Outlook for 2002: prospects for a brighter end: when will business improve, and what are the bright spots in the electronics sector?

The global recession of 2001 resulted in negative growth in ball grid array (BGA) and chip-scale package (CSP) unit shipments. Signals for a downturn were apparent to the careful observer, but the severity of the downturn caught many by surprise, and numerous companies were slow to react. Readers of this column received advanced warning (1). Many economists indicate that the U.S. economy is at the bottom of the recession. Leading economic indicators, such as housing starts, are improving, interest rates have been cut dramatically, inventories have been depleted, oil prices are decreasing and many companies in the industry have adopted layoffs and cost-cutting measures. With some economists and market forecasters projecting the end of one of the deepest, darkest recessions, the major question of the day is: What is the outlook for the electronics industry, including semiconductor packaging and assembly, in 2002?

Feeling the Pain

With underutilized capacity, semiconductor makers, contract assembly houses, equipment makers and material suppliers have felt the economic slowdown. A number of economists and market research firms are forecasting an improvement in the economy for 2002. In the integrated circuit (IC) industry, IC Insights is projecting a one percent revenue growth for the semiconductor industry, compared with the 32 percent decline in 2001 (2). While 2002 promises to see an improvement over 2001 output levels, for many equipment companies, improvements are not expected until by the end of 2002.

Global Economic Watch

Japan's economy remains stagnant and shows little sign of recovery because fundamental institutional changes have not been made. Japanese companies continue their outsourcing trend, and the country is transitioning from its glory days of a manufacturing economy. Hitachi, Fujitsu, NEC, Toshiba and other Japanese companies have been cutting jobs, selling assets and closing unprofitable businesses. The trend is expected to continue well beyond 2002.

Bright spots in Asia include China and "Taiwan. While many companies in Taiwan are reporting poor performance in the first quarter of 2002, most expect improvements later in the year. TSMC, the world's largest foundry, is experiencing improved capacity utilization. Companies, such as the contract manufacturer Inventec, are predicting improved financial results in 2002. The door to investment in China has been opened wide by the removal of restrictions on direct investment by Taiwanese firms into Mainland China.

While china's economic growth slowed slightly from optimistic expectations, the country still managed a reported 7.1 percent gross domestic product (GDP) in 2001. With its entrance to the World Trade Organization (WTO), China remains a top manufacturing growth area. Chinas 6 to 10 percent tariffs on ICs will he eliminated this year, and tariffs as high as 35 percent on semiconductor equipment and materials will be eliminated by 2005. Many segments of the Chinese economy are seeing investment growth. Chinese newspapers report that China's investment in the information technology (IT) industry will exceed $120 billion over the next five years (3). China is expected to become the world's dominant producer of mobile phones by 2005, as manufacturers such as Nokia, Flextronics and Motorola expand plants. In Shanghai, semiconductor production is expected to increase in value from less than $10 billion to more than $50 billion, per year, by 2015 (4).

Europe did not succumb to the same wild frenzy of Internet hype, and, consequently, has not suffered similar fallout. While European companies saw revenue decline in 2001, most have a bright outlook for coming years. In the semiconductor sector, STMicroelectronics has emerged as the number two semiconductor maker, just behind Intel. While business has been down, Nokia still dominates the mobile phone world with its share of the market.

Packaging and Assembly Technologies For 2002

Area array packages experienced a unit shipment decline in 2001, hut recovery is already in progress. Mobile phones are still driving CSP volumes, and personal computers, game machines and set-top boxes are key for the growth of BGA shipments. Flip chip will increase dramatically as a percentage of the total BGA/CSP market increasing from only 3 percent in 2001 to 13 percent of total shipments in 2003. Demand for gold and solder-bumped wafers is anticipated to grow to 15 million wafers (200 mm equivalent) by 2005. Future solder-bumped devices (including wafer- level packages) will include a growing number of application specific integrated circuits (ASICs), microprocessors, digital signal processors (DSPs), chip sets and graphics ICs, field programmable gate arrays (FPGAs), memory devices, battery management devices, a plethora of analog devices and integrated passives.

Military electronics, for a variety of applications, ranging from aircraft and ships to missiles and communications equipment, will see a continued boost in production through 2002 (5). In addition, electronics products related to security and safety are also expected to see increased demand.

Microelectromechanical systems (MEMS) or microsystems technology (MST) is seeing an increasing level of attention. MST is defined as techniques and processes that create miniature embedded systems involving one or more micromachined components or structures, enabling higher level functions. MEMS typically employ moving mechanical structures and/or actuators using semiconductor-like processes. The growing number of applications for MEMS includes biomedical, information technology, telecom and transportation. MEMS devices include accelerometers and all types of sensors for measurement, microfluidics and chemical testing/processing devices such as chemical sensors, flow controllers, micronozzles and microvalves, optical devices such as displays and switches, pressure measurement sensors for automotive, medical and industrial applications and radio frequency (RF) technology.

References

(1.) E. Jan Vardaman, Economic Outlook for 2001, Circuits Assembly, January 2001, p 24.

(2.) Bill McClean, The McClean Report 2002 Edition, January 2002.

(3.) Xinhua News Agency, October 1, 2001 (JINAN, China).

(4.) Dow Jones News Agency, January 16, 2002, (SHANGHAI, China).

(5.) E. Jan Vardaman, Defense Electronics Boosts Advanced Packaging, Circuits Assembly, January 2002, p. 18.

E. Jan Vardaman is president of TechSearch International, Austin, TX; e-mail: [e-mail].