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Message to North American PCB Makers . . . Focus Your Sales Efforts for Survival (Dec 2002)
December 3, 2002 |Estimated reading time: 14 minutes
Message to North American PCB Makers... Focus Your Sales Efforts for Survival by Walt Custer December 1, 2002
The November IPC TMRC meeting in New Orleans was excellent. EVERY speaker provided useful content for these difficult times. Many focused on the new realities of the North American PCB & EMS markets including the timing and magnitude of the coming recovery, the impact of unit and price degradation and the effect of the “Asian Shift” on our future available sales opportunities.
In his paper “Products, Technologies and Influences Shaping the Future of PCB Manufacturing,” Phil Plonski of Prismark Partners provided an interesting analysis of the likely domestic PCB segments that will remain USA-made “once the dust settles.” He listed five categories/reasons PCBs would continue to be produced in North America high technology, quick turn, small lot, secure supply and boards in transition (produced locally prior to possible sourcing in Asia) . Assuming a total available PCB opportunity (domestic production plus imported boards and subassemblies) of $8 billion in 2001, Phil estimated that optimistically $6.6 billion and pessimistically $5.9 billion of PCBs will be available to U.S. producers in 2006.
Considering that substantial North American PCB capacity that has already or soon will be removed, this remaining domestic opportunity of $5.9-6.6 billion should provide an attractive market for the surviving PCB fabricators. A smaller pie with fewer players will be the new reality!
Who will be the PCB makers that divide up this new pie? Companies with a strong balance sheet and a clear focus on the correct end markets will have the best chances.
We all want to be “survivors.” Disciplined sales strategies are needed to focus our efforts. Which OEM and EMS companies should we pursue? It may not always be on our traditional customers. With these rapidly changing markets, we will have to categorize potential customers by financial strength, growth prospects, end markets served and their likelihood of buying locally. Pursuing random, “opportunistic” pieces of business while biding our time waiting for our traditional customers to recover may not work. Why? Consider the following charts:
Chart 1 Communications (including Internet) equipment, our largest market segment during the CY2000 bubble, has now dropped to number 4. High-end computers, medical equipment, instruments, controls, and military electronics are now all performing better at least in the short term. While fixed telecom and Internet gear will certainly recover, our immediate target should be today´s higher growth markets? Chart 2 gives annual and 3-month growth rates by key sector.
Lucent (Chart 3), Sun Microsystems (Chart 4) and Cisco Systems (Chart 5) (all major PCB buyers two years ago) have taken big post-2000 “hits.” Watch these companies´ quarterly “guidance” for hints of a coming recovery. Cisco & Sun will probably begin growing in early to mid-2003; Lucent will take longer probably until 2004.
Medtronics (Chart 6), Teledyne (Chart 7) and Delphi (Chart 8) by contrast have been quite stable (no 2000 “boom”, no 2001/2002 “bust”).
Historical sales, earnings and inventory levels coupled with company “guidance” can be used as criteria for compiling a list of target customers by end-market. Custer Consulting tracks over 200 firms. Ask for an evaluation copy of our revenue charts. Use this list in your next sales meeting!
General Business Conditions
Worldwide IT spending will climb slightly in 2002, with revenue totaling $2.3 trillion, a 3.4% increase from 2001, according to Dataquest. “Our forecast shows that we are unlikely to see anything beyond normal seasonality before the second quarter of 2003,” said Dataquest´s George Shiffler.
Combined, electronics manufacturing services (EMS) and original design manufacturers (ODM) captured 20% of the electronics and IT total available market (TAM) in 2001, according to IDC. “The fact that only 20% of the TAM has been outsourced underlines the tremendous opportunity for future growth within the contract manufacturing industry. We expect that contract manufacturing will capture 27% of the TAM by 2006,” according to IDC´s Kevin Kane.
Electronic Equipment
Computers
Worldwide PC shipments (Chart 9) in the 3Q´02 increased 5.8% from the same period last year, but there were still few signs of industry improvement. "In 3Q´01 the worldwide market declined 12.4% compared to the previous year, in part because of the shipment stoppages immediately following the terrorist attacks of Sept. 11," said Dataquest´s Charles Smulders "Therefore, in 3Q´02, year-on-year growth rates artificially inflate the true shipment picture."
