Custer Custer Consulting Group Phone: 707 785-1777 FAX: 707 785-1988http://www.custerconsulting.com/
E-mail: wcuster@mindspring.com