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Dubious Distinction: The Worst Downturn Ever (Sept. 2001)
September 4, 2001 |Estimated reading time: 17 minutes
Dubious Distinction: The Worst Downturn Ever
Electronic Equipment Inventories and Orders Hold the Keys to Recovery
It’s official. This is the worst downturn in the history of the U.S. Electronics and PCB industries. Based upon PCB booking and shipment data from January 1969, we have set a dubious record. May 2001 reached an all-time low in 3/12 “growth” registering 0.43 and “beating out” the previous low of 0.45 of February 1975. Similarly, using electronic equipment data back to January 1977, this June reached a 3/12 record low of 0.76. This means the ratio of April, May & June 2001 to April, May & June 2000 orders was only 0.76, i.e., a 24% decline.
Last fall I forecast a downturn in the PCB industry for early 2001. I was correct on the timing, but the magnitude of this downturn has far exceeded my worst fears. The “inventory correction” has evolved into a massive decline because electronic equipment orders are plunging. When will we finally recover? Let’s look at the numbers.
In June we received some good-sounding news from the IPC (Chart 1) as the three-month PCB book-to-bill ratio increased for the second straight month and the one-month ratio jumped to 0.97! On first analysis, this would suggest a sharp recovery. Unfortunately, there are two ways for the book/bill to increase. Orders can grow or shipments can decline. In this case, orders grew about 10% but shipments dipped. Chart 2 shows the PCB raw data. Notice that orders bottomed in April and are now slowly increasing.
Switching to electronic equipment, Chart 3 shows 3/12 growth since 1982. The 23% growth peak of August 2000 was followed by a 24% decline in June 2001. Again, looking at the actual monthly data (Chart 4), electronic equipment orders “blipped” in June 2000 and then began a gradual decline in November. Chart 5 shows that this equipment decline is driven by a sharp drop in communications and computer equipment. At least through June 2001, no indication of reaching bottom is apparent.
Equally disturbing are inventory levels. While electronic equipment stock levels are declining, orders are dropping faster. The result (Chart 6) is that the ratio of inventories to both equipment orders and shipments is rising.
Chart 7 shows the 3/12 “growth” of PCB vs. electronic equipment orders. Values below 1.0 indicate a decline. The upturn in the PCB 3/12 is heartening, but equipment orders must improve before we see any substantial recovery. Based upon this data is appears that Business conditions will remain difficult for a while. Fortunately, with the recently improved Dept. of Commerce electronic equipment and inventory data, we can monitor the inevitable recovery. Watch for some positive signs. The “Electronic Age” will return!
General Business Conditions
Dr. Hayao Nakahara in late July offered the following comments about the 2001 world PWB market:
- In 2000, Japanese domestic PWB production was approximately $13B and overseas production about $1.5B or altogether about $14.5B (about 34.5% of the world of $42B).
- US domestic output was about $11B and its overseas output $1.2B or a total of $12.5B. (29% of the world). US overseas production will probably increase at least 50% from $1.2B level in the near future.
- US and Japan account for about 63.5% of the world. When these two countries lose 20% of their output this year, it will affect the world output by approximately 13%.
- Number 3 Taiwan is likely to stay the same as 2000, China may be the same or slightly up, but the rest of the world will be down by 10 to 15% this year.
- Therefore, world PWB production in 2001 may be down by 15 to 20% compared to 2000.
China will invest more than 100 billion Yuan (US$12.1 billion) in the next five years to prime the development of basic electronics products to support the rapid development of the information industry. These products include new types of display devices, electronics elements and devices, special equipment and instruments. To encourage the development of these products, the state will grant preferential treatment in taxation, investment and bank loans.
Electronics Marketing Limited www.electronicsmarketing.com in cooperation with Kirk-Miller Associates has upgraded Eurofile, a useful listing (Excel spreadsheet format) of over 700 European PCB makers. If you are involved in the PCB industry, Eurofile is a very useful tool.
Electronic Equipment Computers
The worldwide PC market was stagnant in the second quarter of 2001 with shipments declining by 2%. According to IDC research, shipments of 29.8 million were down 7.2% sequentially as growth from Asian markets evaporated amid a continuing US market slump.