Despite difficult market conditions, Dell's worldwide PC shipments (Chart 10) grew 20.7% in 3Q´02, and its market share in the United States reached 28.9%. Hewlett-Packard showed some improvement in the third quarter of 2002, arresting the pace of decline the combined companies had experienced in previous quarters.
Mobile Communications
Nokia CEO Jorma Ollila stated in mid-October "In the fourth quarter, we expect a substantial increase in our market share, leading to a new record level," Ollila also said he expected "normal seasonality" in handset demand in the fourth quarter, with double-digit growth in mobile phone sales for the industry compared to the July-September period.
Servers & Infrastructure
Worldwide server shipments (Chart 11) reached 1.1 million during 3Q´02, compared with 1.07 million units for 3Q´01. U.S. server shipments grew by 12.2% in the same period.
PCB Fabrication
Carolina Circuits, Greenville, SC will shut down. Matt Roszell, spokesman for Solectron, Carolina Circuits' parent company, said it was unable to sell the plant to Asia ITN Ltd., a Taiwan-based electronics company. Originally built by DEC in the early 1980s this plant employed about 470 workers before a series of layoffs beginning in mid-2001.
Coretec appointed Gareth Parry as Chief Technology Officer. Mr. Parry has over 15 years of experience in the PCB industry, all in senior engineering roles with leading companies such as Hadco, Sanmina and Coretec.
Data Circuits, San Jose announced that “In the midst of the worst recession in the history of the electronics industry . . . it has chosen to hit the recession head-on, investing in capital equipment, advanced technology, and human resources. With production manufacturing and capacity shifting offshore, DCS plans to sustain its focus and core competence in support of North America´s product research and development effort.”
DDi announced additional restructuring measures aimed at improving cost absorption. These actions include the write-down of unutilized assets to their net realizable value, the streamlining of facilities to improve manufacturing efficiency within its Anaheim, California campus, and the elimination of certain sales offices including the office based in Tokyo, Japan.
Electropac will combine Printed Circuit Corporation, Woburn, MA´s business base into Electropac´s manufacturing operations in New Hampshire and Canada. PCC has agreed to transfer key intellectual property, customer and engineering data, and certain personnel and assets to Electropac.
Endicott Interconnect Technologies named James J. McNamara Jr., 55, president and CEO. McNamara formerly spent 30 years with AMP, now Tyco Electronics.
Fujitsu Interconnect Services (Kawasaki, Japan) is the name of a new company launched by Fujitsu to handle the company´s entire PCB operations, including design, production and consulting activities. It will employ 400 workers and will target mainly the N American market.
Nippon Seiki is boosting production in Thailand of PCBs for automobile gauges. With four new lines in operation, chip-mounting capacity at the plant will rise 50% and PCB output will be boosted to 1.52 million units in fiscal 2003, three times the volume produced in fiscal 2001. The move is also intended to reduce group costs because production in Thailand is relatively inexpensive. Additional output from the Thai plant will be exported to Europe, the U.S. and Japan. In fiscal 2001, Nippon Seiki made 5.03 million automobile gauges worldwide, and group companies produced the PCBs for two-thirds of these.
Nitto Denko is building a factory for PCBs mainly used in mobile phones in Suzhou, China, at a cost of more than 10 billion yen. Products from the factory, which will come on stream early next year, will be exported worldwide.
Philips India will sell its PCB manufacturing and assembly unit at Pimpri (Pune) to the newly formed PCB Contract Manufacturing Services (India). This follows the decision of PIL´s parent, Koninklike Philips Electronics, to sell its global CEM and PCB business to Jabil Circuit.
Samsung Electro-Mechanics will invest 214.7 billion won from the fourth quarter through to 3Q´02 on its HDI and BGA PCB operations. Most of the investment will be used to upgrade existing equipment and production lines to cope with an increase in demand in components.
Taiwan´s PCB industry has attracted greater orders by slashing prices, the Industrial and Economics Knowledge Center reported. Despite lower prices, revenues have grown from 2001. Publicly-listed PCB makers saw September revenues rise nearly 7% from August. During the first nine months of 2002, their revenues grew 8% year-on-year to over NT$80 billion. However Taiwan PCB makers have seen inventory pile up throughout the first half of this year.
