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Getting to Know Your Designer
In this issue, we examine how fabs work with their design customers, educating them on the critical elements of fabrication needed to be successful, as well as the many tradeoffs involved. How well do you really know your customer? What makes for a closer, more synchronized working relationship?
In this issue, the biggest names in PCB manufacturing share their economic outlook for the upcoming year and beyond. As you will see, they were all bullish on our industry, but there was some apprehension as well. No one wants to get burned by another the supply chain disruption.
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EIPC Technical Snapshot: ‘Tremendous Uncertainty’ in Global PCB MarketplaceOctober 26, 2022 | Pete Starkey, I-Connect007
Estimated reading time: 9 minutes
For the past two years, EIPC’s Technical Snapshot series has kept us extremely well-informed on developments in printed circuit materials and manufacturing technologies. But what is currently happening in the global PCB market, and how is Europe and the rest of the world affected by the current world situation? The 19th chapter (coincidentally on Oct. 19) in the series gave us a privileged opportunity to find out, as two leading industry analysts presented their observations and opinions in a webinar introduced and moderated by EIPC technical director Tarja Rapala-Virtanen.
The opening presentation, a business outlook on the global electronics industry with an emphasis on Europe, was provided by Custer Consulting Group and delivered on behalf of Jon Custer by EIPC president Alun Morgan.
It is not exciting news for Europe; the short-term outlook appears bleak.
“This is a year of contraction,” Morgan began, as he summarised Q3 of 2022. The Russian war with Ukraine, together with China’s COVID-related restrictions has caused a global supply and energy crisis which is particularly affecting Europe. Global inflation has caused prices to rise across the whole supply chain, and labour and material costs are increasing, even though the supply chain has shown some improvements in material availability. Semiconductor sales are beginning to slow down, with slower growth predicted for 2023, and PCB sales are beginning to soften.
There had been a major revision of forecasts for real rates of growth in GDP, with the IMF now anticipating 2.4% in 2022 and 1.1% in 2023 compared with 5.2% for advanced economies in 2019.
An additional concern in Europe is the rise in inflation at a time when the euro is not keeping pace with the strengthening U.S. dollar, the euro-to-dollar exchange rate being at a record low.
Morgan drew attention to freight costs. Although the global container freight rate continued to decrease from its 2021 peak of over $10,000, its current level of $6,000 is still three times the steady pre-pandemic rate and remains a big issue.
Custer’s Purchasing Managers Indices, always a useful indicator of whether the market is growing or contracting, shows that although the global index has recovered to a neutral position, the U.S. is trending positive while Eurozone countries are drifting into the negative region.
A positive note is that strong growth continues in the market for automotive electronics, and the U.S. $275 billion forecast for 2022 is predicted to increase to U.S. $520 billion in 2030, with a steadily rising percentage of the total cost of a new car from less than 20% in 2000 to at least 45% by 2030.
There are still some issues for the European automotive industry as the technology of electric vehicles evolves and their market share increase. The world’s largest EV manufacturers are Chinese and American. It remains to be seen whether the German industry will react and recover its leading position in Europe. Also, the average age of vehicles in Europe is steadily increasing, particularly buses and trucks, and there are long waiting lists for new cars, largely due to continuing electronic component shortages.
The aviation, government, and military electronics sector has seen a step change downwards, aviation as a direct consequence of the COVID pandemic, and is currently around 80% of the pre-pandemic level. Military expenditure in Europe totalled U.S. $409 billion in 2021. This increased because of the war in Ukraine but figures are not yet available for 2022.
The value of world semiconductor shipments peaked in 2021, with a monthly figure over U.S. $50 billion, but is currently reverting to the normal trend-line. There is growth in the proportion of integrated circuits used in communication and automotive applications, and a reduction in the computer market share. The largest growth-rate projections are for automotive and military end-uses.
Information on European PCB production was provided by Michael Gasch of Data4PCB, and this was gratefully acknowledged. He commented that shortages and logistic problems led to panic buying in 2021, resulting in higher bookings between January and August which were not reflected in 2022. His estimate for sales volume in Europe for 2022 was between 1,760 and 1,810 million euro, although the effects of the Russian invasion of Ukraine, upcoming fears of a recession, and political changes in several European countries are unknown factors.
