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EPTE Newsletter from Japan - US Dollar Continues Its Free Fall

The value of the US Dollar continues to weaken, and fell to even lower levels over the last few weeks.  I travel frequently between the U.S. and Asia, and the exchange rates concern me as the dollar continues to fall.

Six months ago, the value of the US dollar was in the 116 to 119 yens range, and last week, it fell below 99 yens, almost a 20% depreciation when converting yens to dollars. The week dollar impacts any Japanese company that exports products to the United States. If these companies negotiated contracts in US dollars six months ago, the price received is now only 80% of its value because of the 20% decline in the dollar. This is a serious problem for exporting manufacturers because their budgets are now 20% lower than expected.  It is extremely difficult to squeeze another 20% from manufacturing costs. Previously, the importing companies could reduce the cost of their materials that included metals and oils; however, inflation has increased these costs.  Even if they are successful in reducing their materials cost, it will be extremely difficult to make up the loss in price of goods sold because of the currency problem.

American companies feel no pain at the moment; however, they will pay more for the same imported products upon renewing future contracts. You are probably asking yourself "can American exporters increase sales because of the weak dollar?" Sure this makes sense.  Overseas markets can buy more in the US because their currency is worth more. Unfortunately, American manufacturers no longer offer many goods for export since the implementation of the North American Free Trade Agreement (NAFTA).  Most of the manufacturing in the U.S. was transferred to other countries.  The end result will be a reduction of business in the U.S.

During the mid 90's, I was in the exporting business in Japan.  Exchange rates hit record lows, and one US dollar was worth just under 80 yens in 1994.  We had a hard time maintaining margins from exported products because of the currency fluctuations.  We desperately tried to reduce costs, and asked our customers to pay higher prices for the same products. No one likes price increases; fortunately, our products were of the highest qualities compared to other manufacturers, and we survived. Most of the Japanese electronics companies were successful in the 90s because of the quality and high level of technology from their products.

From stand point of manufacturers, I am not comfortable with media reports and financial commentators who view the fluctuations in currencies and the exchange rates as some sort of sport or game. Day after day, they read the ups and downs in the currency markets as if they are listing the scores of baseball games.  It probably is a game for money traders from finance companies or fund companies.  The troubles in the US market may have stemmed from the "Sub Prime Crisis" in the mortgage industry; however, speculators have taken it global, and the finance trouble in the U.S. has deepened to a world wide financial issue.

Financial experts who trade commodities, stocks, bonds, and world currencies call it professionally managed investments, but I view it as a giant casino for these finance companies. They trade billion of dollars every day.  With each winner, there is a loser.   The house (institutional investors) always wins, making commissions on each exchange. Currently, the amounts of money trading are two order larger than the actual trading of the goods.

Nowadays, trading of currency is a priority that must be addressed where a business venture involves imports and exports between countries. Extreme fluctuation in exchange rates will have no positive effect on actual business in the long term, and could have disastrous effects for manufacturing companies. Unfortunately, these are speed bumps in the capitalistic economies that can not be avoided.  Management teams must step up and overcome the exchange rate issues.  Clever, decisive and innovative ideas can create new ways of doing business.

Dominique K. Numakura

DKN Research, www.dknresearch.com

Headlines of the Week

(Please contact haverhill@dknreseach.com for further information on the news.)

1.      Kyusawa Seisakusho (Middle class PWB manufacturer in Japan) 3/3

Has decided to terminate the business. The cash flow was at standstill because of the bankruptcy of the major customer, Yumex.

2.      Hitachi High Technologies (Equipment manufacturer in Japan) 2/29

Will enlarge the clean room area 50% to increase the manufacturing capacity of exposure systems for 10G LCD manufacturing line.

3.      Fuji Chimera (Market research firm in Japan) 3/10

Has published a new market research report for RFTAG.  The global market will grow to 210 billion yens (about 2 billion US$) by 2011.