Top 5 Vendors, Second Quarter 2001 (Preliminary) (Thousands of Units)
U.S. Shipments
Q2 2001
Q2 2000
Growth
Vendor
Shipments
Mkt. Share
Shipments
Mkt. Share
2001/2000
Dell
2,519
24.0
2,293
20.1
9.8
Compaq
1,332
12.7
1,693
14.8
-21.3
Hewlett-Packard
991
9.4
1,221
10.7
-18.8
Gateway
798
7.6
964
8.4
-17.2
IBM
638
6.1
713
6.2
-10.6
Others
4.224
40.2
4,542
39.8
-7.0
All Vendors
10,501
100.0%
11,426
100.0%
-8.1%
World Shipment
Q2 2001
Q2 2000
Growth
Vendor
Shipments
Mkt. Share
Shipments
Mkt. Share
2001/2000
Dell
3,979
13.4
3,459
11.4
15.0
Compaq
3,590
12.1
4,011
13.2
-10.5
IBM
2,133
7.2
2,260
7.4
-5.6
Hewlett-Packard
2,065
6.9
2,260
7.4
-8.6
Fujitsu Siemens
1,375
4.6
1,391
4.6
-1.1
Others
16,641
55.9
17,002
56.0
-2.1
All Vendors
29,783
100.0%
30,383
100.0%
-2.0%
- Vendor shipments are branded shipments and exclude OEM sales for all vendors and represent shipments to distribution channels or direct to end users.
- Data for all vendors are reported for calendar periods.
- Data for Fujitsu Siemens includes shipments for Fujitsu and Siemens.
Source: IDC, July 2001
Mobile Communications
Worldwide production of mobile phones in the second quarter of 2001 plunged by 16% year-on-year to 87 million units, falling significantly below the 100-million-unit mark for the second straight quarter, according to Nikkei Market Access. Because inventory adjustments are now almost complete, worldwide production of mobile phones should gradually rebound, leading to a yearly production of 471 million units in 2001.
Amid a slowdown in the global handset market, major Japanese mobile handset makers including Matsushita, Mitsubishi and Toshiba will shift some production to China where mobile phone penetration is low and growth potential high. Another incentive for Japanese firms to manufacture in China are the 100% tariffs on mobile phone imports that Beijing placed on Japanese imports in June as part of a festering trade dispute.
Test & Measurement
Teradyne Inc., the biggest maker of semiconductor-testing equipment, agreed to buy most of the assets of closely held E-M-Solutions, which filed for Chapter 11 bankruptcy protection, for as much as $85 million. Teradyne also will acquire E-M-Solutions’ Northern Ireland and Mexican subsidiaries, which aren’t included in the bankruptcy filings.
PCB Fabrication
Sanmina president Randy Fuhr said in late July, <I>“Sanmina will take out 15 to 20% of its PCB fabrication capacity, equaling $300 million to $400 million in annual capacity, all from of North America.”</I> This reduction, to be completed by Sanmina’s fourth quarter, would represent 3 to 4% of the dollar value of the North American PCB industry. It will leave Sanmina with about $1.7 billion of PCB capacity. Combined with closures of Viasystems, Multek, and other fabricators earlier in the year, North America would lose a total of 11 to 14% of its PCB capacity in 2001. While production is going offline in the U.S., Sanmina may be expanding abroad. CEO Jure Sola said the company is <I>“looking”</I> at expansion in China <I>“probably in the next 18 months, maybe sooner.”</I>
James Mills resigned as CEO of Viasystems Group and of its operating company, Viasystems. Mills will remain Chairman of the Board of both companies. David Sindelar, formerly Senior VP and CFO of Viasystems Group and Viasystems, became CEO of both companies. James Powers became Senior Vice President/Chief Financial Officer.
Coretec acquired the assets of Insight Design Solutions of Denver, Colorado, a designer of high reliability PCBs for the aerospace sector. IDS had revenues of more than $600,000 in fiscal 2000 and was profitable.
DDi acquired Canada’s Olympic Circuits, a privately held quick-turn prototype PCB manufacturer serving electronics, medical, automotive and telecommunications markets.
Innovex named Kelly Schuller VP, Strategic Marketing and New Business Development. Schuller will evaluate opportunities for Innovex to expand its core business of high-density flexible circuits into new markets. He will report to William P. Murnane, Innovex's President and CEO.
Sumitomo Bakelite will establish a $26-million, flexible high-density PCB production facility in Vietnam beginning next year. The PCBs will be used for mobile phones and LCDs. The plant is expected to initially staff about 600 workers, and aims to reach a monthly output capacity of about 3.25 million, and first-year sales of about $24.4 million.
