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So . . . How Long Will This Last? (Jan 2002)
January 17, 2002 |Estimated reading time: 13 minutes
This downturn recession has been around too long. Many of us have lived through multiple "downs" in the business cycle, but this one is awful.
So...How Long Will This Last? by Walt Custer January 1, 2002
This downturn recession has been around too long. Many of us have lived through multiple downs in the business cycle, but this one is awful. The North American PCB industry has been hit especially hard due to the global recession coupled with many domestic business failures/shutdowns and shifts in significant capacity to lower-cost Asia. Chart 1 shows the North American PCB-related growth indicators for October. With rigid PCB orders dropping 56.7% and laminate down even more, the magnitude of our problem is obvious. Even more sobering is the thought that these data do not include the 20% of domestic board capacity that has been shut down/moved in 2001.
Since the major North American PCB drop has been more pronounced in the second and third quarters, looking at actual shipments and orders (on a $ index basis) is more instructive than just recent month/month growth rates or book/bill ratios. Chart 2 shows this data for 2000 and 2001. On a $ index basis, orders dropped from the 250 range in mid-2000 to 100 at present. In 3Q00 the publicly traded North American PCB makers earned 6% after taxes. This dropped to a 12% loss in 3Q01. A quick & dirty breakeven analysis suggests that the aggregate PCB shipment $ index (Chart 2) has to return to 200-range for the red ink to stop flowing. It is obvious that we have a long way to go.
When will we see some growth? The answer lies in electronic equipment orders and inventories. Fortunately, equipment orders rebounded in October (Chart 3), making up the September 11-induced plunge of the prior month. The November data will be key. Was October just a catch-up month or has growth resumed?
Looking at electronic equipment by sector (Chart 4), both computers and communication equipment orders rebounded in October but curiously thus far we see no upturn in military electronics. Inventory levels fortunately are declining (Chart 5) and more importantly the ratio of inventories to orders (Chart 6) has dropped to mid-1998 levels. With orders increasing and inventories back to reasonable levels, this suggests that any PCB recovery will be accelerated by supply chain effects (a.k.a. inventory replenishment).
Semiconductors are also showing signs of life. Although still below 1.0, the U.S. semiconductor B/B ratio (Chart 7) has been increasing. And, on a broader scale the Purchasing Managers Index (Chart 8), while still firmly in contraction territory, appears to be improving.
My guess is that we are definitely at the bottom of this cycle and now showing some clear signs of a coming recovery. Look at the electronic equipment order pattern (green bars in Chart 9). Orders have been flat since June with the exception of the September 11-induced drop and subsequent October rebound. In the same period, inventories have dropped substantially.
We have the data to monitor our recovery. Watch the November electronic equipment orders and inventories (released in early January). A continued upward trend will suggest PCB improvement will soon follow. While most prognosticators suggest a modest recovery for 2002, a healthy drop in inventories could accelerate this rebound.
General Business Conditions
The world EMS industry will decrease $8 billion (7%) in 2001. However, a slight gain of 7.5% is expected in the Q102 per IDC. EMS revenue is near bottom, and overall growth is expected in the worldwide EMS market beginning in the first calendar quarter of 2002, said Kevin Kane, program manager for IDCs Contract Manufacturing Services research. This growth will be fueled by a continued trend to outsourcing in the IT industry coupled with improved global economic conditions.
Global semiconductor sales are forecast to rise 6% to $150 billion in 2002 and 21% in each two of the years thereafter, hitting $218 billion by 2004, according to the SIA.
Taiwan will ease curbs on investments in 122 industries in China, including notebook computer, mobile phone and digital video disk drive manufacturing, the Ministry of Economic Affairs said in a statement. Taiwans electronics makers want to cut costs by setting up manufacturing plants in China, where the minimum wage can be more than 10 times lower.
In order to win orders from Beijing Nokia Mobile Telecommunications, many companies are building factories nearby. Major EMS providers like Flextronics and Beijing GKI Electronics and PCB manufacturers such as Ibiden Electronics, AT&S, World Wiser Electronics, Foxconn Electronics, and a JV between Chin-Poon Industrial and Aspocomp have all established or planned to set up factories in or near Beijings Xingwang (International) Industrial Park, where Beijing Nokia is located.
