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Momentum Builds for Mid-Year Recovery (April 2002)
April 9, 2002 |Estimated reading time: 11 minutes
Momentum Builds for Mid-Year Recovery
by Walt Custer
April 1st, 2002
Although the PCB industry is still experiencing very hard times, the future continues to brighten. Electronic equipment orders continue to increase, OEM inventories are still dropping, the U.S. PCB & semiconductor book/bill ratios have finally reached 1.0 and important leading indicators such as the Electronic Buyers News EBI and The Institute for Supply Management PMI took big jumps in February.
However, due to still large inventories at the contract manufacturing level, PCB orders will probably not show strong growth until the second half of 2002.
Chart 1 shows total monthly U.S. electronic equipment orders. The January 2002 orders have recovered to the highest level since May 2001. We still have a long way to go but the trend is certainly in the right direction!
Semiconductor orders (driven by both increased volumes and higher prices) are also showing a rebound. The January 2002 1-month book/bill ratio jumped to 1.03 (Chart 2) as actual orders reached their highest level since March 2001! Again, very positive news.
At the same time OEM inventories (finished goods, work in progress and raw materials) have been dropping. The ratio of electronic equipment inventories to orders (Chart 3) shows that stock levels have returned to early 2000 values. Based upon this the OEMs should now begin serious reordering of their stocks. However because the CEMs still have perhaps 6-month inventory levels it will probably take until summer for any OEM order increases to really be felt by the PCB makers.
Looking ahead (Chart 4) both the Purchasing Managers Index (a measure of general buying strength in our economy) and the Electronic Buyers News EBI had very healthy increases in February. The EBI measures buying patterns at the OEM level. Its increase supports our prediction that since electronic equipment orders are up and inventories are down that renewed buying is imminent.
In spite of all this good news I still feel that 2002 will be difficult for PCBs. We are at the bottom of a deep trough in the business cycle. Assuming that CEM inventories flush and the OEM order increases continue, I expect a relatively flat 1H02 followed by noticeable growth in the second half of this year. CY2003 should then be a year of solid recovery although we probably wont the bubble volumes of 2000 until 2005. Therefore PCB makers and process consumable suppliers can expect relief in 2H02 and beyond. Capital equipment suppliers will lag by at least six months. The used equipment glut, excess PCB manufacturing capacity and a wait & see management attitude will delay substantial capital purchases until 2003 or even 2004.
With the relocation of much of the higher volume PCB manufacturing to Asia, the surviving North American companies will focus more on quick turn, prototype, military & security as well as local buyers who want high technology and the comfort of a local source.
The North American PCB market has changed and its suppliers must make adjustments. However the worst is clearly over. Our focus is now on the magnitude and timing of the current recovery!
General Business Conditions
In 2001 China imported $16.6 billion in integrated circuits, a 25% increase over 2000, while exporting $2.5 billion in ICs, a 10% drop from the year earlier, according to Xinhua News Agency. China produced 6.4 billion units of ICs, a 9% increase over the previous year. Chinas exported $13.1 billion in computers, up 19% from the previous year, and $6.8 billion in computer peripheral equipment, up 8%.
The German electronics industry is expected to see zero growth in 2002, having remained steady at Euro163 billion in 2001, when 2% growth was forecast, according to the ZVEI industry association.
More than 600 million people will access the Internet worldwide, spending more than US$1 trillion by the end of 2002, according to International Data Corp. According to IDCs research, worldwide e-commerce spending grew 68 percent between 2000 and 2001, despite the economic recession and political unrest, reaching more than US$600 billion in 2001. IDC forecasts that e-commerce spending will pass the US$1 trillion in 2002.
Electronic Equipment
Computers
Dell Computer will shift all its Tennessee manufacturing from Nashville Lebanon, TN where the company already produces desktop computers.
Dataquest said that Palms share of the global PDA fell to 38.6% in 2001 from 50.4% in 2000. Palm shipped 5.1 million units, more than three times its nearest competitor. But Palms 2001 shipments were off from the 5.6 million in 2000. Shipments by No. 2 PDA maker Handspring rose in 2000 to 1.6 million, up from 1.4 million. Compaq rose 178% to 1.3 million units in 2001 and Hewlett-Packard shipped 711,000 units from 442,000 in 2000.
Mobile Communications
In the worst year in the history of the mobile-phone industry, market leader Nokia lifted its share of global shipments to 36% from 31% in 2000, while still maintaining an operating margin of 20%, according to Strategy Analytics.
Worldwide handset shipments, in millions of units
2001
2000
Percent Change
Nokia
140.0
128.4
+9.0
Motorola
58.6
51.0
+14.9
Samsung
28.6
21.9
+30.6
Siemens
28.4
29.2
- 2.7
Ericsson
27.9
43.3
-35.6
Others
109.5
141.2
-22.5
Total
393.4
415.0
-5.2%
Source: Strategy Analytics
Telson Electronics will construct a CDMA handset plant in China with the cooperation of Kongka Group. Telson expects 10% market share in Chinas CDMA mobile phone industry through the proposed plant. The companies have agreed to supply $60 million worth of CDMA handsets. Telson says its has become a backbone company of the radio telecommunication industry in South Korea for its production of mobile handsets, including brands such as Motorola and Nokia under strategic coalition.
