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North American Electronics Outlook: Double-Dip Recession, Flat 2003 or Hockey Stick Recovery? (May 2003)
May 15, 2003 |Estimated reading time: 18 minutes
North American Electronics Outlook: Double-Dip Recession, Flat 2003 or Hockey Stick Recovery? by Walt Custer May 1, 2003
As I write this column in early April, the Iraqi war and the SARS virus have clouded most forecasters’ crystal balls. Consumer confidence (Chart 1) is at its lowest level since 1993 and, in spite of low inventories, purchasing managers are delaying orders (Chart 2). The patterns of both the PMI (Institute for Supply Management) and EBI (Electronic Buyers News) buying indices suggest that we are headed into a nasty double-dip recession. This concern is not limited to the USA. Global semiconductor shipments (Chart 3) peaked last fall and have dipped noticeably in recent months. It appears that electronic equipment production has slowed globally – and the dip is most noticeable in SE Asia.
In Japan, electronic equipment production has shown a gradual decline since 2000 with no obvious turnaround (Chart 4). Domestically, based upon U.S. electronic equipment orders, we appeared to be on our way to a recovery in January only to see war concerns and reduced business confidence cause orders to drop again in February (Chart 5).
Looking at the U.S. end markets, military electronics (Chart 6) and medical equipment are the only sectors showing consistent increases. However, many of large market segments are still depressed. In spite of a SEMI book-to-bill ratio near 1.0, actual orders for semiconductor fab, test & measurement equipment (Chart 7) are only 26% of their 2000 peak.
Communications equipment, North America’s irrepressible CY2000 growth engine, crashed in early 2001 and has been wallowing ever since. Globally, only Nokia (with increased mobile phone share) has grown from 2000 to 2002 (Chart 8). Growth patterns clearly vary with end market. Internet equipment supplier Cisco recovered in 2002, but the wired-telecom producers continued to have very difficult times. Looking at the seven largest communications companies on a composite quarterly basis (Chart 9), it appears that the industry has “bottomed” but is not yet showing any signs of recovery. Assuming a speedy resolution to the Iraqi situation, a fixed-telecom rebound still appears at least 12-18 months away.
As the industry remains in the doldrums, one interesting trend has recently emerged. Per Chart 10 the “Asian shift” may have slowed. In fact based upon chip consumption, SE Asia’s “electronic equipment share” has dropped from its peak of almost 39% to 35% in recent months. This may be primarily a seasonal effect (heavy pre-holiday PC & cell phone production in China) but it may also mean the OEMs are spreading their production geographically. Too many “eggs in one basket” can be dangerous, especially in periods of global unrest and health scares.
So . . . what can we expect in 2003 - Double-Dip recession, flat demand or hockey stick recovery? Here are some domestic possibilities:
Double-Dip Recession: Iraqi situation deteriorates further, consumer & business confidence remain low and oil prices exceed $40/barrel. Ongoing national security scares squelch attempts at recovery.
Flat 2003: Iraqi war drags on with no imminent resolution likely. Minimal internal U.S. impact. Bush administration pays little attention to domestic economy
Hockey stick recovery: Iraqi situation resolved quickly. Bush administration shifts focus to domestic economic growth. Demand rebounds accelerated by inventory replenishment Or SE Asian supply chain disrupted by SARS virus and/or North Korea unrest. Low pricing becomes less important than availability. OEMs seek domestic suppliers but find substantial capacity has been shuttered. Entire North American supply chain rushes to rebuild capacity. Panic ordering and inventory building prevails
All these scenarios are possible. My guess – a flat 2003 demand but we’ll see.
Electronic Equipment
Mobile Communications
Worldwide mobile phone unit sales totaled 423.4 million units in 2002, up 6% from 2001, according to Dataquest. “Consumers embraced a variety of innovative handsets, especially those with color screens, rather than delaying replacement purchases because of an ongoing lack of compelling mobile data services,” said Dataquest’s Bryan Prohm.