4.      Sony (Major electronics company in Japan) 3/10

Will terminate to produce and supply cellular phones to DOCOMO, the largest cellular network provider in Japan because of tiny margin. 

5.      Arakawa Chemical (Specialty chemical supplier in Japan) 3/10

Will commercialize the transparent encapsulation resin for the optical devices to strengthen the electronics business.

6.      Nippon Koki (Middle class PWB manufacturer in Japan) 3/10

Has had bankruptcy because of slow market. It already terminated the business at the end of February.  The total liability is over six million US$.

7.      Mitsui Chemical (Major chemical company in Japan) 3/11

Has decided to terminate the optical filter business for the PDP applications. The market has been becoming too competitive and Mitsui cannot have enough margin.

8.      Nitto Denko (Electronics material & Flex circuit supplier in Japan) 3/11

Has developed a new re-writable memory material for the hologram displays.

9.      Anritsu (Test equipment supplier in Japan) 3/10

Has commercialized a new laser AOI inspection machine for the screen printed solder pasts on the thin printed circuits.

10.  JSR (Major electronics material supplier in Japan) 3/11

Has developed a new photolithography material for the 32 nano meter process assuming "the double patterning" process.

11.  Omron (Major device supplier in Japan) 3/12

Has developed the evaluation process for the aging of solder pastes using FT-IR analyzing equipment.

12.  Docomo (Major cellular phone service provider in Japan) 3/13

Will terminate to sell 2G hand sets soon. Docomo wants to switch to 3G as soon as possible.

13.  Battery shipment in Japan 3/14

Increased 9.6% to 773 billion yens in 2007 by revenue, but decreased 2.6% by volume to 5.73 billion units.

14.  Sony (Major electronics company in Japan) 3/14

Will roll out new type LCD TVs reducing the thickness 50% from 74 mm (about 3") in 2008 targeting wall-hanging use.

15.  Mitsubishi Chemical (Major chemical company in Japan) 3/14

Plans to expand the solar cell business with organic thin film technologies from 2 billion yens in 2007 to 10 billion yens by 2010.

Interesting literatures about the packaging industry

Articles of DKN Research

1. New "Screen Printing for High-Density Flexible Electronics", Robert Turunen, Masafumi Nakayama and Dominique Numakura, Printed Circuit FAB, October, 2007, http://pcdandm.com/cms/content/view/3846/95/

2. New "Total Process Solution for the High-Density Multi-layer Flexible Printable Electronic Circuits", (Japanese only) Dominique Numakura, Denshi Zairyo, October, 2007

3. New "The latest electronics package, Part XXXI, Cellular Phones", Dominique Numakura, Electronics Packaging Technology, October, 2007 

4. New "Coombs' Printed Circuits Handbook, 6th Edition, Part 15-Flexible Circuits", Dominique Numakura, McGraw Hill, New York, September, 2007

5. New "DKN Research Develops Film Base Connector", Circuits Assembly, September, 2007.

6. "Flexible Circuit Materials", (Japanese only) Dominique Numakura, Denshi Zairyo, April, 2007

7. "Business Trends and Technology Trends of the HDI Flexible Circuits -

Roadmap for the Ultra High-Density Advanced Flexible Circuits", Dominique Numakura, KPCA, October 31, 2006

From the Major Industry Magazines

1. "WASTE NOT, WANT NOT WITH LEAN SIX SIGMA", SAMUEL PONCE, CircuiTree, February, 2008.

2. "Embedded Active Components for High-Reliability Products", Jim D. Raby, Circuits Assembly, January,  2008.

3. "Inside Reflow", Gail Flower, SMT, January, 2008

4. "OPTOELECTRONICS Comes of Age", Bruce L. Booth and Jack Fisher, Printed Circuit FAB, February, 2008.

5. "The Thermal CPB -An Approach to Thermal and Power Management-", Paul A. Magrill, Advanced Packaging, January/February, 2008

7. "Under the Hood, Efficiency vs. Speed", presented by EE Times and Techonline, October 8, 2007