I have spent this past week in Shenzhen at the HKPCA/IPC sponsored “2007 International Printed Circuit & Electronics Assembly Fair.” This exhibition, the largest of its kind in southern China, was well attended. The mood was upbeat. On the opening day I spoke on global business conditions. For a copy of my charts e-mail walt@custerconsulting.com.

China is not without its problems as an electronic component producer (Chart 1 & Chart 2), but its PCB production growth has been outstanding (Chart 3 & Chart 4). It is now by far the largest printed circuit board producer in the world (Chart 5).

	Chart 1

	Chart 2

	Chart 3

	Chart 4

	Chart 5

China's Manufacturing Expansion Slowing Down

China's manufacturing activity expanded at a slower pace last month, according to a survey by CLSA Asia Pacific Markets.

According to CLSA Asia Pacific Markets, China’s “Purchasing Managers Index” fell to 52.8 from a 31-month high of 55.2 in October. Its new order index dropped to 54.5 from 59 and export orders dropped to 52 from 52.7. A reading above 50 indicates an expansion.

"China's economy may decelerate next year, mostly because of slowing exports, as indicated by the falling orders," said Sun Mingchun, an economist at Lehman Brothers Holdings, Hong Kong.

Printed Circuit Board Shortages in 2008 as Capacity Expansion Stalled by China Environmental Rules?

The PCB market may see shortages in 2008 as expansion plans of makers in China are being hindered by tough regulations concerning waste water control, according to Digitimes.

The PCB industry is finding it almost impossible to expand capacity in southern and eastern China where waste water disposal is tightly monitored.

With no more waste water quota available in the regions, the authorities have stopped issuing new environmental assessment certificates. The waste water quota can only be freed up when existing factories are shut down.

PCB makers think that the stagnant capacity expansion will help the industry achieve a balance in supply and demand, and there is a chance that PCBs will run into shortages next year, according to the sources.

October Chip Sales Rose 5% Year-on-Year

(Chart 6, Chart 7, Chart 8, Chart 9 & Chart 10)

	Chart 6

	Chart 7

	Chart 8

	Chart 9

	Chart 10

The Semiconductor Industry Association (SIA) reported that Worldwide semiconductor sales in October rose to $23.1 billion, an increase of 5% over the $22 billion reported in October 2006 and 2 % higher than the $22.6 billion reported in September of this year. Sales of $210.5 billion for the first 10 months of 2007 are running 3.9% ahead of the same period of 2006, when sales were $202.6 billion. Year-to-date sales are on pace with the SIA’s November forecast of 3.8% growth in worldwide sales for 2007.

“Consumers are reaping huge benefits from continued rapid price attrition in key sectors of the semiconductor market,” said SIA President George Scalise. “Despite a 55% year-to-date increase in unit shipments, DRAM revenues are up only 4% over January through October 2006 sales.

“The story is similar in the microprocessor segment,” Scalise continued. “Strong unit demand for PCs has driven a 15% increase in unit sales of microprocessors for the first 10 months of 2007 compared to the same period of 2006. Revenues, however, are up only 4% compared to last year due to price attrition. Today’s typical personal computer costs less than a third of the typical unit of a decade ago but is 100 times more powerful due to continuing advances in semiconductor technology that have driven down costs while significantly enhancing the speed, capacity, and performance of the chips that go into PCs.”

SIA noted that PC sales in the third quarter of 2007 were stronger than expected, leading JPMorgan to increase its forecast of growth in unit sales for the year from 11-12% to at least 13.5%. According to JP Morgan, the PC market is undergoing significant shifts in geographic demand. In 2006, the U.S. led all regions in PC unit purchases. The new JPMorgan forecast projects that both the Asia-Pacific region and the Rest of World will surpass the U.S. in PC unit sales in 2007.

Scalise noted that early reports from U.S. retailers on “Black Friday” – the day following Thanksgiving that traditionally is the highest volume sales day for retailers – reported strong sales of consumer electronic products such as GPS systems, computers, Mp3 players, and electronic games.

