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Mild Upturn in Early 2003, But Global Uncertainties Prevail (April 2003)
June 5, 2003 |Estimated reading time: 17 minutes
Mild Upturn in Early 2003, But Global Uncertainties Prevail By Walt Custer April 1, 2003
January electronic equipment and PCB orders brought some guarded smiles. Based upon the "early-warning" Durable Goods release, US "Computers & Electronic Product" orders (Chart 1) jumped 3.2% over December 2002 and 2.8% versus last January.
PCB orders followed the same pattern. Quoting Henderson Ventures' February PCI report "After nine successive months of declines, US PWB orders increased by a hardy 4.6% in January on a month-to-month basis, after a 2.2% decline in December." For more from Ed, see www.hendersonventures.com.
Were it not for our stagnant economy, rising oil prices and the uncertainties of Iraq, we might declare that a recovery had begun! Unfortunately, February orders may dip again due our myriad of global uncertainties. I don't see any basis for a sustained recovery yet. In this period of "wait and see" I decided to look for more tools to identify signs of a turnaround. One approach is to monitor sales, profits and inventories by various industry groups. Chart 2 shows composite data for seven large, publicly traded electronic component distributors. After a revenue peak in 4Q'00, sales steadily declined with 2Q'02 the apparent bottom. Since mid-2002 growth has been minimal at best. The EMS industry (Chart 3) shows a similar pattern. The lesser peak-to-trough decline (31% for EMS vs. 43% for component distributors) is thanks to OEM to EMS outsourcing and also the global diversity of the EMS suppliers.Chart 4 lists the largest EMS providers with their 2002 vs. 2001 sales. Growth rates vary substantially company-to-company. Taiwan's Foxconn (Hon Hai) grew a whopping 70% while communications and Internet dependent Solectron dropped 24%. These top 10 were down 5% in 2002 but if the faster growing Asian EMS and ODM companies were all included my guess is that this sector globally was flat or perhaps grew slightly in 2002. North American PCB makers not surprisingly faired worse than the distributors and EMS companies. Per Chart 5 revenues for the publicly traded PCB companies declined 56% from the 2000 peak. And this data is for the survivors! It does not include the Viasystems, Sanmina-SCI, Multek, Honeywell and other major North American shutdowns. As we enter 2003 we are all busy focusing on the higher growth end markets, broadening our customer bases, forming global alliances, controlling costs and working smarter and harder. Until such a time as the global economy stabilizes and our local electronics industry REALLY rebounds we must all work very hard just to stay even. 2003 looks like another tough year - at least until the Mid East situation is resolved and the Bush administration pays serious attention to the US economy.! General Business Conditions Japan's electronics' production declined 17.5% in 2001, measured on a value basis, and was expected to be followed by an 8.5% decline in 2002, to about $160 billion - the lowest annual figure since 1990, the Japan Electronics and Information Technology Industries Association said. The association predicted that sales for the industry's consumer electronics sector in 2002 will remain level with 2001 thanks to color TVs, digital still cameras, and car navigation systems. It predicted that sales for the industrial electronics sector, which includes computers, office equipment, and measurement equipment, will drop 16% from 2001 and electronic component sales will drop by 8.5%. The declines were attributed to Japan's sluggish economy, in which cautious capital investment and flat consumer spending have created uncertainty. Electronic Equipment Computers Worldwide personal computer shipments are expected to rise 4.8% in 1Q'03 from a year earlier as uncertainty over the economic recovery and possible war with Iraq drags on growth. A pick-up is expected by the end of 2003, rising to 138.7 million units, a 7.9% jump from 2002, according to Gartner Dataquest in mid-February. Asia/Pacific's PC market growth rate outpaced the worldwide industry in 2002 reaching 21.7 million units, an 8.6% increase from 2001, according to Dataquest. The worldwide PC market grew 3% in 2002. After growing at 114% in 2000, and 18.3% in 2001, the global PDA market grew 9.1% last year. Some 12.2 million PDAs were shipped in 2002 of which Taiwan shipped 3.15 million. In-Stat MDR said the weak global economy, low consumer confidence in the US and reduced corporate spending on computer equipment led to slow PDA sales last year. The PDA market faces competition from smart mobile phones. Mobile Communications Strategy Analytics said 422 million handsets were sold to end-users worldwide in 2002, compared with 412 million in 2001. Global mobile phone shipments rose to 126.5 million units in 4Q'02 from 102.1 million in the third quarter. Nokia gained market share in the quarter on sales of models such as its new 6610 and 7210 color-screen phones.