Nitto Denko has set up subsidiary in China to build facilities producing high-density flexible printed circuit boards and other electronic components used in cellular phone handsets, personal computers and PDAs. Nitto Denko currently manufactures FPCs at its Kameyama plant in Mie Prefecture, central Japan.
CMK Corp entered into an agreement with the Wuxi New Area, a business park outside of Shanghai, to establish a $75 million production base for multilayer PCBs for mobile phones and digital cameras. In October 2000, CMK acquired Satosen Circuit, a subsidiary of Satosen Co., located in Dongguan, Guangdong province, China. Satosen Circuit designs and manufactures PCBs for mobile gear and business machinery.
WUS Printed Circuit closed its Singapore PCB factory. It had purchased the factory from Motorola a few years ago. Due to recent high inventory volumes, the major international manufacturers of cellular phones have decreased their demand for PCBs. Moreover, local competitive PCB makers expanded their production capacities. As a result, the order volume for the WUS PCB factory in Singapore fell significantly. The plant’s PCB production equipment will be shifted to WUS' factory, Kaohsiung City, southern Taiwan, and its factory in Kunshan, Jiangsu Province, mainland China. The Kunshan factory will become WUS' main production base.
Compeq Manufacturing will invest an additional US$22.4 million in two factories in mainland China. Compeq has invested US$33 million to establish a 100% owned factory to make PCBs used in cellular phones in Huizhou of the Guangdong Province, mainland China. Compeq originally planned to expand the factory's monthly PCB production from 350,000 square feet presently to 500,000 square feet at the and of this year, but the capacity expansion turned out to be unnecessary due to decreased demand for cellular phones However, fall is the traditional peak sales period for PCBs. To meet the expected increase in PCB order volume, Compeq decided to invest US$17 million more to add production equipment to the Huizhou factory. Thus, Compeq's cumulative investment in the factory will reach US$50 million. The factory earned NT$400 million last year and is estimated to generate profit of NT$800 million this year In addition, Compeq and Matsushita of Japan set up a joint venture electronics materials factory in Guangzhou of the same province, with Compeq holding a 45% stake. Compeq will invest an additional US$5.4 million in the factory, to reach a cumulative investment figure of US$27.8 million. With the additional investment in the two factories, Compeq's investment in mainland China will amount to a total of US$77.8 million, equivalent to NT$2.684 billion. In view of the PCB market's potential in the mainland due to fast growing wireless telecommunications market there, Compeq plans to set up PCB factories in the central and northern regions. In preparation, it has already established R&D centers in the two regions.
The Danish investment company Dansk Kapitalanlaeg acquired 1 million shares, representing 23.5% of the votes, in the Danish PCB company Chemitalic A/S.
PPE, Germany’s DM 200 million project to create 17,000 sq. m. of new production areas in Schopfheim, Germany and Pulversheim, France has been stopped due to the mobile phone downturn.
Aspocomp will shut its PWB factory in Espoo and reduce 130 jobs. "Among the reasons for the closing the Espoo factory are the continuous unprofitability of the factory, the price pressure in the standard technology PWB market and the global overcapacity situation," Aspocomp said. The plant accounted for 5% of group sales in 2000 and had 7% of the group's workforce.
Materials
Shipley Company appointed Patrice Barthelmes as President, Shipley Ronal PWB Division. He will continue as president of Shipley Europe. Barthelmes replaces Michael Foster, President, Shipley Ronal PWB Division, who is retiring after 34 years with Rohm and Haas. Shipley also announced that Carol Eicher would become Vice President and General Manager, Americas PWB, a newly created position reporting to Barthelmes.
Park Electrochemical elected Mary Wathen President of Nelco Products, Park’s high technology volume PCB material business unit in Fullerton, California. Ms. Wathen is succeeding Ronald Hart who is retiring as President of Nelco California. Park also elected John Jongebloed as Senior VP, Global Logistics. Mr. Jongebloed will continue to serve as President of New England Laminates (Nelco New York), Park's high technology volume printed circuit material business unit in Newburgh, New York.
Park Electrochemical will spend about $25 million during the next two years to expand its electronic materials manufacturing facility in Singapore. It also said it expects to expand its electronic manufacturing facilities in California and New York in fiscal 2002.