LG Electronics established a JV CDMA handset manufacturing company in Chinas Shandong Province with a production capacity of 1.5 million units per year. LG Electronics invested $15 million in Langchao LG Digital Mobile Communication Co, and will make an additional investment of $45 million to fund further research and development into CDMA equipment production, sales and after-sales service.
More than 21 million North Americans will be using public wireless local area networks in 2007, attracted by the cheap and super fast remote Internet access provided in airports, shopping malls, coffee bars and hotels, according to Analysys. By 2007, Analysys predicts that the public WLAN market will equate to about 25% of mobile data service revenues and could cannibalize up to 7% of cellular data operator revenues in the US.
Matsushita, Manila, Philippines, will raise its output capacity for GSM and TDMA mobile phones two-fold by mid-2002, according to Kengo Toda, president of Matsushita Philippines. The Filipino plant will also begin the manufacture of e-pass devices in 2H02. These devices are car appliances mainly used for electronic toll payments.
Servers & Infrastructure
Global sales of the core routers that provide the backbone for the Internet and long-haul telecommunications networks fell 4% to $2.4 billion in 2001 driven by the economic slowdown, reduced spending by telecommunications carriers and a saturated market for long-distance network gear, Infonetics Research said. This compares to a 250% increase in 2000 vs. 1999. Cisco and Juniper continue to dominate the core router market. Cisco last year captured a 72% global revenue share and Juniper 26%.
Consumer Electronics
The European consumer electronics market declined 2.8% to Euro125 billion in 2001, vs. 2000, according to GfK, marketing institute. The German market declined by around 7%, enabling the UK to overtake it to become the largest consumer electronics market in Europe with growth of 10%.
Storage
World sales of hard disk drives reached slightly less than 200 mil units in 2001, with manufacturers now looking to develop new sources of revenue, particularly within the consumer electronics sector. Maxtor is forecasting 80%/y growth up to 2005 for sales of hard disk drives for use in digital TV decoders and next-generation video recorders, vs. only 7.5%/y growth for office PCs, 17.6% growth for servers and 14% growth for portable computers. Maxtor is estimated to have a 29% share of the hard disk drive market, vs. a 21% share for Seagate, and 13% shares for IBM and Fujitsu.
Great Wall Technology and IBM signed a $120 million JV contract to produce hard disk drives.
PCB Fabrication
M Wave agreed to ship $10-15 million of PCBs to Federal Signal Corp. under a 5-year supply chain management contract. Federal Signal, Oak brook, Ill., makes safety and rescue equipment.
Taiwan PCB maker Gold Circuit Electronics commenced mass production in its $50 million offshore plant in Suzhou, China. The plant will produce 4 & 6 layer rigid-flex PCBs. Gold Circuit also manufactures HDI, LAN and advanced and high-end multilayer PCBs with a current monthly output of 120,000 square meters.
Sheldahls wholly owned subsidiary, International Flex Technologies (IFT), will cease operations in its Endicott, New York facility by the end of May 2002. "Demand for the specialized products manufactured in Endicott has diminished, and we do not anticipate this demand to increase in the foreseeable future. As a result of these conditions and as part of our ongoing efforts to reduce costs, we have made the difficult decision to permanently close the Endicott facility," said Benoit Pouliquen, President and CEO of Sheldahl.
Eltek Ltd. has signed a memorandum of understanding to purchase 76% of a privately held German PCB manufacturer for approximately $2 million. The un-named German company specializes in short run and prototype boards, including multilayer, flex-rigid and high density interconnect (HDI). Its customers include companies engaged in telecommunications, defense, aerospace and industrial measurement equipment.
Nanjing Elec & Eltek Co. Ltd has completed the construction of its 5,560 square-meter plant in Nanjing Economy & Technology Development Zone in China. Monthly capacity is expected to reach 25,000 square-meters of double-sided and multilayer PCBs. The PCBs produced from this plant are targeted for use in communication devices, PCs, and consumer electronic products.
PPE (Photo Print Electronic), a subsidiary of Endress & Hauser (Switzerland), plans to close its mobile phone PCB production facility in Pulversheim, France, with the loss of 219 jobs. Business is being consolidated at PPEs existing German facility.
Aspocomp and handset component maker Perlos will form an equally-owned research and development company serving the telecom industry. The firm, to be called Asperation Oy, will focus on research and development of integrated components for the telecommunications and electronics industry, with products expected within the first year of operations. Aspocomp said both it and Perlos would also continue their own research and development activities.
Materials
DuPont announced the alignment of its businesses in five market- and technology-focused growth platforms. One group, DuPont Electronic & Communication Technologies has sales of $2.7 billion annually and comprises DuPont Electronic Technologies; DuPont Displays Technologies; DuPont Imaging Technologies; and DuPont Fluoroproducts, which includes fluoropolymers, fluorochemicals and fuel cells. These businesses are led by Group VP Diane Gulyas.