Taiwans production of desktop computers is projected to rise 3.9% to US$6.9 billion in 2002, while notebook computers are projected to remain flat at US$12.69 billion. Shipments of desktop PCs will be 27 million units in 2002, up 5.8% from 2001, and local notebook PC makers will ship 14.6 million units in 2002, up 5.2% from this year. Total production of Taiwans information technology hardware in 2001 is expected to fall 10.3% from a year ago to US$42.2 billion due to a global economic slowdown.
Electronic Equipment
Computers
Compaq Computer is considering producing most of the 4 million computers that it supplies in Europe in the Czech Republic. Foxconn (Taiwan) and FIC (Taiwan) at plants in Rudna-u-Prahy and Pardubice produce computers under the Compaq name.
Global workstation vendors shipped 346,846 units in 3Q01, down from 417,276 in 3Q00. Dell had the largest shipment share (33.4%, up from 23.8% a year ago).
2.5 million PDA units shipped worldwide during Q3, down 9.5% on Q2 per Dataquest.
Mobile Communications
Demand for cell phones that can be used anywhere in the world will increase significantly over the next five years as international travel increases. According to Cahners, the total number of world phone subscribers will rise to about 91 million in 2005 as international travelers grow at least 4 percent every year.
Mobile-phone sales fell 10% in 3Q01 as customers held off buying phones until new models appear and as economies slowed, said Dataquest. Sales fell to 94.4 million units in the quarter from 104.6 million in the year-earlier period.
Mobile phone shipments 3Q01 vs. 3Q00
3Q01
3Q00
Units (millions)
Share %
Units (millions
Share %
Nokia
31.6
33.4
32.1
30.6
Motorola
14.8
17.7
13.9
13.3
Ericsson
7.7
8.0
10.1
9.7
Samsung
7.1
7.5
4.5
4.3
Siemens
6.8
7.2
9.0
8.6
Other
26.6
28.2
35.0
33.5
Total
94.4
100.0
104.6
100.0
Source: Dataquest
Telecom
NEC plans to outsource manufacturing of telecom infrastructure equipment at NEC Miyagi and NEC Yamanashi to a CEM to be selected by year-end 2001.
Instruments
Thales, the French electronic and defense group, sold it Thales Instruments, the former instruments business of Racal Electronics, to a consortium formed by J F Lehman & Co and Thomas Weisel Capital Partners, for E136m ($121.8m).
Consumer Electronics
Worldwide video game console shipments are projected to reach 49 million units in 2002, up from 29 million units in 2001, per Dataquest. "Consumers may not be interested in upgrading their PC to run spreadsheets faster, but in video game consoles, hardware performance is 'in your face' obvious," said Andrew Johnson, VP of Gartner Dataquest. "It is the unending quest for more lifelike graphics that will keep consumers coming back to retailers for more gaming devices."
Automotive
Clarion displayed its in-car computer, the AutoPC CADIAS, at the Tokyo Motor Show. It employs WindowsCE for Automotive for the operating system and enables users to transfer schedules and addresses on its PC using Microsoft Outlook, browse Web sites, trade e-mails, and download the latest map data via mobile phone. It has voice recognition, voice synthesis, and hands free operation and functions such as CD, DVD, TV, radio, and car audio using MP3. Price will be in $2500 range with its launch in mid-2002.
PCB Fabrication
AT&S - Indias largest PCB maker, AT&S India Ltd, is shifting focus to the automotive electronics and industrial control markets in an effort to decrease dependence on the downbeat communications industry. The wholly owned subsidiary of Austrian AT&S, has obtained contracts from Delphi Automotive Systems, Hella of Germany, Valeo of France and TRW as part of this strategic move to new markets.
Compeq- Considering the water shortage in Beijing, Compeq has no plans to set up PCB factory there, but the company has continued to expand capacity in its Huizhou plant. Compeq is a Nokia PCB supplier, manufacturing about 30% of Nokias mobile phone boards. Currently, Compeq has also outsourced a small amount of board production to Foxconn.