Worldwide Mobile Phone Sales to End-User Estimates for 2002 (Millions of Units)
Company 2002 Sales 2002 Share % 2001 Sales 2001 Share % 02/01 growth% Nokia 151.4 35.8 139.7 35.0 8.4 Motorola 64.6 15.3 59.1 14.8 9.4 Samsung 41.7 9.8 28.2 7.1 47.6 Siemens 34.6 8.2 29.8 7.4 16.4 SonyEricsson 23.1 5.5 27.0 6.7 -14.3 Others 107.9 25.5 115.9 29.0 -6.8 Total 423.4 100.0 399.6 100.0 6.0
Note: Ericsson sales only in 2001. Sony 2001 sales included in “Others.” Table does not include iDEN sales to end-users.
Source: Gartner Dataquest
Servers & Infrastructure
Cisco Systems bought Linksys for $500 million. Networking equipment sales to small and home offices will grow from $3.7 billion in 2002 to $7.5 billion in 2006, per Dell’Oro Group and Synergy.
Huawei Technologies, China’s largest telecom equipment vendor formed a JV with 3Com. 3Com will contribute US$160 million in cash and assets related to its operations in China and Japan. Huawei will contribute its enterprise networking business assets and licenses to its related IPRs. Huawei will own 51% and 3Com 49% of the JV.
Displays
Global LCD monitor shipments will triple by 2005 according to the Japan Electronics and Information Technology Industries Association.
Global Display Shipments (Millions of Units)
2002 Growth % 2005 Forecast 2005/2002 Growth % LCD Monitors 30.4 98 95.2 213 CRT Monitors 78.0 -20 47.1 -40 Notebook LCDs 30.6 18% 46.8 53%
Source: JEITA
PCB Fabrication
Compeq Manufacturing was the top Taiwanese PCB manufacturer in 2002, followed by World Wiser Electronics and Nan Ya Printed Circuit Board, according to the TPCA. The ranking was based on total revenues both in China and Taiwan, including non-PCB sales.
Coretec adopted a Shareholder Rights Plan that is generally consistent with Canadian corporate practice and addresses institutional investor guidelines.
Dai Nippon Printing developed a thin high-density, multilayer PCB that does not use a glass epoxy resin substrate. Circuit layers for the build-up board are piled up on a metal substrate, which is then removed, producing a board 80% thinner than existing ones. Target markets include mobile phone handsets and notebook computers.
Data Circuit Systems, San Jose, CA completed a 3-day ISO 9001:2000 upgrade audit and has been registered to the ISO 9001/2000 international quality standard by UL.
Dynamic Details (VA) met all requirements for certification by the Defense Supply Center, Columbus for MIL-PRF-31032.
DDi named CFO Joe Gisch Senior VP, Strategic Planning & Business Development to lead its financial restructuring. John Stumpf was appointed CFO.
DDi announced that its forbearance agreement with its senior lenders expired April1. CEO Bruce McMaster stated, “We continue to work with our senior lenders, subordinated convertible noteholders and other stakeholders to restructure our debt. We believe our efforts to date have been constructive and we are committed to continuing these on-going efforts.”
Elec & Eltek appointed Thomas Tang to replace David So as chairman. Tang, executive director of the Hong Kong Productivity Council since 1997, was also appointed managing director. Three other executive directors - Marcus Tsang, Wilson Tam and Johnny Ng also resigned. Tam and Ng also left their deputy chairman and managing director posts.
Laminate maker Kingboard Chemical Holdings increased its ownership of Elec & Eltek stock – leading to speculation that Kingboard was pursuing a controlling stake.
M~Wave entered into a Forbearance Agreement with Bank One relating to M~Wave’s outstanding Industrial Bond debt. Terms are detailed in M~Wave’s recent 10-K filing.
Marlo Electronics, Ft Lauderdale, FL reported a significant increase in PCB orders for military electronics. President Mark Goddard said the upturn is similar to what his family-owned business saw before and during the last major U.S. military operation in the Middle East.
Meiko Electronics and Circuit-Wise are merging operations. Both companies retained the services of ATOMIC29 to support the commercial and technical requirements associated with the merger.
Pou Chen, Taiwan and CMK, Japan set up a JV CMK-GBM to produce high-end PCBs. Planned monthly PCB capacity is 100,000 square meters initially expanding to 130,000 square meters in 2H’03. CMK-GBM is capitalized at US$10 million, with Pou Chen holding 51% and CMK 49%. CMK-GBM expects revenue of US$100 million this year.