Nan Ya Plastics is constructing facilities in Kunshan, China for production of electronic materials and upstream products. In 1H 2002, a copper clad laminates facility is due to begin production. In due course, capacity is to be expanded to 1 million sheets/month. In 2004, facilities for epoxy resins, printed circuit boards, glass fabric and yarn are to be brought on stream in Kunshan. PPG Industries will be a joint venture partner with Nan Ya Plastics in the glass fiber and yarn unit. An epoxy resins facility with a capacity of 220,000 tonne/y is due to be brought onstream in Mailiao, Taiwan, by Nan Ya Plastics in early 2002. In 1H 2002, a bisphenol A facility with a capacity of 100,000 tonne/y is due onstream and this will supply feedstock to the epoxy resins unit. The company already has 140,000 tonne/y of epoxy resins capacity. Capacity for copper clad laminates is to be increased to 3.3 million sheets/month later in 2001, with capacity for copper foil being raised to 2500 tonne/month.
Chang Chung Petrochemical group is expanding capacity for copper foil for PCBs and other electronics applications. At Miaoli, Taiwan, the company brought on stream its No6 plant in June 2001. On an adjoining site, it will build its No7 plant. These projects will increase the company's copper foil production capacity from 2000 tonne/month to 5000 tonne/month and it will become the world's largest producer. Currently, 60% of copper foil production is used within the company but when the No7 plant comes on stream, most of the output will be for third-party sales, with only 30% of production being used in- house.
Showa Denko KK and Nippon Polytech jointly developed a new dry film solder mask specifically for flexible printed wiring boards. The venture capital company, Nippon Polytech is now a subsidiary of SDK.
DuPont will invest about $20 million this year for the development of an electronic material business in Taiwan. The investment is expected to triple the revenue of Dupont's Taiwan subsidiary within three years. DuPont’s global strategy is to concentrate on four business scopes: integrated passive devices, flexible circuits, portable power supplies and display technology. Moreover, DuPont has decided to tie up with local maker Wirex Corp. for the development of a new material for PCBs. The material will enable capacitors and other passive devices to be implanted directly on the boards.
Laminate producer Compositech filed a voluntary Chapter 11 bankruptcy petition.
Wong’s Circuits Holdings said its Hong Kong parent, Wong’s International Holdings, plans to take it private by offering US$1.46 in cash for every Wong’s Circuits share. Wong’s Circuits has $264 million in cash after disposing of its PCB business last year.
PCB Assembly
According to IDC, the worldwide CEM market will more than double from $103 billion in 2000 to $231 billion in 2005. The increased scope of services that CEMs now provide is a major driver of the market's growth. CEMs debuted in the mid-1970s to handle the overflow of board assembly in the technology sector, but today have grown to include industrial design and enclosure services, global distribution and logistics services, and warranty and repair services, to name just a few.
Nu Horizons, a Melville, NY distributor, will sell Nu Visions Manufacturing, its Springfield, Mass. EMS subsidiary to Golden Gate Capital.
Sanmina is acquiring SCI Systems in a stock transaction of about $6 billion, including debt assumption. The merger creates one of the world’s largest CEMs with more than $14 billion in revenue and about 100 manufacturing plants in over 20 countries. The combined firm is expected to yield synergies of $100 million to $150 million from cost savings, the companies said.
Japan's electronics industry is under pressure to cut costs and improve production efficiencies by overhauling the nation's traditional manufacturing infrastructure. “2002 will be the year of Japan outsourcing,” said Chan Kei Biu, chairman of Surface Mount Technology Holdings, a Hong Kong-based EMS provider whose company is already picking up electronics contracting business from Konica, Nissan, and Sony. “I'm visited by Japanese companies every week. China is like a vacuum cleaner, sucking up all the outsourcing] orders,” Biu said.
Flextronics announced an agreement with China PTIC Information Industry Corporation,
China's largest state-owned communications company, that outlines a cooperative sales, manufacturing and R+D plan for the Chinese communication market. Flextronics currently has four electronics assembly manufacturing plants across China, and owns several other factories in China that include the manufacturing of plastics, PCBs and enclosures.
Oneida Nation Electronics, Green Bay, Wisconsin, a CEM business started by the Oneida Indian tribe, is closing its plant and laying off its 32 workers. The tribe invested $15.5 million in the venture, including about $9 million to build the manufacturing plant and administrative offices. The building with more than 100,000 square feet of space opened in 1997.