CMK is building another PCB plant in Wuxi in cooperation with Suzhou Matsushita Electronic Works. The new plant, named CMK Electronics (Wuxi) Co. Ltd, is CMKs third plant in China. CMK Electronics will produce multilayer PCBs with fewer than 18 layers. Its production technology for laminated multilayer PCB adopts the unique PP laminated multilayer PCB technology of CMK. The $50 million PCB plant is anticipated to complete construction and commence mass production by April next year. CMK Electronics will have an initial monthly output of 5,000 square meters, which will double upon the completion of the plant.
DDi appointed Victor Hemingway as VP of Operations for its Silicon Valley quick-turn PCB facility.
DDi opened of its new fast-track assembly facility in San Jose, California "For several years, our N. California value add assembly business has operated out of the Company's Milpitas quick-turn facility, which also houses PCB design and manufacturing. We were at our physical limits in the old site," said Ed Johnson, President of Value Added Operations for DDi. "The San Jose operation offers three times the manufacturing space of our former site (40,000 compared to 12,000 square feet) and will enable us to grow our rapid response assembly business-both in terms of new customers and additional programs from existing customers.
Gold Circuit Electronics will complete its factory in Suzhou, Jiangsu Province by year en 2001 and begin volume production in the first quarter of 2002. The factory will focus on 4-6 layer PCBs, with an initial monthly capacity of 300,000 square meters. It will deliver to customers like Solectron that are demanding a domestic supply for mainland operations.
Hedenheim - Hans Friedrichkeit joined the Heidenhain Group to run Heidenhain Microprint (hmp) in Berlin/Germany. A specialized PCB manufacturer, hmp has euro30 million sales and produces small and medium volume, high layer-count PCBs, including microvia and flex technology.
M~Wave sold its Frisco, TX facility to Performance Interconnect for approximately $2,355,000.
PPE - Swiss parent Endress & Hauser is attempting to sell German PCB maker Photo Print Electronic (PPE) due to the deteriorating situation in the global telecommunications market.
Sanmina plans to build a components for communication systems plant in Miskolc, in northeastern Hungary. It planned to make the final decision on this investment in December 2001.
Signum Circuits, Selkirk, Scotland went into receivership. Up to half of its 125+ person workforce was to be declared redundant. Signum had annual sales of GBP 40 million a year until it was hit by the world downturn.
Tycos electronics unit will cut 6,000 jobs, or about 8% of its work force, during the first half of the company's fiscal year. Sales were $13.1 billion in the fiscal year ending Sept. 30, selling components to the automotive and telecommunications industries. The unit employed 78,900 people in 2001.
United Microelectronics Corporation (UMC), Foxconn Electronics and Plato Electronics are pooling investment for World Wiser Electronics new PCB factory in Beijing, which will mainly produce PCBs for mobile phones. Construction is scheduled to begin in the first quarter of 2002 and should be completed by the first quarter of 2003. Initial investment is estimated at NT$2 billion for a monthly capacity of 300,000 square meters.
Wus Printed Circuit will expand mobile phone PCB production capacity at its Shanghai subsidiary beginning in the first quarter of 2002. The subsidiarys monthly capacity will expand from 900,000 square feet to 1.1 million square feet initially and then to 1.2 million square feet after expansion is completed later in 2002. The initial expansion will allow for the additional production of 500,000 to 600,000 PCBs per month.
Materials
Air Products and Chemicals and Parelec will jointly develop and market advanced materials for electronic circuit metallization. Parelec supplies Parmod conductive inks and pastes that enable a low-cost, two-step (print and thermally-cured) dry process for manufacturing electronic circuitry.
Isolas Benelux laminate factory at Petit-Rechain in Belgium was closed affecting 100 workers.
LPKP - German laser specialist LPKF has developed and patented a plastic that can survive reflow soldering and which can act as a single-layer PCB. The polyimide material is impregnated with a copper-based chemical. When a high-power laser is passed over its surface, the plastic releases free copper atoms. The copper acts as a substrate for a secondary metallization process that develops complete PCB tracks.
MacDermid will transfer of virtually all production from Waterbury, CT to other USA manufacturing sites, primarily Ferndale, Michigan. The transfer of production will take place over the next 6 months.
