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New-generation Equipment to Restore Growth?
December 31, 1969 |Estimated reading time: 4 minutes
In the currently dwindling global production-equipment market, a resurgence in profitability is foreseen via handset subscribers upgrading to latest models.
By Raman Monga
An unprecedented drop in demand in 2001 led to widespread restructuring, including major company shutdowns, as well as continued consolidation of both equipment producers and suppliers. Due to excess capacity and an unprecedented number of company closures, the equipment market contracted by an astounding 47.5 percent in 2001. The bleak scenario has continued in 2002, with capital investment remaining well below historical levels as companies continue to limit spending at or below depreciation levels. And for 2003 to 2004, the market for surface mount production equipment is projected to post only minor gains.
Currently, the industry is faced with several key challenges, including increasing price competition owing to contract manufacturers' squeezed profits and their tighter control on capital investments. In turn, this is forcing equipment manufacturers to make improvements in the price/performance ratio of their equipment. Another significant challenge is that equipment suppliers are facing a need to differentiate their products from those of the used-equipment market, which has grown significantly for obvious reasons. Result: With dwindling sales and reduced profitability, the leading placement equipment manufacturers are reevaluating their strategies and looking at used equipment as a source of increased revenues.
Among industry trends are increased component complexity and miniaturization, faster assembly processes, and increased manufacturing of high-quality/reliability products. While product lifecycles are declining to a one-year timeframe, the time-to-market factor is becoming critical for OEMs. Thus, the faster the products move from design to prototype to production, the higher the OEM's market share, revenues and profitability.
More printed circuit board (PCB) assembly manufacturers are relying on information generated by automated optical inspection equipment (AOI) software for process control. Software is helping improve overall efficiency in production lines by integrating machines and software, leading to faster changeover times, greater accuracy and higher placement rates.
Effect of Globalization
While the implementation of formal regulations governing the transition to lead-free solder is in progress in Europe, Asia and the United States, the switch also is gaining momentum around an environmentally attuned world. Although the timing of full implementation currently is under committee review, European and Japanese manufacturers have published their own lead-free schedules with full implementation anticipated, in many cases, by 2004.
The U.S. National Electronic Manufactur-ing Initiative (NEMI), International Tin Research Institute (ITRI) and JEDEC have endorsed Sn/Ag/Cu as the preferred alloy for lead-free manufacturing. Inevitably, North American manufacturers will be compelled to participate with their European and Asian counterparts in pursuing lead-free production.
New-generation mobile handsets are expected to drive the resurgence of the production-equipment market. The mobile phone market, impelled by color screens, camera-enabled messaging and mobile games, has been moving into a new phase of advanced features and services. It is projected there will be more than 1.5 billion mobile subscribers by 2005, up from 1.1 billion at the end of 2002.
The major market driver for surface mount production equipment is the technological development leading to higher throughput and accuracy and lower cost per placement. Additionally, this market's growth should be spurred by end-user applications. Further, the demand for production equipment from China is expected to be strong.
Equipment Forecast Breakdown
The global production-equipment market stood at $3 billion in 2001. Because of the demand for decreasing PCB sizes together with a stress on miniaturized components and advanced-array packages, the equipment market is anticipated to grow to $7.8 billion by 2010, an advance of 10.5 percent (Figure 1).
Figure 1. Revenue forecast of the total world market for surface mount assembly equipment, 2000-2010.
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Specifically, placement hardware is the mainstay of the total production-equipment market and figures to remain so during the forecast period (Figure 2). Placement equipment, in fact, accounted for 54.8 percent of the total market for production machines in 2002. This market will experience a slight decline in market share, to 53.2 percent by end of 2010 due to a higher growth in inspection, cleaning and soldering equipment markets. Placement equipment suppliers have been focusing on higher modularity, compatibility and integrated software for the new machines as the industry moves toward a high-mix/low-volume production environment.
Figure 2. An estimated breakdown of the 2000-2010 world production-equipment market by percent of revenue of machine type.
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Not surprisingly, the top placement equipment suppliers also are the leading providers in the "total" surface mount equipment market. Elsewhere, inspection equipment appears to have the potential for greater growth and to gain market share. PCB manufacturers are realizing that having a process as defect-free as possible increases revenues and profits via lower rework and repair. Other equipment markets likely to gain market share during the forecast period include the soldering and cleaning equipment markets.
Conclusion
The changing dynamics of the industry implies that companies must shift from roles as product specialists to providers of integrated SMT solutions. One strategy is to form strategic alliances. Examples:
- Fuji has entered into an agreement with EKRA to integrate the latter's complete range of printers into Fuji's production lines.
- Similarly, Siemens has allied with DEK and ViTechnology to provide complete production-line packages, as have Assembléon, Speedline and Aegis.
- Third-party software vendors Tecnomatix, Aegis, Teradyne and Valor are working with the leading placement suppliers to provide a broader product portfolio.
A key question in North America is whether the collapse is merely a short-term reaction to the economic downturn or whether a fundamental shift in underlying demand has occurred that is only now being seen in industry statistics. Ultimately, the expected recovery of the surface mount equipment market will depend on factors beyond the industry's control.
For more information, contact Julia Paulson, Frost & Sullivan, (210) 247-3870; E-mail: Julia_Paulson@frost.com.