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When Will the SMT Equipment Market Rebound?
December 31, 1969 |Estimated reading time: 6 minutes
While 2002 is not expected to be the rebound year, it is a good time to target markets that will experience growth in 2003 through 2005.
By Keith Robinson
The million dollar question facing equipment manufacturers in the SMT industry is, "When will the market rebound from the tough market conditions?". We will examine several trends that are taking place in the SMT industry that may shed some light on this burning question that several industry participants are faced with today.
Trends in the wireless telecommunications and computing industries are a major indicator that help project future growth trends in the SMT equipment markets. For years, these two markets were the driving force for electronics assembly manufacturers to purchase new SMT equipment. Demand for these products was strong and several electronics assembly manufacturers had to expand manufacturing facilities and add SMT lines. The products in these industries also continued reducing in size, thus forcing several electronics manufacturing services (EMS) providers and OEMs to purchase new SMT equipment to handle smaller sized components such as 0201s. That changed in 2001 when demand weakened because of poor economic conditions and several electronics manufacturers had excess inventory.
With weak market conditions, several electronics assembly manufacturers laid off considerable amounts of their workforce and halted capital expenditures for SMT equipment. Because several manufacturers had excess inventory, their SMT lines were idle and some began selling their equipment, which helped flood the used SMT equipment market.
The increased numbers of used equipment available resulted in major restraint for new SMT equipment sales. The SMT equipment manufacturers that have been affected the most are those that primarily sell to low- and medium-volume electronics assembly manufacturers. These manufacturers can purchase used equipment at a reasonable price that provides faster production yields, opposed to new machines that are slower.
Some second- and third-tier EMS providers come out ahead because it allows them a less expensive alternative to gaining access to faster equipment that will help them land future accounts. The used equipment market will require SMT equipment manufacturers to refocus their future strategies because more electronics assemblers are leasing equipment at higher rates. Once leases are up, more equipment will be added to the used SMT market, which could limit market growth even further.
With so many SMT lines idle in the electronics manufacturing industry, and with weak earnings in 2001, several electronics assembly manufacturers are not planning to upgrade or add new SMT lines until after 2003. This will further decrease new sales for SMT equipment manufacturers in 2002.
Currently, the personal computer (PC) industry is experiencing reduced sales. Consumers are not compelled to buy new PCs because there is nothing to prompt them to upgrade from their existing computer. However, the future PC sales outlook in China is bright, which could positively impact the SMT equipment market.
The wireless handset market was expected to get a boost from 3G technology; however, the market has faced problems with its rollout in Japan. As with the computer market, China is expected to play a major role in increased demand for wireless handsets. It also is anticipated that several developing countries will continue expanding their wireless infrastructure, providing more future growth opportunities for SMT equipment manufacturers who target the telecom industry heavily.
Another trend preluding future SMT equipment market trends is semiconductor sales. This provides a benchmark for several in the electronics industry as to the market's overall health. The trends in this market can act as a warning sign for tough market conditions or as a green light signaling prosperity on the horizon. The SMT equipment manufacturers that have been successful in the past have been able to react quickly to these trends and position themselves for market condition changes.
An example of this is the year 2000. The semiconductor market experienced outstanding growth as did the SMT equipment market. Several manufacturers posted record-breaking sales and growth rates. In 2001, the semiconductor market is expected to post between 35 and 45 percent negative growth once all final calculations are completed. The SMT equipment market is anticipated to mirror the same growth pattern.
One industry, however, that is expected to positively impact the SMT equipment market is the fiber optic industry. This is an industry that several venture capitalists still invest heavily in because of the potential high returns. Several EMS providers are targeting this market more aggressively because it provides new growth opportunities for them. For SMT equipment vendors, this market also provides several new growth opportunities as well. Since several optoelectronic components must use wave soldering, it is expected to give a jumpstart to this market that once was expected to experience severe reduction in demand. Because the fiber optic industry also requires larger printed circuit board (PCB) sizes, it will force several electronics assemblers to upgrade existing SMT equipment to handle larger sized PCBs. This is one trend that can help provide a needed boost to the SMT equipment market.
For years there have been predictions that South America will be the next hot geographic region for the electronics industry. With political turmoil in Argentina and market entry barriers in Brazil, growth in South America is not expected to have a major impact over the next three to five years. The markets in Latin America and the Caribbean that are expected to provide some opportunities are Mexico, Puerto Rico and Costa Rica. These three markets, especially Mexico, are focusing heavily on the electronics industry as a means to grow. They are doing this in the same way that several Southeast Asian markets used the electronics industry to grow their economies.
The geographic region primed for the most SMT equipment growth is China. China's entry into the World Trade Organization opened several growth opportunities for those that participate in the electronics industry. Telecommunications and computer products are expected to be the major driving force in this market. It also is expected that electronics manufacturers not only will focus on China's domestic market, but also will use the country as an electronics manufacturing hub to serve several Asian markets.
Figure 1. SMT equipment market: Percentage of revenues by equipment type (world), 2000. Note: All figures are rounded. Source: Frost & Sullivan.
Typically, OEMs headquartered in Japan do not use contract manufacturers at the same rate that OEMs use them in North America. It is anticipated that this trend will change as more OEMs realize cost savings benefits by using EMS providers in Asia. This could open the door for new EMS providers entering the market, thus increasing demand for new SMT equipment.
Figure 2. SMT equipment market: Percentage of revenues by equipment type (world), 2005. Note: All figures are rounded. Source: Frost & Sullivan.
Figure 1 displays a percentage breakdown of major equipment in the SMT market by revenue sales in 2000, and Figure 2 displays the percentage of revenues projected for 2005. Placement equipment comprises the majority of the SMT equipment market.
One market within the SMT equipment industry that is expected to rebound faster than the other markets is the SMT inspection equipment market. In 2000, the market share was 6 percent. It is anticipated that this market will increase its industry share to 10 percent in 2005. Quality control has become a major concern with outsourcing OEMs and they are requiring their EMS providers to have the most updated inspection technology available to land accounts. An increased use of smaller sized components and optoelectronics will force more electronics assemblers to invest in inspection equipment over the next couple years because optoelectronic components are more fragile than traditional types of passive and active devices.
Although there are numerous negative trends in the SMT equipment industry, there are some positive signs as well. To answer the burning question, "When will the market rebound?," there are no concrete answers; however, it is anticipated that while 2002 will face some turbulent times, the market should experience some growth in 2003. Solid growth is projected beyond 2003, but not the explosive growth that SMT equipment manufacturers experienced in 2000. Year 2002 will be good for SMT equipment manufacturers to target markets that will experience future growth within the next two to five years.
Keith Robinson may be contacted at Frost & Sullivan, 7750 IH 10 W, Suite 910, San Antonio, TX 70229; (210) 247-2402; E-mail: krobinson@frost.com.