Materials & Process Equipment
The Chinese government has dramatically reduced its restrictive dry film photoresist import tax (from about 100% to 10%).
Tecnomatix Technologies has purchased Teradyne's CIMBridge CAD/CAM optimization software product line. Tecnomatix Unicam will incorporate the software into its manufacturing process management (MPM) product line.
Electronic Manufacturing Services
Agilent´s Liberty Lake, Washington PCB assembly operations will be shut down and about 300 jobs will be eliminated over the next year. Venture Manufacturing of Singapore, initially named as a buyer of this facility, has withdrawn from negotiations. The Liberty Lake site is the last of 16 PCB plants once operated by Agilent and its corporate predecessor, Hewlett-Packard.
Asustek Computer will create an assembly and maintenance center in Rudna Logistic Park near Prague, Czech Republic with an initial investment of US$3 million. Asustek chose the Czech Republic over Hungary and Poland due to the country´s cheap labor rates, its transportation links and more importantly, a 10-year corporate income tax waiver offered by the government for foreign investments of US$3 million and above.
First International Computer secured new orders from Hewlett Packard for over 50,000 desktop computers to be shipped in the fourth quarter according to an industry observer. Foxconn (Hon Hai Precision Industrial) is reportedly another key HP personal computer supplier.
Flextronics acquired Azisa, a software and hardware engineering services company based in South Africa. The acquisition strengthens Flextronics´ software design service offerings and provides greater penetration in the telecommunications and networking industries. In addition, it allows Flextronics to establish design and development facilities in a low-cost region and increase its global footprint.
Tyco Electronics will begin manufacturing components at Flextronics' Industrial Park in Doumen, China. Tyco will lease manufacturing space from Flextronics and will manufacture a variety of components including connectors, cables and battery packs. Flextronics CEO Michael Marks stated "The fit is natural. Once customers visit the park and see both component manufacturing and final assembly taking place in one location, they will recognize the advantages created by shortening the supply chain."
Nam Tai Electronics completed construction of its new 5-story 138,000 SF factory. Together with the existing manufacturing capacity of approximately 488,000 SF, Nam Tai´s manufacturing capacity, all based in China, is increased to approximately 626,000 SF.
NMS Communications and Plexus entered into an outsourcing manufacturing agreement. NMS will immediately transition its product supply, circuit pack manufacturing, and customer order fulfillment to Plexus.
IBM appointed Sanmina-SCI Penang to produce its full range of desktop PCs for the South-East Asian and South Asian markets. “The initiative places IBM in a stronger position than ever to service and meet the demands of the Malaysian PC industry as it translates into a faster delivery cycle due to the logistics advantage. Likewise, it will allow us to deliver products faster and more efficiently to customers in countries like Singapore, Indonesia, the Philippines and Vietnam” said IBM´s Asean/South Asia PC division director Ou Shian Waei.
Sanmina-SCI opened a new $A2 million, 80-person plant in Sidney Australia to fill a gap left by the closure of Solectron. Its first customer will be IBM. This plant adds to the capacity of Sanmina-SCI´s Perth plant.
Sanmina-SCI will close its plant in Tikkakoski, central Finland, at the end of March 2003. The Tikkakoski plant currently employs 300 workers and administrative staff. Sanmina´s most significant client in Finland has been Nokia. Sanmina-SCI has production plants also in Haukipudas, western Finland, and Salo, southwestern Finland.
Sanmina-SCI warned in late October that it plans further cutbacks in all areas of its operations, particularly in PCB fab, a move affecting as many 24 of its 100 sites worldwide. Company executives said most of the cuts will be in the “high costs areas” of North America and Europe. CEO Randy Furr estimated that the company will take as much as 3.5 million SF of factory space out of production, with cutbacks affecting all segments of the company. Sanmina-SCI said revenues in the PCB fabrication business declined by 10% in 3Q´02. The PCB segment reported a $10 million loss for the period, following expectations of break-even status for the quarter. Its estimated $100 million in quarterly PCB sales is a dramatic decline from the $485 million it recorded at its peak in 4Q´00. “We don´t want to (close plants), but we have no other choice than that because losing money in a business is unacceptable,” Furr said. It said it had no plans to move complex PCB manufacturing to China because that market still demands the lower-end boards. The actions to remove capacity will be taken over the next four to five quarters costing as much as $250 million in restructuring charges.