An uncomfortable trend is the ongoing decline in the number of PCB manufacturers in Europe, from over 500 in 2,000 to less than 200 in 2019.
Energy prices are currently a serious concern in Europe, and while Russia previously had been a substantial gas supplier, the invasion of Ukraine changed everything and European countries have been forced to develop alternative sources. Electricity prices are substantially higher in Germany than in the United States, by a factor of 3, and in China, by a factor of 4, putting German industry at a significant commercial disadvantage.
Energy costs are not the only fundamental issue for the European PCB industry; the materials supply chain is another. In 2000, Europe had self-sufficient local supplies of glass and copper foil. By 2020, there was a single foil manufacturer left; the rest of the supply chain had moved to Asia. So, the combination of the extended supply chain, the additional cost of freight, and the extremely high electricity prices is of major concern. Morgan remarked that EIPC will bring the situation to the attention of government, and present a case with defence considerations as a point of focus.
The conclusion of the Custer report was that whereas 2022 had been expected to be a year of continued growth from 2021, the Russian-Ukrainian war together with China’s COVID restrictions has caused a rise in the cost of materials and energy. Global economic activity is experiencing a broad-based slowdown and inflation is higher than seen in decades. The cost of living is rising and there are tightening financial conditions in most regions that are causing a bleak outlook. Except for the global financial crisis of 2008 and the acute phase of the COVID pandemic, the growth profile is the weakest seen since 2001. Against this background semiconductors, although slowing, are expected to remain in double-digit growth for 2022, with PCB growth around 5–7%, although orders will slow for 2023.
‘2022 Will Be a Very Different Year’
A more focused view of the PCB market came from Dr. Shiu-Kao Chiang of Prismark Partners, speaking from Taipei and commenting that this was the first visit to Taiwan he had been able to make since the beginning of the pandemic. He gave his 2022 update and outlook, seeking to identify challenges and potential opportunities.
“Overall, 2022 will be a very different year,” he told the group.
Following strong growth in 2021, 2022 started with a positive first quarter but the second quarter saw a tremendous decline for a multitude of reasons. The market for personal computers, previously benefiting from remote learning and the necessity to work-from-home, had receded. Cell-phone sales faced severe headwinds, especially in China. The start of the war in Ukraine was followed by the Shanghai pandemic lockdown, leading to disruption in production and logistics. Added to these it was realised that the whole industry had tremendous inventory and demand was very weak. There were inflation and interest issues. Consumers were short of money. Research in several sectors clearly indicated that 2022 would be a year of contraction. The overall end-market value growth, which had been +12.3% in 2021/2020, was forecast to be -2.8% in 2022/2021.
On the positive side, there is a relatively strong demand in the automotive sector for electric-vehicle and driver-assistance electronics, but there are still issues of component supply constraints and pandemic disruptions. Data centres and high-performance computing servers require PCBs and advanced substrates, although there is overcapacity in the supply of rigid and flexible boards which, combined with declining capacity utilisation, is causing price erosion. It will take a long time to recover to a balanced situation, and the industry is still in a transition phase following the pandemic. Apart from the automotive sector, hardware infrastructure upgrades are effectively the only area showing growth in the PCB market. Sales of consumer products have slowed right down and excess inventory is a characteristic of the whole electronics industry supply chain.
Geopolitical issues are significant, especially the recent ruling imposing additional export controls on certain advanced chips, computer commodities, and semiconductor manufacturing equipment from the United States to China, designed to limit China’s access to key U.S. technologies.
Chiang listed the Top 40 PCB suppliers for 2022, with their performance analysed in detail quarter-by-quarter and commented that those leading companies that have shown tremendous growth in 2021 are still delivering strong growth and earning very good profits. The successful companies are either mainly associated with packaging substrates or are Apple suppliers. Companies supplying the personal computer and consumer markets showed relatively low or even negative sales growth.