Fourth-Quarter Worldwide Mobile Phone Sales (Units)Company Q4’02Millions Q4’02Share % Q3’02Millions Q3’02Share % Growth% Nokia 46.0 36.4 36.4 35.7 26.4 Motorola 22.2 17.5 17.0 16.7 30.6 Samsung 11.6 9.2 11.7 11.5 -0.9 Siemens 11.0 8.7 7.8 7.6 41.0 Sony Ericsson 7.0 5.5 5.0 4.9 40.0 LG Electronics 4.7 3.7 4.5 4.4 4.4 Others 28.7 19.0 24.2 19.3 18.6 Total 126.5 100.0 102.1 100.0 23.9 Source: Strategy Analytics
Global sales of mobile phones that can take, send and receive photographs rose 65% 8.6 million units in 4Q'02 from 5.2 million in 3Q'02 according to Strategy Analytics. According to China's Ministry of Information Industry, the country produced 132 million mobile phones last year.
China 2002 handset production and sales (million units)
Rank Company China Production China Sales 1 Motorola 37.499 18.724 2 Nokia 32.287 11.347 3 Ningbo Bird 7.492 6.786 4 TCL * - 6.706 5 Siemens * - - * MII did not report some figures from TCL and Siemens. Servers & Internet Infrastructure Cisco Systems will license technology at no cost to a number of chipmakers (Intel, TI, Intersil, Agere Systems & others) in a partnership to boost the use of wireless local area networks by mobile work forces. This move targets the enterprise market - corporations, government agencies and large institutions such as universities-of mobile computing devices, said Bill Rossi, general manager of Cisco's Wireless Networking Business Unit. IBM and HP agreed to support the Cisco technology. Huawei Technologies, China's biggest telephone equipment maker said it is no longer shipping US customers the routers and switches that Cisco Systems alleges violate its patents and copyrights. Cisco's lawsuit claimed Huawei violated at least five Cisco patents and copied Cisco's operating system source code. Sales of optical hardware (equipment that transmits signals on fiber-optic lines) totaled $2.24 billion in 4Q'02, up slightly from the previous quarter, while full-year sales fell 44% to $9.82 billion from $17.4 billion in 2001,said Infonetics Research. "We're all looking for a turnaround point," Infonetics analyst Michael Howard said. "We see slight declines (in revenue) in 2003 and 2004, then an upturn in 2005 and 2006." Sales of routers fell 15% in 2002 to $6.1 billion. The market decline was driven by reduced sales of high performance routers typically deployed by telecommunications service providers to manage and carry Internet traffic. "The decline in the high-end router market was highly correlated to the drop in spending by service providers. Our analysis indicates that capital spending on wireline infrastructure fell approximately 35% last year," said Shin Umeda, Principal Analyst with Dell'Oro Group. The report also shows the market for routers purchased by enterprises and small and medium businesses fared better, declining 4% in 2002. World service provider routers sales totaled $1.9 billion in 2002, according to Dataquest (Chart 6). "Although the SPR market showed signs of leveling off at the end of 2002, the outlook for the market remains relatively flat in 2003," said Dataquest. "Strong sales in edge and broadband aggregation routers will lead to recovery in the core, but recovery for the SPR market is still not expected until early 2004." Dataquest defines SPRs as carrier-class routers capable of providing multigigabit bandwidth in support of high-speed WAN interfaces. These carrier class devices are typically designed for installation in network infrastructure and support the Internet Protocol suite. Worldwide Ethernet switching shipments (Chart 7) totaled 154 million units in 2002, a 14.3% increase from 2001. Global revenue totaled $11.2 billion, an 8.9% decline from 2001. Gartner Dataquest analysts said it's becoming a "buyer's" market as vendors are reducing their prices for their products and offering bigger discounts in regions where the demand still exists. "The availability of refurbished switches from several third-party vendors and buy-back options from switch manufacturers are also driving down the cost of equipment," said Ahlawat. "While it will take several quarters for the market to show positive revenue growth, the vendors that are clearly differentiated on product features, price, and performance will reap the benefits."PCB Fabrication AT&S has been included in Deutsche Boerse Frankfurt's the new selective technology index TECDAX. Until now the company has been included on the NEMAX50 index. AT&S has been listed on the Frankfurt Prime Standard segment since Jan. 1. AT&S bought back shares representing 7.65% of its total shares and will make further buybacks between February 25, 2003 and January 5, 2004. Carolina Circuits 350,000 sq ft PCB facility was liquidated in a DoveBid auction This Greenville, SC plant was built by DEC about 1980. How many of you remember Tweedle Dee and Tweedle Dum - the plant's material delivery robots? Cheshire Circuits, based on Higher Hillgate, Stockport, UK purchased Cranford Circuits. The