Sheldahl‘s former Longmont, CO facility was liquidated. Sheldahl originally invested over $70,000,000 in this plant dedicated to Chip Carriers and Interconnect devices using roll to roll flexible circuitry
Toppan Electronics closed its 108,000 sq. ft. PCB factory in San Diego, cutting 260 jobs. Toppan Printing is moving production to other plants in Japan and the Philippines, said Jerry Barnes, president and COO of Toppan Electronics.
Unimicron Technology is constructing a flip-chip plant in Shan Yi, Taiwan. Monthly capacity is set at two million 35mm-by-35mm flip-chip units. Unimicron’s Michael Lin said, “The Company is planning to invest about US$ 28.83 million in its two Taiwan plants this year. About 70-80 % of the amount will be allocated in the new flip-chip plant. The other Taiwan plant focuses on HDI-type multilayer PCBs and mini BGAs.”
Materials, Process Equipment & Services
The first Scottish government-backed training center for PCB designers will start its full-time undergraduate degree course in October. Based at Melrose, it also offers vocational training, creating distance-learning modules for the Advanced Microelectronics for Industrialists scheme.
Cookson named Robert Beeston non-executive Director and Chairman of the Board. Beeston succeeds Bryan Nicholson as Cookson‘s Chairman.
DuPont formed DuPont Photonics Technologies to develop, manufacture and market planar integrated photonic devices for optical networks for the telecommunications industry. Drew Weber was named general manager.
Enthone promoted Amy Tsang to Director of Marketing – Performance Coatings, Asia.
Excellon Automation will provide service, spare parts and support for Dynamotion drilling machines following ESI’s decision to exit the mechanical drilling business.
Isola Laminate Systems’ new Technology Center will open August 2003 in Chandler, AZ. Situated adjacent to Isola’s manufacturing operation, it will house Isola’s US research and development team, dedicated product development manufacturing equipment and associated laboratories.
Isola’s parent RÜTGERS wishes to sell Isola as it focuses on mining, real estate and chemicals. Isola recently appointed Christopher Auger as its new President.
Jiangxi Copper, the largest copper producer in China, formed a JV with American Yates to produce copper foil. The 580 million yuan JV plant, to be completed in 18 months in Nanchang City, Jiangxi Province, is designed to produce 6,000 tons of fine copper foil a year, mainly for PCBs.
Kingboard Chemical will spend HK$600 million to expand its China laminate capacity. Director Chadwick Mok Cham-hung said monthly production capacity at the company’s new paper laminate plant, completed last December, would double to 2,600 tons this year.
Mitsui Mining set up an R&D company in the U.S. to develop advanced capacitor material. It also signed a worldwide licensing agreement with Sanmina-SCI to manufacture and market thin film-based capacitors.
Park Electrochemical closed its Dielektra, Germany mass lamination operation saying that it did not believe that at “any time in the foreseeable future,” the higher-end European mass lamination market will recover enough to resume operations.
Nippon Mining Holdings will increase its capacity of rolled copper foil 150% by July 2004. It now makes 2 million meters a month at an Ibaraki Prefecture plant. After expanding facilities, the firm will be making about 4 million meters’ in Japan and 1 million meters in the Philippines.
Noah Systems agreed with MANIA AG for Noah to continue business activities of Non Contact Bare Board Test Equipment under its own label.
Orbotech’s European subsidiary appointed Zohar Weizinger and Ofer Argov as Co-Presidents. Mr. Weizinger was VP of Sales and Mr. Argov was VP of Finance and Operations at Orbotech S.A. Weizinger and Argov replace Chanoch Biran, who was made Corporate VP of Business Development & Marketing at Orbotech Ltd.
Sanmina-SCI licensed Oak-Mitsui Technologies regarding its ZBC Buried Capacitance technology. Under this agreement, Oak-Mitsui FaradFlex materials will be available to Sanmina-SCI’s existing licensed PCB manufacturers.