Rogers Corporation announced the opening of the manufacturing facility for its newest 50/50 joint venture, Rogers Chang Chun Technologies Co. Ltd (RCCT), located in Hsin-Chu, Taiwan. The JV partnership formed in July 2000 with Chang Chun Plastics of Taiwan, a member of the Chang Chun Group, will manufacture and distribute Rogers R/flex flexible circuit laminates for the Taiwan marketplace.
PCB Assembly
Assembléon and Cookson Electronics' Speedline Technologies group agreed to put together production lines for specific applications and markets and sell each others equipment to large-account customers.
Elcoteq appointed Lasse Kurkilahti as President and CEO. Hannu Bergholm, Elcoteqs interim President since the beginning of August 2001, will continue as Senior Advisor.
Jabil Circuit expanded Jabil Technology Services by establishing three new design centers, located in Bergamo, Italy; Penang, Malaysia; and Raleigh, N.C.
Jabil Circuit paid about $37 million to purchase inventory, property, plant and equipment located in Penang, Malaysia, from Intel.
Plexus completed the expansion of its 25,000 square foot New Product Introduction Plus facility in Fremont, CA. It includes prototype assembly, ramp-to-volume assembly, turnkey material procurement, project management, process development, test support, tooling support and repair.
Plexus will acquire the majority of the assets of MCMS. Previously MCMS had entered into a voluntary Chapter 11 bankruptcy process and had received court approval to conduct an auction process, at which Plexus prevailed.
Sanmina completed the largest acquisition in the history of the EMS industry, taking over SCI Systems for $6 billion. The new company, Sanmina-SCI Corp., will be headquartered in San Jose.
Solectron completed its combination with C-MAC Industries Inc.
SpectraSwitch, a designer and manufacturer of optical switching and signal conditioning components, and Flextronics Photonics formed a technology licensing and manufacturing services agreement. Flextronics will provide CEM support for SpectraSwitch's WaveWalker line of optical components.
Semiconductors
Global semiconductors sales in October rose to $10.43 billion, a month-on-month rise of 2.5% from 10.18 billion in September, the SIA reported. This is the fourth consecutive month that the month-to-month sales improved and the first month since November 2000 with sequential growth. September sales were 2.5% below August. "The October sales are another indication that the industry is on track to achieve our forecast of 4.7% growth in the fourth quarter," said George Scalise, SIA President.
Worldwide semiconductor equipment sales are expected to decline by 3% in 2002 from 2001, but the chip-making tool market will rebound and increase by 29% in 2003 and 23% in 2004, said SEMI. It said the chip equipment market would fall 38% to $29.6 billion in 2001 from a record high $47.7 billion in 2000. The 2001 decline is largest annual drop in semiconductor capital spending ever recorded, said SEMI.
DuPont formed a new business unit within DuPont Electronic Technologies - DuPont Integrated Circuit Packaging & Interconnects. Peter A. Irvine, a 20-year veteran of DuPont and the electronics industry, will lead the business and aim to establish DuPont as a broad supplier of materials and processes for the IC packaging industry. DuPont Electronic Technologies is a $1 billion business that consists of six businesses dedicated to the electronics industry, including printed circuit materials, high-performance and microcircuit materials, semiconductor fabrication materials and IC packaging and interconnects.
Selete (Semiconductor Leading Edge Technology), a consortium of 11 Japanese chip companies, will build three new labs in a $230 million program to develop 0.07-micron to 0.10-micron processes for next-generation semiconductors.
Other
ElectroniCast's "Optoelectronic Packages and Packaging Forecast" predicts the global consumption of optoelectronic and fiber-optic component packages will grow from $407 million in 2000 to $1.12 billion in 2005. Standard packages (including TO can, butterfly, and others) represented 42% of 2000 consumption at $171 million, growing to $437 million or a 39% value share in 2005, as illustrated in figure one.
Coming Events
Custer Consulting Group will have a booth at APEX 2002 January 24-28 in San Diego, CA and IPC Printed Circuits Expo, March 24-28 in Long Beach, CA. Hope to see you there.
If you are interested in keeping up with the industry news e-mail us for a free 30-day trial of our daily news service.
_______________ Walt Custer Custer Consulting Group Phone: 707 785-1777 FAX: 707 785-1988http://www.custerconsulting.com/
E-mail: wcuster@mindspring.com
This article was originally published in CircuiTree magazine and is reprinted here with permission.