enlarged group has been renamed Cheshire Cranford Electronics Europe, and has a combined workforce of 90 and turnover of about GBP 5million. David Maitland, 41, Cheshire Circuits' managing director, heads the new group. Grand United Holdings, Malaysia's subsidiary MC Industry will increase its investment in China-based Grand Circuit Industry (Suzhou) Co Ltd by US$4 million to US$13 million. Grand Circuit makes PCBs. Holders Technology acquired, Screen Circuit and also 35% stake in Hong Kong-based Topgrow Technologies. It was also given an option to acquire a further 25% of Topgrow at any time until Sept 30 2004. Topgrow sells materials and equipment for the PCB industry in Hong Kong and Mainland China. Screen Circuit, together with its 100% subsidiary in Germany, Screen Circuit GmbH, had sales of 2.5 million euros in 2002 from consumable materials, chemicals and equipment to the PCB industry. Hong Kong Membrane Circuit Technology plans to combine its membrane switches with flexible PCBs, allowing more components (and features) to be added. M~Wave and CE Electronics, a Bryan, OH-based EMS company signed a 3-year Supply Chain Management agreement utilizing M~Wave's Virtual Manufacturing business unit. CEE provides PCB assemblies to the elevator and industrial products markets. World Wiser Electronics, Taiwan's third-largest PCB maker, will start production at its new flip-chip plant in Taipei County in 3Q'03, with maximum monthly capacity of two million units. It will spend NT$ 1-2 billion on the plant, less than its original forecast of NT$ 2-3 billion and below the approximately NT$8 billion that competitors had spent on each flip chip plant. Regarding its first customer, World Wiser said it was not Intel, leading the market to speculate that it would be AMD. Materials & Process Equipment Coherent acquired Positive Light - a designer and manufacturer of advanced solid-state lasers for the scientific and industrial markets with sales of approximately $20 million for its year ended September 2002. Enthone (Cookson Electronics PWB Materials & Chemistry) appointed Dr. Yun Zhang Research Director. Dr. Zhang will lead the global R&D and product formulation activities of the company's tin, tin alloy and lead-free technologies. Gould Electronics said that all of its U.S. copper foil manufacturing will be consolidated at its Chandler, AZ facility by the end of 3Q'03.The consolidation will result in the company's closing its McConnelsville, OH manufacturing plant. Gould announced January 15, 2003 that its CAC (copper aluminum copper) production will also be consolidated at the Chandler facility, North America's largest copper foil manufacturing plant, resulting in closure of Gould's Hampstead, NH plant. Ikonics, Duluth, MN obtained an exclusive worldwide license for the manufacture, use and sale of DuPont RapidMask™ technology in the abrasive etching market. InteliCoat Technologies (formerly Rexam Coated Products), responding to a slow economy and a glut in coating capacity, has begun streamlining its North American operations. Over the next six months, production at its Spartanburg, S.C. plant will be phased out and assumed by other InteliCoat coating facilities. The Spartanburg plant was originally built to coat dry film photoresist for Morton Electronic Materials (now Shipley). Park Electrochemical appointed Steven Schaefer VP of Business Development. As a priority, Mr. Schaefer will focus on developing the company's current and future strategy for China. He will continue to report to Emily Groehl, Park's Senior VP, Marketing and Sales. Congratulations Steve!Electronic Manufacturing Services Acer is planning to outsource up to $2.7 billion worth of desktops, notebooks, TFT-LCD panels, and other computer products in 2003. In recent years Acer has restructured its operations, shifting from in-house manufacturing to reliance on its spin-off Wistron and other contract manufacturers. Asustek will fire about 1,000 of its workers in Taiwan as it shifts production to China. "We will move more motherboard manufacturing to the mainland," said Ausutek's David Chang. Asustek reportedly will boost output at an existing plant in Suzhou, which already has more than 10,000 employees. Celestica is aggressively broadening its customer base. "Concentration is the biggest single risk in our sector," CEO Eugene Polistuk said. "We have a very high concentration with our top five customers." Celestica said it will take an extra US$ 50-70 million restructuring charge in 2003, of which around 80% will be cash costs mainly associated with the elimination of 2000 jobs. A large part of the current restructuring covers the company's operations in Europe, which include eight plants in five countries employing over 6000 people. By end-2003, Celestica wants 70% of its manufacturing capacity to be located in low-cost geographies, vs. 20% at present. "Because of the extent of the tech depression, our customers have a heightened need and