Shipley sold its dry film photoresist business to Eternal Chemical, Taiwan. Shipley will close its Moss Point, MS and Warrington, UK dry film resist manufacturing operations. Eternal will manufacture its expanded dry film product line under the Eternal company label. Shipley will distribute the entire Eternal dry film photoresist product line in North America and Europe as well as to Shipley’s existing customers in Asia.
Shipley formed a partnership with New Hampshire based Copper to Copper LLC. Shipley will become the exclusive distributor of C2C copper and aluminum lamination foils for multilayer PCBs.
Taiyo America and Schenectady International have partnered to develop, manufacture and sell waterborne photoimageable etch resists and solder masks in North America.
Taiyo America’s alliance with Circuit Automation has yielded methods for hole plugging and the production of flat, planar, controlled thickness solder mask by combining liquid coating and dry film vacuum lamination techniques.
Westwind Air Bearings opened its new manufacturing facilities in Suzhou, China.
Electronic Manufacturing Services
Manufacturing Market Insider www.mfgmkt.com released its annual MMI Top 50™ list of the world’s largest EMS providers. Together, these 50 companies accounted for 2002 sales of $73.5 billion, a 4.4% decline from 2001. “It could have been worse,” said Manufacturing Market Insider’s John Tuck. “Despite a second straight year of weak end markets, 14 Top 50 companies, including seven based in Asia, enjoyed growth over 20%. These companies helped to bring the overall decline below 5%.” Based on an EMS market size of about $93 billion for 2002, the Top 50 claimed a market share of 79%.
Asustek Computer is acquiring Elitegroup’s Chungli plant for over 980 million NT$. “It remains too early to speculate on how the newly-acquired asset will contribute to revenue flows going forward. We have yet to decide what we are going to make at the Chungli plant,” Asustek CFO Alexander Lee said.
Beyonics Technology, Singapore will buy Flairis Technology for S$44 million creating a combined EMS company with S$1 billion (US$1=S$1.76) in annual revenue.
Boundless Corporation filed voluntarily petitions for Chapter 11 bankruptcy reorganization. It is working with a DIP financier to obtain operating capital as it reorganizes. Boundless Corporation is composed of two subsidiaries: Boundless Technologies, a desktop display products company, and Boundless Manufacturing Services, an EMS company provider.
Celestica’s Sr. VP of global supply chain management and information technology, Iain Kennedy said one of his main objectives is to make the EMS provider more nimble. “Since so much more manufacturing capacity in the EMS space is relocating to Asia, having expertise in sourcing, supplier engineering, and all those elements that are important from a purchasing and commodity management perspective in Asia will be a critical factor for success going forward,” Kennedy said. “We would like 70% of our manufacturing capacity in Asia at year’s end.” “Our performance in Europe was the reflection of anticipated cost reductions that did not materialize on time,” Kennedy said. “The restructuring activity we have in place should result in improvements in 2003.
Celestica relocated its chief procurement executive, Karlheinz Totz, from Zurich, Switzerland, to Singapore to boost its Asia sourcing efforts. “Totz has an Asian team distributed throughout Hong Kong, mainland China, and elsewhere in Asia,” said Celestica’s Iain Kennedy.
Elcoteq Network will cut up to 160 jobs at its plant in Lohja, Finland, which makes mobile phones and equipment for cellphone networks. Elcoteq said the goal is to return the plant to profitability this year.
Elcoteq Network acquired the U.S. new product introduction company NPRC – renaming it Elcoteq NPI Dallas.
Elcoteq will launch custom mobile phone design platforms and development services, aimed at its OEM customers. Included are touchscreen PDA functionality, embedded digital cameras, multimedia and messaging functions.
Flextronics and Lite-On formed a supply chain alliance for Greater China to reduce overall procurement costs.
Flextronics said its ODM endeavors will be more profitable than its traditional EMS business within the next 4-6 quarters. “We have dozens of ODM designs in development in the handheld area with a mix of features and capabilities,” said CEO Michael Marks. “We believe customers that initially select us [as an EMS provider] will use these designs.” Flextronics entered the ODM sector last year with the development of PhoneOne, a generic cell phone that offers price-sensitive OEMs a low-cost manufacturing solution using the company’s factory base and design services in Asia.
