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Productronica Report: PCBs & Materials Recovering Now; Most Process Equipment to Wait Until Mid-2004
November 17, 2003 |Estimated reading time: 2 minutes
Productronica Report: PCBs & Materials Recovering Now; Most Process Equipment to Wait Until Mid-2004 By Walt Custer November 17, 2003
I am writing this week's column on UA931, flying back from a four-day visit to Productronica, Europe's premier electronics tradeshow. This year was upbeat. The tone of both the exhibitors and visitors was decidedly more positive compared to prior industry gatherings. Many (but not all) companies are now seeing a noticeable improvement in business conditions. Advanced capital equipment was being sold from the show floor, process consumable suppliers were reporting growing demand, and a number of local PCB makers were reporting operating at near capacity (and even discussing price increases).
Don't get me wrong. Not everyone is rebounding (much less thriving), but the general view at the show was that we are in the early phases of recovery with even better times ahead.
What's behind this optimism? Foremost is increased electronic equipment demand as most end-markets are recovering. Per Chart 1, only fixed telecom and "mainstream" semiconductor test & measurement equipment have yet to see a sizable up-tick. Southeast Asia is strong with many Taiwanese and Chinese PCB makers reporting full order books-especially for high-end boards. Suppliers of HDI PCBs for complex mobile phones, PC motherboards, high-layer-count MLBs, and flex circuits are especially full. And this "fullness" is spilling over to North America and now Europe. Admittedly, the holiday "busy season" in Asia has amplified the growth, but I believe, based upon the broad end-market expansion, that this emerging recovery is REAL and will accelerate in 2004. Because of China's ongoing capacity increases, pricing will remain difficult for "commodity" PCBs, but volumes are growing.
Using a standard supply-chain model (Chart 2), we have now moved back to the left (Expansion) side. With increasing demand and low inventories, EMS companies, PCB makers, material suppliers (laminate), and materials-to-make-materials (glass yarn) will see accelerating growth driven by true demand, inventory increases, and (in the later stages of the upturn) double-ordering. Southeast Asia is furthest along on the recovery path, but North America and now Europe have joined.
Chart 2 applies to PCBs, EMS companies, and their raw material suppliers. Capital equipment vendors typically see a delayed recovery. Because of used-equipment inventory overhangs due to plant shutdowns, current excess factory capacity, budget cycles, and the "need to be very sure that this recovery is real," sellers of process and test equipment to the PCB and EMS sectors won't see a pronounced recovery until mid-2004. This "phase shift" in the process equipment business cycle is shown in Chart 3. This analysis DOES NOT apply to innovative new equipment, which PCB and EMS companies must buy now to produce the latest technology.
Chart 4 and Chart 5 depict the global growth of the electronics food chain-putting actual numbers on the "expansion" and "recession" stages of Charts 2 & 3.
Equipment sales to the semiconductor industry (wafer fab, packaging & test) appear to have bottomed in early 2002 (Chart 6) and are now growing slightly. After plunging 81% from September 2000 to February 2002, they have now recovered to show "only" a 54% decline. The process and test equipment business is tough! Based upon a one-month (September 2003) snapshot (Chart 7), semiconductor equipment sales are now increasing with Asia leading the way. Europe is showing some growth, but North America is still contracting.
In summary, if you make or assemble PCBs or their materials, your business should be improving. For capital equipment, mid-2004 should be the beginning of a broader recovery.
Walt Custer www.custerconsulting.comwalt@custerconsulting.com