“We will be closely watching consumer sales of electronic products through the holiday season,” said Scalise. “At this point, it does not appear that reported declines in consumer confidence or other concerns have affected sales of electronic products.”

Source: SIA

Semiconductor Equipment Sales to Reach $41.7 Billion in 2007 (Chart 11)

	Chart 11

The leading manufacturers of semiconductor equipment project 2007 sales to reach $41.68 billion according to the year-end edition of the SEMI Capital Equipment Consensus Forecast, released by SEMI at the annual SEMICON Japan exposition.

The forecast indicates that, following 23% market growth in 2006, the equipment market will grow 3% in 2007. Survey respondents expect the market to decline about 2% in 2008, and then post growth in the high single digits in 2009 and 2010 to reach $47.99 billion in 2010.

"Sales of semiconductor manufacturing, testing, assembly and packaging equipment are at levels slightly above last year, and will result in 2007 being the industry's second strongest year on record," said Stanley T. Myers, president and CEO of SEMI. "SEMI members have continued to generate strong overall sales of chip manufacturing equipment, and expect to see a $48 billion dollar market by 2010."

Wafer processing equipment, the largest product segment by dollar value, is expected to grow over 6% in 2007 to $30.61 billion. Survey respondents anticipate that the market for assembly and packaging equipment will expand by almost 11% to $2.72 billion in 2007. The market for equipment to test semiconductors is expected to decline by about 15% to $5.47 billion this year.

Worldwide External Disk Storage Systems Market Revenue Growth Slows Despite Strong Demand for Storage Capacity (Chart 12 & Chart 13)

	Chart 12

	Chart 13

Worldwide external disk storage systems factory revenues in 3Q’07 grew 5.1% from a year ago to $4.4 billion, down slightly from the three previous quarters but still marking 19 consecutive quarters of year-over-year growth. Per IDC, for the quarter, the total disk storage systems market grew to $6.3 billion up 4.3% from the prior year's quarter. Total disk storage systems capacity shipped grew 49.4% from a year-ago quarter, reaching 1.3 exabytes.

"External networked storage for open systems enjoyed healthy growth this quarter, pointing to the continuing need for solutions that help customers effectively store and manage data growth," said Brad Nisbet, program manager, IDC Storage Research. "In particular, we are seeing strong demand for NAS systems aimed at easing the pain associated with managing file-based data, and an increased demand for iSCSI systems in both SMB and virtualized server environments."

Foxconn to Invest $1.5 Billion for Plant in Tamil Nadu, India

Foxconn Electronics, a Foxconn Technology group company, will invest $1.5 billion over the next three years in setting up a manufacturing unit in Tamil Nadu. The facility will manufacture connectors, accessory parts for mobile phones as well as computer hardware, said Thomas Chang, director, Taipei World Trade Centre Liaison Office in India at an interactive meet organized by the Indian Chamber of Commerce (ICC).

Taiwanese FDI in India so far was $500 million, said Chang. While 30% of Taiwanese companies in India are joint ventures with an Indian partner, the rest are Indian subsidiaries of Taiwanese companies. Foxconn would operate through its wholly-owned Indian subsidiary, said Chang.

Asustek to Move Production to Vietnam?

With China's new labor laws coming into enforcement in 2008, Asustek Computer is reportedly planning to move its production lines to Vietnam, according to Digitimes (based upon sources close to Asustek).

The Vietnam government has promised to provide several benefits and tax reductions which have persuaded Asustek to relocate Pegatron Technology, one of the planned subsidiaries that will result from Asustek's spin-off in January 2008, to Vietnam where it will focus on the production of PC related products and components, noted the sources.

If the movement plans are settled, it is expected they will trigger a trend for Taiwan-based IT companies to move their production lines to Vietnam in order to reduce the heavy reliance on China, added the sources.

Asustek declined the opportunity to comment on this report.

Source: Digitimes