Flextronics secured $200 million from U.S. investment firm Silver Lake Partners, which expects the company to benefit from increasing outsourced production of high-tech products.
Flextronics started production of various Siemens mobile phones at its new plant in Zalaegerszeg, Hungary. Flextronics will hire up to several hundred workers to meet new orders. Flextronics Hungary generated sales of Forint573 billion in 2001, vs. Forint245 billion in 2000.
Foxconn reportedly will build a mobile phone assembly plant in Budapest, Hungary, to shorten time-to-market for its shipments to Europe. Nokia in 4Q’02 moved all of its handset assembly orders from Solectron to Foxconn and awarded it component purchasing rights.
Foxconn CZ, Pardubice, Czech Republic quadrupled its turnover last year by assembling and exporting computer workstations for Hewlett-Packard and Apple. Revenues reached Kc 37 billion ($1.27 billion). The company has invested about $50 million in setting up the factory since 2000.
Hon Hai Precision received an order to make millions of handsets for U.S. UTStarcom using personal handyphone system. PHS phones cover a smaller area than GSM or GPRS.
Jabil Circuit, under a manufacturing supply agreement with NEC, will lease a NEC facility in Gotemba, Japan and hire about 250 NEC workers to assemble transmission and studio equipment used in television and radio broadcasting.
Jabil Circuit will locate a senior procurement manager in Shanghai, and has hired a senior procurement manager in Malaysia. Jabil also placed a VP of supply chain management in Singapore and expanded its procurement presence in Asia.
Jaco Electronics put its EMS subsidiary Nexus Custom Electronics up for sale to raise funds needed to take its core distribution business global.
Lightspeed Manufacturing, Methuen, MA, a new EMS provider, was opened by Rich Breault, whose previous enterprise NETCO Automation provided BGA services and prototype development.
Mansei, a distributor affiliated with Mitsubishi Electric will enter the EMS business. It set up a subsidiary in Hong Kong and EMS relationships in Taiwan and will lease manufacturing facilities in Shenzhen, China, and seek orders from Japanese firms.
Nam Tai Electronics appointed Guy Bindels R&D Director. Before joining Nam Tai, he was the Product Development Manager of Atlinks Hong Kong, a subsidiary of the Alcatel /Thomson multimedia JV company.
Pemstar will increase its ODM capabilities - saying it will have between 8-12 reference designs available for OEMs. “Our objective is products that go across multiple markets,” said Pemstar president Al Berning. “We intend to develop reference designs for communications, computing, medical, industrial, and wireless.”
Pou Chen, Taiwan invested in new IT hardware subsidiary in mainland China with an initial goal of contract production orders from leading home appliance and IT brands in mainland China, including the Haier Group and Legend Group.
Sanmina-SCI started offering computer and storage makers production-ready designs and products using standards defined by the InfiniBand Trade Association. Sanmina-SCI said it will use InfiniBand switched network technology to increase the bandwidth of computer and storage system processors.
Solectron will cut costs $300 million over the next several quarters, shed 3 million sq. ft. of manufacturing space and reduce its work force by 12,000 people. After the cuts it will have 13 million sq. ft. of manufacturing space and 62,000 employees.
Asyst Technologies is outsourcing virtually all production to Solectron, Singapore. Shinei International, a Solectron unit, will make semiconductor manufacturing equipment for Asyst at a new 16,000 square feet clean room in western Singapore.
Solectron completed its acquisition of IBM’s global asset recovery operations in Raleigh, N.C. Solectron bought the unit, which restores end-of-lease PCs, as part of a 3-year supply agreement with IBM valued at $120 million.
Solectron will manufacture the first lead-free product for Olympus Technologies Singapore. Solectron is providing lead-free PCB assembly, testing and volume manufacturing for a miniature optical scan engine designed by Olympus for one of its OEM customers.
Solectron, Dunfermline, Scotland, which makes IT and telecommunication parts, will cut 330 jobs. The economic downturn and customer demands for lower costs were blamed for the losses. Solectron VP Bill Nixon said: “There is no clear view as to when the outlook will begin to improve.”
Solectron named David Everett Executive VP, Worldwide Sales and Account Management reporting to Mike Cannon, President and CEO.
