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Going the Right Way . . . The Light at the End of the Tunnel Gets Brighter (March 2002)
March 12, 2002 |Estimated reading time: 12 minutes
Going the Right Way... The Light at the End of the Tunnel Gets Brighter
by Walt Custer
March 1st, 2002
While PCB business conditions remain difficult, at least the leading indicators are pointing in the right direction. Januarys Purchasing Managers Index (Chart 1) climbed to nearly 50, the break-even point. At it crosses 50, hopefully in February, the U.S economy will again be growing from a purchasing viewpoint. This PMI rebound is a very welcome sign as it signaled the current recession when it broke 50 and headed down in August 2000!
U.S. electronic equipment orders (Chart 2) continue to recover, albeit slowly. We have now exceeded pre-Sept 11 demand levels. Perhaps more importantly, the inventory glut may be behind us as OEM inventory levels are still declining (Chart 3) and the ratios of equipment inventories to shipments and orders (Chart 4) have now returned to early 2000 levels. To be fair, these charts measure OEM inventories and do not capture stocks at the CEM tier of the supply chain. We must flush both OEM and CEM inventories for PCB orders to jump. Also, from a domestic PCB prospective, when the recovery finally arrives, how many of the replenishment PCBs will be sourced in Asia rather than North America? Clearly North America has lost global PCB market share, but we have also reduced capacity. The surviving domestic PCB makers should see increased demand soonhopefully by mid-year.
Looking at current growth rates (Chart 5), the 3/12 (most recent 3 months vs. same 3 months the prior year) growth is now improving for both PCBs and electronic equipment. Also, the PCB line is well below equipment, suggesting that printed circuits will see a catch-up surge in the future to the balance growth. However, although the 3/12 is improving, a value of 1.0 is break even vs. last year. We have still a long way to go to reach year-ago levels. But at least things are finally improving!
North American PCB orders have already picked up slightly as December 2001 showed the first significant jump after a VERY long decline. The December rigid PCB book/bill ratio (Chart 6) reached 1.03 on a 1-month basis, the first time it has been in positive territory in over 18 months.
We have all felt substantial pain in this current recession. Fortunately, the light at the end of the tunnel is now glowing a bit brighter. I still feel 2002 will be a difficult year, but we are now headed in the right direction. I believe the second half of 2002 will show noticeable improvement in PCB demandnot to 2000 levels, but far better than today. Suppliers of process consumables to the industry should also see a demand increase, probably assisted with some inventory replenishment as stock levels are increased to support resumed PCB and OEM growth. Capital equipment makers will have to wait a bit longerprobably until early 2003.
As the saying goes, Hang in There, Baby.
General Business Conditions
China has eliminated all tariffs on integrated circuits since the first of the year - nearly two years earlier than promised. The country has also eliminated all duties on diodes, thyristors, transistors, light emitting diodes and smart cards. As part of the package to win global approval to join the World Trade Organization, China had pledged to cut semiconductor tariffs to zero in stages beginning this year, with final elimination slated in two more years.
China will become the worlds dominant producer of mobile phones by 2005 as local companies take market share from the global giants, according to a recent report by Beijing-based consultants MFC Insight. The report predicts that by 2005, China-based manufacturers will be producing 233 million mobile phone handsets per year, or 34% of the projected global market. That is up from the annual output of 54.3 million phones in 2000, which accounted for 12% of the world market in that year.
Electronic Equipment
Computers
Gartner Dataquest said that worldwide PC sales fell 4.6% in 2000, and 11.1% in the USA. (Chart 7) Market leader Dell (Chart 8) emerging strongly from 2001 by catering to the interests of consumers who are propping up the PC business as business spending slumps. Gartner said Dells shipments increased 18.3% to about 17 million worldwide in 4Q01as its market share grew 3% to 13.3 percent.
Mobile Communications
After slipping slightly in 2001, cellular phone handset shipments will grow 10.1% to 436 million units worldwide in 2002, according to the Yankee Group (Chart 9). It forecast handset shipments increasing 14.4% to 499 million units in 2003. The Yankee Group said deployment of new cellular phone services and applications will fuel moderate growth in handset shipments in the next four years, pushing unit volumes to 596 million in 2005. Asia will lead other regions in handset unit growth with China becoming a major market by the middle of the decade.
PCB Fabrication
Metaplast Circuits, Scarborough, Ontario, Canada is NOT closing contrary to articles that have been published or used by third parties without any verification from Metaplast according to CEO Vic Jagdeo. Metaplast is a MIL P55110 (GF & GI) and ISO 9000-2000 qualified PCB manufacturer that has been in business since 1967. It supplies prototype through medium volume production boards.
Merix elected Donald Jobe to its Board of Directors. Until his recent retirement, Mr. Jobe was the President and CEO of Isola Laminate Systems Corp.