Celestica entered into a strategic manufacturing agreement with Lucent Technologies. Celestica will acquire Lucent’s Oklahoma City, Oklahoma and Columbus, Ohio facilities. The purchase price is expected to be between US$550 - $650 million. The deal will include a five-year supply agreement worth up to US$10 billion in total revenue.
SMTC Corporation signed a supply agreement with Xplore Technologies to provide CEM services for the company's rugged mobile computing systems. SMTC will provide high volume system level assembly, test services and supply chain management from its 190,000 square foot facility, which opened earlier this year in Austin, Texas.
As part of an ongoing restructuring plan, APW will close its Milton, Ontario and Dundee, Scotland manufacturing operations and transfer production at those facilities to other locations.
ACT Manufacturing acquired the Leicester, England manufacturing facility of Fisher-Rosemount Systems, the process management division of Emerson. As part of the transaction, ACT agreed to provide Fisher-Rosemount Systems a global, "straight-through" manufacturing process, from circuit board manufacturing through final assembly.
Celestica completed its acquisition of Primetech Electronics, an EMS provider based in Kirkland, Quebec.
Semiconductors
2001’s severe semiconductor downturn is changing the top 10 ranking of chip suppliers, according to IC Insights. A 45% drop in DRAM revenues and a downturn in cellular phone and communications ICs (particularly for Texas Instruments and Motorola) were key causes.
First Half Semiconductor Sales ($ Millions)
1H’2000
1H’2001
% Change
Intel
13,855
11,085
-20
Toshiba
5,010
4,670
-7
NEC
4,960
4,405
-11
STMicro
3,579
3,508
-2
TI
4,215
3,295
-22
Samsung
3,925
3,255
-17
Hitachi
3,360
2,980
-11
Motorola
3,900
2,733
-30
Infineon
3,240
2,648
-18
Mitsubishi
2,690
2,380
-12
Source: IC Insights
SEMI has released its latest consensus forecast for the semiconductor equipment industry. Previously having forecast a 31 to 32% fall, SEMI now expects the industry to decline 35% on last year's $47.7 billion. For 2001, $31 billion of chip manufacturing, testing and assembly equipment will be sold. It now expects to see the market rebound in 2002 with an increase of 11.6% to $34.6 billion, followed by a 22.5% rise in 2003 to $42.4 billion.
North America-based manufacturers of semiconductor equipment posted $705 million in orders in June 2001 and a book-to-bill ratio of 0.54, according to SEMI. Shipments and bookings figures are in millions of U.S. dollars.
Shipments
Bookings
Book-to-Bill
January 2001
2,308.4
1,854.2
0.80
February 2001
2,279.3
1,610.9
0.71
March 2001
2,020.3
1,197.3
0.59
April 2001 final
1,654.6
721.3
0.44
May 2001 revised
1,485.0
714.0
0.48
June 2001 prelim.
1,310.8
704.7
0.54
Samsung Electronics expects demand in DRAM chips to stay below supply until the fourth quarter of the year.
China Semiconductor Manufacturing International developed its country’s first 32-bit CPU “Fangzhou-1”.
Other
Expecting a gradual recovery later this year, capacitor suppliers and their distributors report spot buying of some capacitors and say inventories of popular ceramic and tantalum parts (inflated by capacity increases in response to last year's shortages) are beginning to decrease.
Yageo plans to invest $12 million in China to build its first multilayer ceramic capacitor (MLCC) manufacturing facility in Suzhou next year. The move is necessary for the company to bring down its costs as well as have better access to its OEM, EMS and motherboard customers, given the current downturn in the U.S. and Europe. “There's a slowdown everywhere except in China,” said a Yageo official. “Many of our customers have moved or are moving to China. We have to increase our presence there, too.”
NEC has developed what is claimed to be the world’s first conductive polymer solid electrolytic capacitor fabricated using niobium. With a shape and structure identical to conventional chip tantalum capacitors, the niobium capacitors offer equivalent quality and performance, yet with a more stable supply. Available niobium deposits are said to be 100X more than those of tantalum, making them suitable for mass production. Sample shipments of the NB/P series capacitors are slated to commence next month, with mass production scheduled for early 2002.
_______________ Walt Custer Custer Consulting Group Phone: 707 785-1777 FAX: 707 785-1988http://www.custerconsulting.com/
E-mail: wcuster@mindspring.com
This article was originally published in CircuiTree magazine and is reprinted here with permission.