Honeywell Electronic Materials is introducing lead and lead-free AccuSpheres solder spheres. Ranging from 0.250mm to 0.762mm, this is the latest addition to HEMs Interconnect Packaging Solutions line of heat spreaders, stiffeners and wafer bumping materials. Solder spheres are used in volume production of area (BGA) packages.
Taiwan Union Technology started mass production of its Anti-CAF materials for high performance PCB applications.
PCB Assembly
Nordic contract manufacturer Note and Sanmina-SCI have announced plans to collaborate on production. Sanmina-SCI will fulfill high volume orders for international customers while Note will produce smaller volumes for local Nordic customers. The companies hope the agreement will enable customers to experience smooth transitions between order volumes.
Singapores CEI Contract Manufacturing Ltd signed a 3-year supply agreement with PerkinElmer Instruments. CEI will be the sole provider of PCB assemblies to PerkinElmer.
Flextronics will build a $20 million design and manufacturing facility focused on optical technology in Youngsville, N.C. The new facility will be one of two technology campuses in the U.S. for the contract electronics manufacturer and will create 1,500 new jobs over three years. The other technology campus is in Dallas. In the new facility, Flextronics will design, engineer, test and manufacture optical communications products, and the plant could be as large as 825,000 square feet in five years.
Solectron won the contract to provide repair services for Microsofts Xbox video game console in Asia. In October, Solectron won the contract to provide repair services in North America for the Xbox, which went on sale on Nov. 15.
James Mills retired as chairman of Viasystems board of directors. Mills had retired from his post as Viasystems CEO in July 2001. Replacing Mills will be Thomas Hicks, a Viasystems board member and chairman of the board of Hicks, Muse, Tate & Furst Incorporated.
Plexus and Tessera Technologies signed a licensing and services agreement enabling Plexus to utilize Tesseras CSP and Multi-Chip Packaging solutions to develop and manufacture miniaturized electronic devices.
Jabil Circuit will buy Compaq Computers manufacturing plant in Ayr, Scotland. About 240 Compaq employees in Ayr will join Jabil when the deal closes. The two companies will enter into a 3-year supply deal designating Jabil as the sole manufacturer of Ayr-built server product sub-assemblies and future products. Jabil will also become a strategic global supplier to Compaq.
Semiconductors
Annual worldwide silicon wafer area shipments declined by 29% and silicon industry revenues declined by 31% in 2001 according to Semiconductor Equipment and Materials International (SEMI). Silicon wafer area shipments in 2001 totaled 3,940 million square inches, down from the 5,551 million square inches shipped during 2000.
Revenues dropped to $5.2 billion from $7.5 billion posted in 2000.
1996
1997
1998
1999
2000
2001
Area Shipments (MSI)
3,693
3,955
3,613
4,469
5,551
3,940
Revenues ($B)
7.1
7.0
5.4
5.9
7.5
5.2
Intel, the leading chipmaker in 2001, saw sales fall 22.4% to $23.5 billion, ahead of Toshiba, whose sales declined 34.3% to $7.14 billion according to Gartner Dataquest. STMicroelectronics, ranked third, had a 19.4% decline to $6.36 B, ahead of Samsung down 40.3% to $6.32 B, Texas Instruments off 34.8% to $6 B, NEC with a 49.4% fall to $5.39 B, Motorola off 34.9% to 5 B, Hitachi down 35.2% to $4.72 B, Infineon Technologies off 32.4% to $4.54 B, and Philips Semiconductor down 29.2% to $4.44 billion.
The global semiconductor wafer fab utilization rate (Chart 5) has increased for the first time in nearly 18 months rising 1.7 points to 65.9%. The most recent increase is small in volume and reflects the reduction in inventory at semiconductor companies. But any significant expansion in production will certainly result in oversupply, as had been the case last year, one analyst said.
Semiconductor Equipment and Materials International (SEMI) reported that worldwide sales of semiconductor equipment totaled $28 billion in 2001, a 41% decline vs. 2000.
"The industry suffered its worst annual decline last year as end electronics markets and capital spending collapsed. The magnitude of the downturn was amplified in that it followed the single greatest growth year on record in our industry," said Stanley T. Myers, president and CEO of SEMI. "The good news is the apparent bottoming of the cycle as order trends have leveled and show slight improvement in the fourth quarter.
2000-2001 Semiconductor Capital Equipment Market by World Region
Region
2000 $M
2001 $M
% Change
North America
12,927
8,183
-36.6
Europe
6,442
3,822
-40.1
Japan
9,197
7,595
-17.4
Korea
3,873
2,194
-43.8
Taiwan
9,320
3,217
-65.4
ROW
5,939
3,053
-48.3
Total
47,680
28,065
-41.1
Visit us in booth #1820 at IPC Printed Circuits Expo 2002 in Long Beach, CA March 24-28, 2002.
Walt Custer Custer Consulting Group Phone: 707 785-1777 FAX: 707 785-1988custerconsulting.com
E-mail: wcuster@mindspring.com
This article was originally published in CircuiTree magazine and is reprinted here with permission.