Dampened SEMI Equipment Prospects; Metal Prices Continue to Surge; European PCB Business Strong Thanks to Automotive Sector

Globally the “Electronic Food Chain” still appears to be in for a “slow growth” year in 2008. Most of the expansion will occur in China, which is also slowing. ( Chart 1 ) summarizes recent “Expert” forecasts for 2008 growth. The GDP, electronic equipment, PCB & semiconductor predictions are at “constant exchange rates” while, I believe, Gartner’s SEMI equipment forecast is calculated at fluctuating currency exchange.

	Chart 1

Worldwide Semiconductor Capital Equipment Spending to Decline 20% in 2008 ( Chart 2 )

	Chart 2

A weakening U.S. economy and a collapsing DRAM market will result in worldwide semiconductor capital equipment spending totaling $47.5 billion in 2008, a 19.8% decline from 2007, according to Gartner, Inc.

"The expected bursting of the DRAM capital spending bubble has finally happened, as rampant overcapacity in that sector drove unit prices well below cash costs for most manufacturers," said Klaus Rinnen, managing VP for Gartner's semiconductor manufacturing group. "Since our last update in late December, reported DRAM spending plans have declined to the point where we are now projecting a drop of almost 47% in DRAM spending and 29% in total memory in 2008."

"The memory market peaked last year by spending over 57% of total revenue for capital expansion, a level which cannot be supported by the anticipated lackluster revenue growth. We expect this to drop significantly to the low 40% range for this year and 2009," Mr. Rinnen said.

North American Semiconductor Equipment Industry Posts March 2008 Book-to-Bill Ratio of 0.89 ( Chart 3 & Chart 4 )

	Chart 3

	Chart 4

North America-based manufacturers of semiconductor equipment posted $1.16 billion in orders in March 2008 (3-month average basis) and a book-to-bill ratio of 0.89 according to SEMI.

The 3-month average of worldwide bookings in March 2008 was $1.16 billion, 4% less than February 2008 and about 18% less than March 2007. The 3-month average of worldwide billings in March 2008 was $1.29 billion, down 1% vs. February 2008 and about 10% less than the March 2007.

"Orders reported by North American equipment manufacturers have remained at relatively constant levels over the past six months," said Dan Tracy, senior director of Industry Research and Statistics at SEMI. "This trend is a reflection of the uncertainty in the semiconductor industry, and with current economic conditions."

MLCC Prices Expected to Recover in 2Q’08, but Size of Increase is Uncertain

Per DigiTimes “seasonality, exchange rate fluctuations, and increased costs following the revision of labor laws in China discouraged sales of multilayer ceramic chip capacitors in the first quarter. The situation was further aggravated because ASPs trended downward amid market share competition among vendors.”

The MLCC industry is expected to recover from the trough in the second quarter, though industry players are uncertain whether prices will rise as the second-quarter is still regarded as a seasonal low for the MLCC market. Intel's optimistic projections for notebook demand are expected to boost MLCC demand.

DigiTimes noted while there is speculation about production cuts at major players which may result in a possible price hike for high-capacitance and mainstream MLCCs, industry watchers commented that this seems unlikely. In the high-capacitance MLCC segment, leading Taiwan-based players including Holy Stone Enterprise, Darfon Electronics, Walsin Technology and Yageo and leading Japan-based players including Murata, TDK, Taiyo Yuden, are all in the midst of expansion plans, meaning a capacity cut is unlikely.

Tin prices are setting a record ( Chart 5 )

	Chart 5

According to Purchasing magazine tin futures rose to a record $9.66/lb in mid April as China and Indonesia, the world's largest producers, appear to be restricting supplies. China-based Yunnan Tin, the world's biggest producer, halted shipments because of a lack of buyers willing to absorb China's new and higher export duty. Indonesia, the world's second-largest producing nation, is reported to be capping production at 100,000 metric tons this year and next to extend mine life and limit damage to the environment.

Forbes.com said that tin inventories have been increasing since the end of 2007, but prices are going up nonetheless on worries of potential output cuts from key suppliers along with large pools of speculative money moving into commodities to hedge against inflation and the weak dollar.

1Q’08 European Printed Circuits – Strong Book/Bill ( Chart 6 & Chart 7 )

	Chart 6

	Chart 7

First quarter European PCB orders appear to have been stronger than expected. Automotive PCB orders that had been transferred to China based upon lower pricing have at least partially returned to German fabricators. Reportedly surface finish quality issues were a key cause for the return. ( Chart 7 ) is the VdL (Germany, Austria & German speaking Switzerland printed circuit trade organization) book/bill and Chart 6 is a Custer Consulting Group synthesized “European” book/bill ratio created using a combination of VdL, Gixel (France) and UK B/B’s weighted by relative production by area.

	Chart 7

Taiwanese Electronics Companies Move Operations to Northern Vietnam from Mainland China

CENS reported that to ease the impact of skyrocketed production costs in mainland China, Taiwanese firms operating there, including those from the electronics and conventional industries, are rushing to move operations to northern Vietnam.

It noted that Hon Hai Precision Industry and Compal Electronics’ relocation plans are expected to encourage more Taiwanese firms to do so in 2H’08. Taiwan`s top-five electronics firms have all set up production facilities in the northern part of Vietnam.

Although Ho Chi Minh City was the favored location a few years ago, recently Taiwan firms have selected Hanoi for their production facilities. Firms relocating to Hanoi mostly focus on the production of computers, cell phones and electronics components. Taiwan has become Vietnam`s second-largest foreign investor, only behind South Korea.

Low-cost PCs and WiMAX to Mark Turning Points for Taiwan in the PC market, says Acer chairman

Per Digitimes, Acer chairman JT Wang said that the advent of low-cost PCs and WiMAX are both opportunities for Taiwan to lead the global PC market.

About 30% of consumers’ low-cost PC purchases are to replace 14 & 15-inch mainstream notebooks, meaning the other 70% represent new sales avenues.

Wang also stated that he expects Taiwan to a become WiMAX island, leading the way in term of expertise, solutions and infrastructure; and all other countries and companies will need to come to Taiwan in to source solutions.

Looking to 2009

( Chart 8 ) summarizes electronic food chain growth prospects for 2009 vs. 2008. Hopefully 2008 will be the trough in this current “severe slowdown.” A recovery (or at least stability) in DRAM pricing should help the chip sector.

	Chart 8