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Recovery: More Positive Signs, More People Convinced
November 10, 2003 |Estimated reading time: 2 minutes
Recovery: More Positive Signs, More People Convinced By Walt Custer November 10, 2003
Each week, more and more groups join the "recovery is underway" bandwagon. Electronic "food chain" companies are revising their short-term guidances upward, market research firms have increased the personal computer & mobile phone forecasts, the SIA upped its 2003-6 global semiconductor predictions, "buy & sell-side" stock analysts are now interested in the PCB and EMS sectors as sources of "growth stocks," material vendors are concerned about lead times and possible stock outages, and buyers are now focusing on continuity of supply rather than the lowest price. The pendulum has definitely swung!
Based upon data through September 2003, the nine largest global EMS companies (Chart 1) finally enjoyed some growth in revenues and almost broke even in net income. 3Q'03 sales were up 7% vs. the same quarter in 2002, and their fourth quarter should be better yet.
In the USA, electronic equipment orders continue to improve (Chart 2). Since bottoming in October 2002, they have shown a general upward trend for 11 months, and the rate of growth is accelerating! While, admittedly, many of the electronic components used in this equipment will be imported, at least orders are growing, and global PCB demand must follow. High-end PCB suppliers in North America are filling up, and Asian fabricators are reportedly booming. The major downside is that China continues its massive PCB capacity buildup, suggesting that once the holiday "busy season" is over, global PCB pricing will continue to remain under pressure-at least for the more commodity-type PCBs not demanding very short lead times.
In the USA, virtually the entire food chain is growing (Chart 3). On a 3-month growth basis (July+Aug+Sept 2003) vs. (July+Aug+Sept 2002), all electronic end-markets enjoyed double-digit growth. Flex circuits are booming, and rigid PCB orders are finally in positive territory. Rigid PCB shipments, a lagging indicator, should follow soon.
The European scenario is a bit different but still very promising. The strong euro and GBP vs. the dollar (and Chinese currency) puts European manufacturers at a distinct currency disadvantage (Chart 4). Since mid-2001, the euro has strengthened 35% and the UK pound 15% versus the dollar. Very strong currencies, coupled with EEC limits that stifle economic stimulation, have somewhat throttled a European recovery.
However, the European electronics food chain is definitely rebounding. Per Chart 5, European electronic assembly activity (as measured by chip consumption) plunged 46% from late 2000 until September 2001. However, since September 2001 there has been a "bumpy" but steady partial-recovery, with chip shipments up 30% from their bottom.
While this recovery appears real and geographically widespread, it has primarily affected the OEMs, EMS companies and material suppliers. Makers of capital equipment will probably not see a major upturn until 2004, and their target customers first fill their factories and then ensure continued demand before they buy new equipment to add capacity. Some PCB process equipment orders are rising already (especially for advanced technology machines), but, in general, process equipment orders typical trail materials by 6-9 months.
All this said, most suppliers of electronic "stuff" are smiling more these days!
See you at Productronica.
If you are in Munich this week, please attend one of my presentations on Industry Business Conditions in the Arena of Hall 6 on Tuesday, Nov. 11, 12:30-13:00; Thursday Nov. 13, 12:30-13:00; or Friday, Nov. 14, 11:30-12:15. Alternately, chase me down on the show floor via my GSM mobile: 1 707 843-0440.
Walt Custer www.custerconsulting.comwalt@custerconsulting.com