Have We ‘Mortgaged’ Our Future? Print E-mail
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Written by E. Jan Vardaman   
Monday, 31 December 2007 19:00

LEDs and solar energy are among the bright spots, but fiscal uncertainties reign.

On the Forefront Despite many concerns during the first few months of 2007, the year was a good one. After a slow start, consumer spending on mobile phones, PCs and other products formed a good atmosphere for backend assembly, despite rising energy prices. The 2008 outlook is not as positive, but there are bright spots in many product sectors and regions. While overall economic trends may be in question for some parts of the globe, many electronics segments are poised for strong growth.

LEDs, especially high brightness versions, are one bright spot. With less power consumption for lighting, many governments, including those of Australia, Singapore, Malaysia, Taiwan and Shanghai, are encouraging or even mandating a switch to LED lighting. David Lin, president of Lite-On Group, a major Taiwanese LED supplier, recently commented LED would be a darling industry for 20 to 30 years.

Solar energy contributes only about a tenth of a percent (0.1%) of the U.S.’s electricity needs, but this is expected to increase. Boosted by higher government subsidies, Germany and Japan use a larger percentage of solar power, and various companies are pushing solar as an alternative energy source. Much of the equipment used in the semiconductor industry is also used to produce solar panels, boosting suppliers’ sales.1 The downside: polysilicon shortages and price inflation (up to 15%). Still, semiconductor equipment suppliers participating in the solar market expect 2008 to be a good year.

Advanced package (BGA, CSP, WLP and flip chip) shipments are expected to rise 30% in 2008. Mobile phones remain the major driver for CSPs and WLPs. Flip-chip growth continues in processors, ASICs and other high-performance devices. Driven by both form factor and performance, this year will see more flip-chip devices shipping in wireless packages. System-in-package (SiP), stacked die inside packages and stacked packages continue to see strong growth. Emerging areas such as embedded components and through silicon via are also hot topics.

Geographic hot spots. Europe’s economic growth was strong in 2007 and Productronica was busy (42,000 attendees) in November, an indicator of the economic strength both of the continent and many material and equipment suppliers. The mood was positive, as it was at the December SEMICon Japan show (110,000 attendees). Manufacturing solar cells received attention at both shows.

Recent Indian government incentives for semiconductor manufacturing and assembly are generating growth in assembly and test capacity. Some companies also may be turning to India for low-cost, scaleable assembly solutions, in the wake of recent product recalls of Chinese-made goods. Demand for semiconductor packaging assembly and materials manufacturing in India is driven by the desire for export revenue and growing consumer demand from the Indian middle class, numbering more than 300 million. TV and appliance production is increasing. Telecommunications is a big growth area in India, with major cellphone makers such as Nokia supplying the domestic market. Major EMS providers, including Flextronics, Jabil, Celestica and Foxconn, have located plants in India; some are expanding. At least 22 Japanese companies, including Suzuki, Honda, Sony, Matsushita and Mitsubishi, have announced plans to invest in India, and special areas have been established for these companies.

Semiconductor manufacturing and assembly in India is predominantly for bipolar devices. Companies such as Bharat Electronics (BEL), Continental Device India Ltd. (CDIL), and SPEL Semiconductor are major assemblers for imported and domestic components.

With word of Intel’s pending assembly facility in Vietnam, interest in establishing manufacturing facilities there has risen. As many as six PCB operations are in Vietnam, while at least one major probe card supplier, SVProbe, has a large operation there. Many companies are announcing new investment or expansion. Hon Hai, the world’s largest EMS company, is quintupling its planned investment in Vietnam to $5 billion, reflecting the Southeast Asian country’s growing appeal to high-tech manufacturers.2 Under targets set by the Vietnamese Ministry of Industry and Trade, key exports include textiles, garments, crude oil, footwear and electronics. The country is expected to export $3.6 billion worth of electronics in 2008, 50% more than in 2007.3

Bubbling over? China’s electronics industry continues to grow, but many are concerned about an overheated economy. China’s computer and home electrical appliance sectors recorded impressive first-half growth in corporate profits, according to China’s Ministry of Information Industry. Between January and June, computers gained 114 billion yuan ($15.1 billion) in sales, up 14% year-over-year, and home electrical appliances raked in 249.6 billion yuan, up 12%. Over the six months, China’s 100 leading electronics and IT enterprises sold 12.76 million computers in the domestic market, up 112%, and exports climbed 103%.4

With growth rates exceeding 10% for many years, China’s economy may be overheated. An 11.5% growth rate is projected for 2007, and the picture is expected to look rosy through the Summer Olympics in Beijing. However, China’s bubble economy is creating inflation that could threaten its long-term economic growth. Real estate and stock prices have soared; real estate speculation is at an all-time high, and the government is responding by raising interest rates and taking other measures to curb lending and slow investments in shopping malls, factories and office buildings. The government fears a glut of unneeded projects could lead to bank loan defaults and spur a debt crisis. Some of these decisions take place in a closed-door economic conference held by Communist Party leaders each December to draft policy for the coming year. Slowing growth is tricky in China, where maintaining a rising standard of living and lifting millions from poverty is key to political stability.5

Submarined by subprimes. The U.S. economy is expected to slow from a real GDP growth rate of 1.8% in 2007 to 1.2% this year.6 There are many concerns about growth and the subprime mortgage rate fiasco’s impact. Interest rates on two million subprime mortgages are due to rise sharply in the coming months; many people could lose homes. In addition, falling housing prices have hurt many families’ overall wealth. Consumer spending, especially on electronics, has been strong despite higher gas prices. Higher gasoline and home heating fuel prices could slow spending ahead.

Expectations for 2008 vary among industry observers. Some financial analysts are concerned the mortgage market crisis could harm consumer spending. Continued consumer spending, trends in energy prices, economic conditions in China and expansion in India, Vietnam and other growing economies will determine how 2008 plays out.

References

  1. E. Jan Vardaman, “The Sun Shines for Semiconductor Equipment and Material Makers,” Circuits Assembly, July 2007.
  2. Wall Street Journal, Aug. 29, 2007.
  3. HANOI, (Xinhua via COMTEX), Oct. 10, 2007.
  4. Xinhua via COMTEX, Sept. 12, 2007.
  5. The Daily Yomiuri, “China to Tighten Monetary Policy, Control Lending,” Dec. 6, 2007.
  6. Economist.com, Dec. 11, 2007.

E. Jan Vardaman is president of TechSearch International, Austin, TX; This e-mail address is being protected from spambots. You need JavaScript enabled to view it . Her column appears bimonthly.

 

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