are more driven to optimize their costs as soon as possible," CEO Eugene Polistuk said. "If you don't respond to it, then someone else will." Celestica will close its Rochester, MN plant by mid-2003 impacting 550 jobs. This facility assembles and tests circuit boards mostly for use in servers made by IBM in Rochester. That production will be transferred to other Celestica plants. Celestica will close its Oklahoma City operation in November. The 40-year-old plant employed more than 9,500 people at its peak in the 1970s. Celestica bought it from Lucent Technologies in September 2001. Elcoteq will adopt Motorola GSM and GPRS mobile phone technology. "The (Motorola) Innovative Convergence platform is designed to enable us to reduce our customers' development costs and time to market," said Christer Harkonen, senior vice president of Elcoteq's Business Area Terminal Products. Elcoteq has signed the Series 60 Contractor agreement with Nokia. Members of the Series 60 Product Creation Community are companies who will be able to provide handset manufacturers with optimized Series 60 expertise in successful and timely product creation of advanced smart phones. Flextronics will be the logistics supplier of Xerox's distribution in Brazil. As part of the agreement, Xerox sold to Flextronics certain assets from its former logistics center. Flextronics will add 500 staff by June as it expands its Sarvar, Hungary plant. The Sarvar workforce will grow to 3,500 by end-June from 3,000 currently, said Flextronics' Peter Papp. He added that around 300 staff would join Flextronics from a Philips plant at nearby Szombathely. These Philips employees were to be released when Philips shifts CRT monitor production to China. Hon Hai Precision Industry will setup a personal computer assembly plant in India after its major client Hewlett-Packard asked Taiwanese suppliers to study the feasibility of establishing facilities in India. India is presently the third largest PC market among Asia-Pacific nations. Jabil Circuit and NEC announced a multi-year manufacturing supply agreement and transfer of NEC's Gotemba manufacturing facility in Japan. Jabil will provide full manufacturing and system assembly production services to NEC's Broadcast and Video Equipment Operations. Hon Hai Precision Industry (Foxconn) will setup personal computer assembly plant in India at Hewlett-Packard's request. Nam Tai Electronics received new orders from a major Japanese manufacturer to produce TFT LCD modules and advanced high-resolution LCD modules for mobile phones. Pemstar is part of the team, led by General Dynamics that has been awarded a $59.9 million cost-plus-fixed-fee contract to enhance the current version of the U.S. Army's Land Warrior system, a wearable electronics suite of integrated components that intertwines high-tech firearms with computer, communications and navigation gear. The contract also includes an upgrade to the Land Warrior system to allow for interoperability with the battlefield command and communications systems found on Stryker Brigade Combat Team vehicles and in the Future Combat System. Pemstar announced that medical company executive Larry Czapla has joined the company to lead its newly created Medical Business unit. Philips Taiwan will now focus on value-added activities such as design, sales, and product development - departing from its former role as an assembly and production center. The company will continue to be active in three product fields - lifestyle, healthcare and enabling technologies, said Asian CEO Jaap van Oost. Plexus CEO Dean Foate recently stated "We must return to meaningful profitability and sustain it for the long run. We'll do that with a combination of cost-side management as well as revenue growth." Plexus is making some painful cuts - closing its San Diego manufacturing facility, consolidating its Seattle holdings and shutting down an obsolete manufacturing plant at 2121 Harrison St in Neenah, WI. Sanmina-SCI's PCB facility in Costa Mesa, CA completed certification assessment by the Defense Supply Center, Columbus (DSCC). The facility meets all the requirements necessary for certification to MIL-PRF-31032 and has also obtained qualification for military specification Mil-PRF-31032/1A and /2 for Type 3, GF (Epoxy-FR4) and GI (Polyimide) effective February 10, 2003. Within this certification, the Costa Mesa facility has achieved the highest level of qualification for line width (2 mils) and spacing (3 mils) to date. In addition, Sanmina-SCI's Costa Mesa facility is only the second domestic supplier to be qualified for blind and buried vias. This qualification allows Sanmina-SCI's technology and volume capabilities to be accessed by defense and aerospace customers. Sanmina-SCI and Fujitsu Microelectronics America have established an alliance. Sanmina-SCI will design and develop system solutions integrating the biometric authentication capability created by Fujitsu's fingerprint sensor IC silicon