Solectron sold manufacturing plants in Melbourne, FL and Juarez, Mexico to Mack Technologies. “This is a significant move for Mack Technologies and enhances our service offerings with the addition of increased technical capabilities in the area of wireless infrastructure products and fiber optic assemblies,” said Ron Jellison, president of Mack Technologies. “Moreover, we are adding a low cost manufacturing solution critical to many of our customers.” Mack Technologies is a wholly-owned subsidiary of The Mack Group, which is headquartered in Arlington, VT.
Solectron said it has reached an agreement with Lucent Technologies to unwind an outsourcing and asset purchase deal completed last May. Under the original 3-year deal, Solectron bought certain equipment and inventory at Lucent´s optical networking operations in North Andover, Massachusetts for about $100 million.
XeTel filed for Chapter 11 bankruptcy protection and asked the court to approve an emergency sale of some assets to Celestica Acquisition Corp. for about $2.25 million, subject to adjustments. The sale would include inventory and fixed assets as well as the transfer of customers and employees.
Yang An Electronics will construct a PCB plant in Wuxi, mainland China. James Yang, president, stated, “We have already purchased a land in Wuxi. Construction is scheduled to begin in February next year, and to be completed at the end of 2003. Mass production is set to start in early 2004.” The plant´s initial capacity is expected to reach 200,000 SF of 4-layer PCBs for PC motherboards. Yang added, “We plan to also produce models designed for use in notebook computers and optical boards.” Yang stated, “Prices for Taiwan-made motherboards decreased by 10-15% beginning early this year and until now. In order to offer competitive prices, we have to launch offshore factories in mainland China.”
Zincocelere is once again Italian-owned thanks to a 10 million Euro management buy out (from Viasystems) by four managers and supported by Centrobanca. Zincocelere, established in 1959, has two production sites in Cavagliˆ (BI) and Pont St. Martin (AO). It currently employs around 700 people and has annual sales of 60 million Euros, 70% of which are exports.
Semiconductors
Global semiconductor sales climbed to $36.9 billion in 3Q´02, an 8.2% sequential increase from $34.1 billion in 2Q´02 and a 21% rise from 3Q´01. “The recovery of the semiconductor industry has picked up breadth and strength as the year has progressed,” stated SIA President George Scalise. “We achieved solid 8.2% revenue growth in the September quarter, following 5.6% sequential growth in 1Q´02 and 5.8% growth in 2Q´02, with momentum across major product sectors, including wireless, digital consumer products, PCs and automotive.”
North American semiconductor equipment orders fell 19% to $823 million in September from August as a slow rebound in the chip industry prompted chipmakers to hold back on capital spending per SEMI. The September book-to-bill ratio fell to 0.84
Other
As part of a NIST federally sponsored research and development initiative, DuPont and Sarnoff Corporation will develop new organic-thin film transistor (organic-TFT) technology on plastic substrates. Organic-TFTs can offer major advances in commercializing future generation flexible display devices such as full-color polymer-based active matrix OLED (AM-OLED) displays. Lucent Technologies´ Bell Labs will be subcontracted to develop a new class of organic-TFT materials and design processes.
STMicroelectronics has developed silicon-based light emitters that match the efficiency of light emitters based on traditional materials such as gallium arsenide (GaAs). To date, it has not been possible to combine optical and electrical functions on a single silicon chip because silicon light emitters were too inefficient. The new technology is based on a structure in which ions of rare earth metals such as erbium and cerium are implanted in a layer of Silicon Rich Oxide - silicon dioxide that has been enriched with silicon nanocrystals smaller than two nanometers in diameter. The light emitters are 100 times more efficient than any previous silicon-based emitters and are comparable to traditional products, STM said. The frequency of the emitted light varies depending on the metal used.
Walt Custer Custer Consulting Group Phone: 707 785-1777 FAX: 707 785-1988custerconsulting.com
E-mail: walt@custerconsulting.com
This article was originally published in CircuiTree magazine and is reprinted here with permission.