Kingboard Chemical bought 55% of a PCB plant in Huiyang, China, from personal computer maker Legend Holdings for HK$229.6 million and a further 2% from an investor with the surname Huang, for HK$8.35 million. The sale left Legend with a 30.5% stake in the factory, with Huang owning 2.5%.
Shenzhen Huafa Electronics completed the first part of its plant expansion, raising its monthly capacity for single-sided PCBs to 50,000 square meters, and those for double-sided and multilayer PCBs to 10,000 square meters. According to Shenzhen Huafa, it has used $6.4 million to purchase equipment and improve the layout of the plant.
Formosa Plastics is seeking US$400 million of syndicated loans from foreign banks in Hong Kong for a PCB project in China. Wu Chia-chao, spokesman for Nan Ya Plastics, a core member of the Formosa plastics group, said the proceeds would be used to finance a planned US$600 million PCB project in Shanghai. The PCB project would also include copper-clad laminate plants.
Tyco International pans to separate into four independent, publicly traded companies including Security and Electronics, Healthcare; Fire Protection and Flow Control; and Financial Services.
Security & Electronics financials were:
- Pro Forma 2001 Revenues $17.6 billion
- Pro Forma 2001 Operating Profit $4.2 billion
- Pro Forma 2001 Margin 23.7%
AT&S bought back 69,900 shares between in mid-January as part of a broader share buyback plan. At its annual general meeting July 5, shareholders approved a share buyback of up to 10% of the capital of AT&S over 18 months. The repurchased shares will be used for acquisitions and a stock option program.
Coretec completed a private placement of 2,500,000 common shares at a price of $3.40 per share for gross proceeds of $8,500,000. The proceeds from the offering will be used for general corporate purposes.
Materials & Other PCB Supplier Activities
Park Electrochemical opened a business center in Wuxi, China. Nelco Wuxi, a wholly owned Park subsidiary, is located 140 kilometers northwest of Shanghai in the Wuxi-Singapore Industrial Park in Wuxi, China. Roland Erismann is Parks China Country Manager and General Manager of Nelco Wuxi.
Taiwan Union Technology Corp. launched its Laser Drillable Prepregs for HDI applications. It said these prepregs have no limitation on build-up layer, offer better insulation resistance, dimensional stability, easier dielectric thickness control and longer shelf life while lowering overall production costs by at least 15%, compared with traditional RCC material.
Matsushita Electronic Components and Victor Company of Japan agreed on joint development of a new type of built-up substrate technology by merging their resin multilayer substrate technologies. The Any Layer Interstitial Via Hole (ALIVH) of Matsushita Electronic Components will be used as a core layer on whose surface a built-up layer is created through the Victor Company of Japan Interconnected Layers Build-up Printed Wiring Board (VIL Board) technology. According to the two companies, they aim the joint development at producing boards that never will have to face cost competition posed by Chinese manufacturers by technically increasing their added value.
Zhaoyuan Jinbao Electronics completed its manufacturing project for electrodeposited copper foil with an annual capacity of 5,000 tons. It invested $22.5 million for the first phase of the project, and $15 million for the second stage.
Polyclad Laminates received certification to the Occupational Health and Safety Assessment Series 18001 specification for its operation located in Dalian, P.R. China.
Capri Corp. (Cimnet Systems parent) said that two individuals have agreed to purchase up to 8,750,000 shares of its common stock for a purchase price of $.20 per share. Mehul J. Dave, President and CEO stated, This infusion of capital is coming at a key time that will enhance our ability to introduce several new products as well as develop newer capabilities that will help further the Companys position as the worlds leading provider of innovative information technology solutions to the global interconnect industry.
Finnish company Ahlstrom Glassfibre Oy has developed a PCB based on acrylic fibers and a foam binder. It has been awarded US patent 6258203 for the new composite. The Patent describes a combination of acrylic fibers, preferably high tenacity, and a foam binder process that produces PCBs that are superior to boards based on both aramid fiber and glass fiber. Key advantages claimed for the process include:
- Conventional non-conductive fillers (plastic or glass particles) can be incorporated in the foam and uniformly distributed in the final structure;
- The foam process allows for closer control of the density of the fibrous webs or sheets;
- The process is cheaper and more energy efficient than existing techniques.
Nitto Boseki and Nitto Glass Fibre Manufacturing have developed a glass fibre with a low dielectric constant and tangent, which they say is suitable for use in stabilizing and reinforcing high-density PCBs. Specific applications are found in PCBs used in communications equipment for satellite broadcasting and mobile telephones. This is an area that is demanding faster signal processing, requiring denser circuitry design.
PCB Assembly
IBM will outsource a significant portion of its desktop personal computer manufacturing to Sanmina-SCI, and Sanmina-SCI will acquire IBMs NetVista desktop manufacturing operations in the US and Europe. IBM manufactures its NetVista desktop computers in Research Triangle Park, NC for the US and Canada, and has this product line manufactured on its behalf in Greenock, Scotland and mainland Europe for customers in Europe, the Middle East and Africa. IBM will continue to design and market the NetVista line of desktops, and has signed a 3-year, $5 billion outsourcing agreement with Sanmina-SCI to provide desktop manufacturing services for these markets.