and associated matching engine algorithms. Potential applications include physical access, transaction terminals, personal and business computing, automotive, mobile devices, wireless systems, and homeland security applications. Sanmina-SCI introduces a line of production-ready designs/products employing InfiniBand switched fabric network technology. InfiniBand technology improves computing efficiency by increasing the bandwidth of computer, storage, and IO clusters and by offloading message processing from the system processors. Sanmina-SCI CFO Rick Ackel said it does not plan further factory closings this year despite the large amount of unused capacity still weighing on contract manufacturers of all types of high-tech products. "We don't anticipate any more plant closings," said Ackel. "We think we've made the cuts we need to make." However, if the economy remains soft, that decision could be revisited, Ackel said. Elbit Medical Imaging's subsidiary Elscint sold its manufacturing, assembly, engineering, and integration operations at its Ma'a lot, N. Israel facility to Sanmina-SCI. SMTC and Alco Electronics, a Hong Kong based ODM and EMS provider, signed a definitive agreement whereby Alco will supply EMS and ODM services to SMTC and its customers on an as required basis. "This agreement provides our customers with both a cost effective manufacturing solution in China and access to Alco's extensive ODM services," said Paul Walker, President and CEO of SMTC. Alco will produce product for SMTC from its Chang An campus in the Dongguan region of China. Solectron completed its acquisition of IBM's Global Asset Recovery operations in Raleigh, N.C. This move includes a 3-year supply agreement, and strengthens Solectron's post-manufacturing services offering. Solectron intends to fully integrate the IBM center and its employees into its existing Solectron Global Services operations. Solectron and Intuitive Surgical signed a manufacturing agreement where Solectron will provide new product introduction and PCB assembly for Intuitive Surgical's da Vinci™ Surgical System.
Sparton has been awarded two contracts for the manufacture of sonobuoys for the United States Navy. Solectron is focusing on the $25 billion automotive segment and consumer electronics to offset declines in telecommunications and computers. Once representing about 55% of its business, telecommunications is now about 47% of Solectron's revenue, said Solectron VP Perry Hayes. The company is also growing its consumer electronics business, with products like PDAs, set-top boxes and game devices, Hayes added. "Diversification is ongoing at Solectron." Suntron formed a strategic partnership with UMD Technology to provide engineering services focused on RF/Wireless, medical and electronics commerce. UMD is a Portland, Oregon-based product development company servicing the electronic and medical industries. Semiconductors North American-based manufacturers of semiconductor equipment a book-to-bill ratio of 0.92. They "continue to see a weak industry environment," said Dan Tracy, Ph.D., director of Industry Research and Statistics at SEMI. "The current outlook remains uncertain with few indications of a strong rebound in the immediate future. However, we expect capital expenditures to increase later this year as the industry is slated to bring on about 15 new fabs capable of sub 0.2 micron technology in 2003 and 2004." Dataquest has downgraded its estimate for 2003 semiconductor market growth to 8.9% - seeing the worldwide chip market hitting $167 billion in 2003, up from $153.4 billion in 2002. Late last year Dataquest was predicting 12.1% growth and a market value of $171.8 billion in 2003. According to VLSI Research 2002 worldwide semiconductor equipment sales fell to $29.8 billion, compared with $39.3 billion in 2001. US suppliers had $8.06 billion of combined revenues. They had the biggest market share in the Top Ten list, with 50.7%. The combined sales of the top five Japanese companies were $5.95 billion, with 37.5% share of the Top Ten in 2002. Shipley, Marlboro, MA opened its Advanced Technology Center, dedicated to the development of lithography, interconnect, low-k dielectric and other critical materials needed to produce the newest generations of microelectronic devices. The new 65,000-square-foot ATC building represents the first phase of Shipley's multi-phase plans for the center. Other Arrow Electronics completed its previously announced acquisition of Pioneer-Standard's Industrial Electronics Division ("IED"). The purchase price for IED is currently estimated to be approximately $230 million, subject to adjustment based upon an audit of the assets and liabilities being acquired. Walt Custer Custer Consulting Group Phone: 707 785-1777 FAX: 707 785-1988 www.custerconsulting.com/ E-mail: walt@custerconsulting.com walt@custerconsulting.com This article was originally published in CircuiTree magazine and is reprinted here with permission.