Japan and other Asia printed wiring board production challenges for Q1, 2008

The Japanese Ministry of Economy, Trading and Industry (METI) recently released printed wiring board (PWB) production data for March. We now have a complete summary of first-quarter printed wiring board production results and PWB market trends. PWB production estimates for 2008 follow. Total revenue in March was 81.12 billion yen. This reflects a 2.5% increase from February, but 1.5% lower than January's number (we are hopeful this is a seasonal adjustment). The total revenue figure for March represents a 9.3% decline when compared the same period one year ago. Results from the previous months were on the positive side (although small gains, they were still positive), continuing the trend from 2007 where the industry grew by 3.8% compared to the previous year. Unfortunately, this quick turnaround to negative growth could signal a downward trend for the Japanese PWB industry. Adding the March results, the year-to-date cumulative total is negative 2.9%. Role of margins and ASP Shrinking margins is a concern for Japanese PWB manufacturers. Volumes shipped during March did not decrease much when compared to February, or when compared to the same period one year prior. Shipping volumes have been nearly the same, but less money is being made, signaling a substantial drop in average selling price (ASP). This decrease in margins can be attributed to a two things. The first, increases in raw material costs and, second, manufacturers are reducing prices to maintain rate of production. Percent revenue changes by category The break-down of revenues by product category are follows: Multi-layer, PWBs were the only segment posting positive growth (+7.2%) compared to the same period one year ago. Segments posting negative growth rates include:

• Double-side, rigid, PWBs (-7.9%)
• Four-layer rigid, PWBs (-10.2%)
• Six- to eight-layer rigid, PWBs (-16.6%)
• Single-sided, flexible circuits (-22.6%)
• Double-sided, flexible circuits (-11.7%)
• Rigid module circuits (-18.8%)

Since volumes did not drop significantly for some of the above categories (with some even posting volume increases), this signals a drop in ASPs over the last few months. Meanwhile, Japan Electronics Packaging and Circuits Association (JEPCA) did forecast a small, but positive, growth estimate for 2008. Unfortunately, recent results cast a gloomy cloud over their sunny report. Numerous market beacons predict rocky road ahead Japanese cellular phone manufacturers, which are the major customers for Japanese rigid board and flexible circuit manufacturers, predict negative sales growth for 2008. Additionally, shipment data for passive components during the first quarter for 2008 were also sharply lower compared with previous quarters plus, the industry organization JEITA (Japan Electronics and Information Technology Industries Association) does not expect a quick recovery in the second quarter. Knowing this, first-quarter data released from METI suggests the industry may not be able to realize positive growth for 2008 unless a remarkable turnaround occurs during the second half of the year. A recent article from Densan Shimpoh, an industrial media arm in Japan, cited several PWB shops closing during the last few months and went further on to say more bankruptcy filings are likely possible as this year progresses. Other Asian countries also feeling the pinch March PWB shipments from Taiwan improved greatly compared to February, but were not enough to overcome the significant decline in February. The flexible circuit segment in Taiwan was hit especially hard with volumes continuing to slide from last year with expectations that shipments will continue to plunge. Contrary to this, the Korean PWB market showed positive signs during the first quarter of the year; however, the latest market data from April erased all optimism for a good year. Most of the Asian PWB manufacturers are in the same boat, and industry analysts blame the slowdown on the sub prime issues in the U.S. The turning point for a recovery will begin when the U.S. economy stabilizes. VentureOutsource.com, June 2008