NEC and Celestica signed a strategic outsourcing relationship including a 5-year supply agreement, with total estimated revenue of approximately US$2.5 billion. Celestica will assume supply chain management, sub-assembly, final assembly, integration and testing for a broad range of NECs optical backbone and broadband access equipment. Celestica will acquire certain of NECs manufacturing facilities in Miyagi and Yamanashi, Japan.
Plexus completed its acquisition of MCMS for approximately $45 million. With the assets purchased from MCMS, Plexus plans to continue manufacturing operations in Penang, Malaysia; Xiamen, China; and Nampa, Idaho. The former MCMS San Jose, CA operation will be combined into Plexus San Jose operation. The former MCMS Raleigh, NC operation will be closed when Plexus completes the transfer of production to its other sites over the next several months.
A former Nortel Networks circuit board plant in Brockville, ON, Canada that was sold to SCI two years ago will shut down this fall, putting 850 people out of work. Sanmina-SCI will close the plant by October or November.
Sanmina-SCI announced the asset purchase of Alcatels manufacturing facilities in Cherbourg, France; Gunzenhausen, Germany; and Toledo, Spain. Financial terms of the transaction, which includes a multi-year supply contract, were not disclosed. The three European manufacturing facilities of Alcatel comprise nearly 1 million square feet.
Elcoteq will invest Euro16 mil to build a new plant in the Xingwang district of Beijing, China, with 11k sq meters of production space. The plant will be commissioned in 1st-qtr 2003, employing 200 workers and making electronic sub-systems for Nokia mobile phones.
Circuit Assembly, with headquarters in Irvine, CA, relocated its China production lines to a larger, more accommodating facility in Shen Zhen, China. This new 85,000-SF plant joins manufacturing and assembly plants in the United States, Taiwan and Mexico.
Semiconductors
Worldwide sales of semiconductors in the fourth quarter 2001 were unchanged from the third quarter at $30.5 billion, ending three quarters of double digit declines. Together, the Americas, Europe and Asia Pacific regions grew 3.7 % in the fourth quarter, sequentially. In Japan, recessionary pressures pulled semiconductor demand down 11.8% for the quarter. Product comparisons show a number of improving trends in the fourth quarter, said George Scalise, SIA president. Key demand drivers, wireless handsets and personal computers, bottomed out in the third quarter and recorded double-digit increases in the fourth quarter. Semiconductors used in these products, including microprocessors, digital signal processors, and DRAMs, also registered double-digit gains. In addition, in a challenging environment, US companies were able to increase global market share from 50 to 51%.
Demand for semiconductor manufacturing materials will recover this year from sharp declines in 2001 with silicon wafer revenues growing 9.5% to $5.72 billion in 2002 from $5.23 billion last year. Revenues for all wafer fab materials will rebound by 11.3% to $14.14 billion in 2002 after declining 20% in 2001, said the forecast, which will be presented by the Semiconductor Equipment and Materials International (SEMI) trade group. SEMI is also forecasting 10.9% growth in worldwide chip packaging materials to $9.25 billion in 2002, following a 29% plunge in sales last year.
Micron Technology will pay Toshiba $250 million in cash plus 1.5 million shares of Micron stock for a memory chip plant in Virginia. If Micron were to build from scratch a facility similar to the 600,000-square-foot Dominion Semiconductor fabrication plant, it would cost five to 10 times that amount, analysts said.
North American-based manufacturers of semiconductor equipment posted a book-to-bill ratio of 0.78 for the month of December, according to SEMI. However (Chart 10) the B/B increased because shipments declined, rather than because orders increased. Actual order improvements will probably not occur until late 2002.
Tracking the Recovery Are You Prepared?
Do make regular presentations to your boss, bankers or customers/suppliers on business conditions and the outlook for your company? Do you need industry data to support your forecasts and business plans? You can get our entire 390+ chart set, updated multiple times per month with all of the supportive data. These are the same color charts that I use for my own public speaking. They are pre-made and can be easily copied into your favorite presentation software such as PowerPoint. Contact us for an evaluation copy of Business Outlook. You will always have current data when summoned into a meeting!
Coming Events
Visit us at booth # 1820 at IPC Printed Circuits Expo in Long Beach, CA March 26-28, 2002. Well be happy to share our latest take on the timing and magnitude of our current recovery. I will also give a talk on the Status of the PCB Industry at the IPC forum PCB Industry Market Trends and the Capital Markets. This free forum will be held Thursday, March 28, 2002 from 9:30 a.m. 11:30 a.m. at the show.
Walt Custer Custer Consulting Group Phone: 707 785-1777 FAX: 707 785-1988www.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.