Suntron expanded its Tijuana, Mexico, facility to include automated SMT production. Suntron’s Mexico facility focuses on high mix, complex electronics manufacturing services, specializing in quick turn assembly of printed circuit cards, cable and harnesses, and box build.
Suntron partnered with MasterWorks to provide remanufacturing services initially focused on computer products. Founded in 1992, MasterWorks is a provider of remanufactured computer products for such companies as HP, Compaq, Dell, and IBM.
Teradyne Connection Systems plans to attract more clients by transforming its EMS unit into a value-added Technology, Design, and Manufacturing Services business. A number of contract manufacturers have embraced TDMS as a means to stand out from traditional EMS PCB assembly services.
The commercial court of Rouen, Normandy, France, rejected the takeover bid of French sheet metal manufacturer GMD for French telecommunications equipment producer Viasystems France, following a protest of the employees and trade unions. The court granted a delay to two other bidders to specify their offers until April 1, 2003.
Two former executives of Beaverton, Oregon EMS provider Laughlin-Wilt Group have acquired the company and renamed it Vanguard EMS. Floyd Sutz, President, and William Winther, VP of Operations, bought the company from Viasystems Group, which had acquired LWG in November 2000.
Wistron will ship about two million Microsoft Xbox game consoles this year. In second half of 2002 Wistron built two game console production lines in Zhongshan, Guangdong Province. Currently, their capacity has reached 30,000 units per week. The Taiwan-based Industrial Technology Information Service projected that worldwide game console shipments will reach 46.2 million units this year.
Semiconductors
Worldwide semiconductor sales totaled $11.8 billion in February 2003, a 3.3% decrease from the $12.2 billion in January 2003 and an 18% increase from $10.0 billion in February 2002. “The recovery in the semiconductor industry that has been underway for more than fifteen months appears to have stalled in February,” said SIA President George Scalise. “Demand has softened in the markets that drove growth throughout the past year, including PC’s, global wireless and consumer. The traditional seasonally flat first quarter has been further impacted this year by geopolitical uncertainty. We expect demand to strengthen as we approach the second half of the year resulting in growth for the year in double digits,” Scalise stated.
North American-based manufacturers of semiconductor equipment posted $782 million in orders in February 2003 (3-month average basis) and a book-to-bill ratio of 0.99, according to SEMI. “Bookings of new semiconductor manufacturing equipment have remained essentially flat for the last six months and as a result, a number of equipment manufacturers have announced recently plans for further consolidating and restructuring of operations and product offerings,” said Stanley Myers, president and CEO of SEMI. “While the bookings outlook appears sluggish, over 20 new fabs are expected to begin production in the next two years.”
Dataquest released its new top 20 IC vendor rankings in terms of worldwide sales for 2002.
Top 20 Global Semiconductor Companies
Rank
Company
2002 $B
2001 $B
Growth %
1
Intel
25.26
24.93
1.4
2
Samsung
8.63
6.31
36.7
3
Toshiba
6.45
6.63
-2.7
4
ST
6.35
6.36
-0.1
5
TI
6.24
6.05
3.1
6
NEC
5.69
5.39
5.6
7
Infineon
5.25
4.33
21.4
8
Motorola
4.78
4.74
0.8
9
Philips
4.36
4.40
-0.9
10
Hitachi
4.12
4.72
-12.7
11
Mitsubishi
3.55
3.88
-8.6
12
Fujitsu
3.23
3.75
-13.9
13
Panasonic
3.14
2.78
13.2
14
IBM
2.95
3.29
-10.2
15
Micron
2.94
2.41
22
16
Sony
2.71
2.57
5.6
17
AMD
2.66
3.79
-29.8
18
Sharp
2.66
2.52
5.4
19
Sanyo
2.50
2.39
4.5
20
Rohm
2.39
2.25
6.6
Others
49.1
49.0
0.2
Total
155.0
152.5
1.6
Source: Gartner Dataquest
Walt Custer Custer Consulting Group Phone: 707 785-1777 FAX: 707 785-1988 www.custerconsulting.com/ E-mail: walt@custerconsulting.com
This article was originally published in CircuiTree magazine and is reprinted here with permission.