Why are the leading PCB companies experiencing such high growth? In his opinion, 2022 was a unique and very interesting year. Although the collective figures for the Top 40 showed an overall net growth, the majority of this came from a few large companies, especially the ones making substrates, and those few could possibly show growth as high as 20%. Many of the relatively small- to medium-sized companies suffered very low growth, and those toward the bottom of the Top 20 list actually showed substantial negative growth. The differences were huge.
Combining all this information together, Chiang asked, in effect: Who do you sell to, what product do you offer, and what is your scale of operation? Prismark’s estimate of total PCB market growth for 2022 is around 1.5%, with most of this coming from packaging substrates. HDI and flex are likely to grow at 1 to 1.2%, whereas commodity multilayer will probably decline by about 5%. Chiang commented that the strong U.S. dollar could have the effect of reducing apparent growth rates measured in local currencies.
Inventory will remain a big issue for the PCB industry, at least for the next two to three quarters, and will result in an abnormal behaviour pattern: Instead of a weak Q1 with a sharp decline from the previous Q4, followed by marginal growth in Q2, strong growth in Q3, and a relatively flat Q4, Chiang forecast that in 2022, Q1 would be the strongest quarter, with Q2 lower than Q1, Q3 even lower, and Q4 much worse.
Most of the PCB companies that Chiang met recently were concerned about another big issue: the geographic migration of PCB manufacturing “out of China.” Whereas the norm was China as the predominant manufacturing site, with the Americas, Europe, and Japan recognised as niche-product or low-volume board suppliers, and Taiwan and Korea concentrating on advanced technologies, Southeast Asia has now become a favourable investment location for Japanese and Korean companies. The PCB supply chain is experiencing a dramatic change from investment in China to out of China, mostly in Malaysia, Thailand, and Vietnam. The objectives are to avoid issues like the Shanghai lockdown, to minimise the potential impact of geopolitical conflict, to diversify the overall risk, and to rationalise the supply chain.
The United States’ recently implemented Additional Export Control Restrictions constitutes a further incentive. Chiang explained that the government’s strategy is to boost U.S. semiconductor production whilst simultaneously degrading the advanced semiconductor industry in China.
He concluded by stating once more that overall there will be challenges, not only in the fourth quarter of 2022, but also over the next two to three years. The industry will face tremendous uncertainty, threats, and challenges. 2023 will be a difficult year for semiconductors and PCBs, and he predicts that the PCB market will likely decline by -2% to -5%, depending on the state of the substrate market.
Tarja Rapala-Virtanen brought this rather scary webinar to a close, thanking the organisers, the presenters, and all who had participated. The next EIPC Technical Webinar is scheduled for Nov. 30.
After working for a capital equipment supplier for almost 50 years, I’ve found that the most important part of getting to know your vendor is good communication among all parties. While contact between fabricators of a constantly changing product line and the designers of those products may occur daily or weekly, conversations between you and your equipment supplier may be years apart. That lengthy gap often means that previous contacts may have been promoted, retired, or moved on to other opportunities. You may have also migrated to a new supplier with whom you have little or no history. In either case, you will be interacting with someone you are unfamiliar with (as they are with you). Therefore, it is essential for both sides to communicate clearly so expectations will align.
The opening session of the second day’s conference proceedings focused on global PCB trends and was introduced and moderated by Dr. Michele Stampanoni, vice president of strategic sales and business development at Cicor Group in Switzerland. He opened the session with Dr. Hayao Nakahara’s knowledgeable and enlightening video presentation on the IC substrates industry.
The 2024 Winter Conference of the EIPC took place January 30 and 31 at the IHK Academie in Villingen-Schwenningen, Germany. The keynote session will be reported separately. Here is my review of the first day’s conference proceedings.
Electrodeposition comes down to fundamentals. In the early days of plating, many users considered the nuances of metallization as black magic. Those days are long gone. Having a thorough understanding of the critical parameters that influence electrodeposition will determine success.
High Density Packaging User Group (HDP) is pleased to announce that Shikoku Chemicals Corporation (Shikoku) has become a member.