The Asian market: Taiwan: despite their political differences, Taiwan and China do agree on a few things. A look at the explosive growth of Taiwan's PCB manufacturers and their presence in China.

Taiwan's board-making presence in China has been growing each year. A preliminary study indicates that the total production value of PCBs in China by Taiwanese makers represents almost 35% of China's output. Despite the current political situation between China and Taiwan, the two countries are now inseparable from the viewpoint of economic activities.

Now is the perfect time to study the Taiwanese PCB industry with a special attention to its activities in China.

If "service" providers such as drilling service companies are included, there may be about 130-150 PCB makers in Taiwan. The number of makers engaged in the entire process of PCB manufacture may be in the vicinity of 100, although that number is said to be about 130. This may be true if Taiwan Printed Circuit Association non-members are included. Approximately 40 makers are publicly traded companies.

There are a number of makers that have facilities in China but not in Taiwan. Most of them are not listed in the TPCA's membership directory, with a few exceptions such as Foxconn Advanced Technology, which manufactures flex in Shenzhen, China. Pou Chen group has three subsidiaries in China: CMK-Global Brands Manufacture (Dongguang), Cyber Solutions (Shenzhen) and GBM Kunshan (Kunshan), which is called PC China.

Motherboard makers have their own captive shops, such as Elite-Group/Biloda (Shenzhen), Asustek/ Broadtek (Suzhou) and First International/Guangdai (Guangzhou). Flex and membrane circuit makers EELY and GODA operate only in China. Foxconn has two other rigid board manufacturing plants in Shenzhen and one more under construction in Yantai, in addition to the second flex plant in Shenzhen.

Many small Taiwanese makers operate only in China with no facilities in Taiwan. This author found it difficult to trace these small board makers operating in China. They are elusive because they went to China without formal permission from the Taiwan government and even the Taiwanese do not seem to know many of them. It is said that there are approximately 100 PCB makers in China capitalized by Taiwan owners. Some are 100% owned by Taiwanese and some are in the form of a JV in which Chinese partners own minority shares.

There are four board makers in Taiwan whose parents are Japanese: Mektec, Tai Hong, Hitachi Chemical and Taiwan Matsushita. Of these four, Mektec and Tai Hong have China facilities, but Mektec is not listed in the China directory because Mektec is 100% owned by Nippon Mektron while Tai Hong is partly owned by a Taiwanese partner (Chang Chun Chemical). Taiwan Matsushita (a part of Matsushita Electronic Components or MACO) has been making single-sided boards for over 30 years in Taiwan, but the plant has been converted to manufacturing HDI microvia boards with ALIVH technology. MACO Taiwan commenced mass production of ALIVH boards in April 2005 with initial capacity of 5,000 [m.sup.2] per month.

The production of single-sided boards was transferred to MACO's Thai facility near Bangkok.

Dollars and Sense

As years go by, it becomes harder to obtain the value of bare board production since many PCB makers get involved in the assembly business (PCBA) or even non-PCB related business. More often than not, their financial reports do not separate bare board value from the total. Flex makers are increasingly involved in assembly, and separating the bare board portion is practically impossible. Therefore, the following data may not be as accurate as it should be. TABLE 1 should be viewed as a trend rather than an absolute authority.

The 2004 data is obtained from a TPCA compilation based on Taiwan Stock Exchange reports. However, many makers report overlapped output from China. To separate the overlapped portions and sort out their China production accurately required considerable scrutiny. The author contacted those major makers with large production bases in China and obtained relatively reliable data.

Taiwan's PCB output in China is estimated to have been about $1.9 billion in 2003 and $2.8 billion in 2004. If this estimate proves to be accurate, the growth of Taiwan's output in China from 2003 to 2004 is an astounding 47.4%! This $2.8 billion figure represents approximately 35% of the total production in China.

According to TPCA, 2004 output in Taiwan was approximately $5.2 billion. This makes total output by Taiwan makers, domestic and overseas, $8 billion or about 21% of the world total. Taiwan has come a long way in the 30 years since this author visited the island country for the first time. At that time, only three makers made "industrial grade PCBs," which meant double-sided PTH boards. The largest of these three, Compeq Mfg., made only 3,000 [m.sup.2] per month then. By the way, Compeq means "computer equipment."

Compeq makes multilayer boards in Salt Lake City and Chin Poon makes single-sided boards in Thailand. Several Taiwanese PCB makers own U.S.-based board shops, but the majority of Taiwan's overseas production comes from China.

Expansion Areas in Taiwan

Taiwan makers have been shifting the manufacture of low layer-count products to their China facilities at an accelerated pace in the last few years and will continue to do so. In Taiwan, most large makers specialize in certain areas to maintain profitability.

IC substrate is one such area, although the number of key players is limited to these makers: ASE ($280M), Kinsus ($140M), PPT ($177M), Nan Ya ($270M), Unimicron ($130M including Subtron), Compeq ($50M) and Tai Hong ($50M). There are several smaller makers of IC substrates in Taiwan.

The combined 2004 output of IC substrates is estimated to be $1.0 billion. At this time, ASE is the only Taiwan substrate maker that operates in China, but Tripod is now commencing IC substrate production in its Wuxi Plant #3. IC substrate output accounts for 22-23% of the total Taiwan PCB output.

Flex is another area of specialty. There are more than 40 PCB makers in Taiwan engaged in flex production. Some of them are specialized, but some are recent entries such as Compeq, Unimicron, Wus (who has been making flex-based TAB) and Unitech, key makers of HDI microvia cell phone boards. The simple addition of flex output from the listed makers in Taiwan (Mektec, Career, Flexium and Uniflex) comes to about $500 million. With new makers and other existing makers, the total flex output in Taiwan is estimated to be about $740 million in 2004. Rigid-flex and multilayer flex are also sought after, particularly for flip-phone applications. Rigid-flex production was estimated to be $50 million in 2004.

HDI microvia is now a commodity in Taiwan. The total number of laser drilling machines installed in Taiwan in April when this author made a survey was 502 units. Taiwan makers own and operate 126 laser drilling machines in China. So Taiwan HDI microvia board makers owned a total of 628 laser drilling machines altogether earlier this year, and the number continues to increase.

The top four makers of HDI microvia boards for cell phone applications produced about 280 million pieces in 2004 in Taiwan and China combined. This author's recent investigation reveals that the total number of HDI microvia boards produced in 2004 amounted to about 920 million pieces for 675 million cell phone handsets presumably manufactured in 2004. There are 300 million more circuit boards than handset units because many handsets are now flip-phones using two main boards per set. So, the four major HDI microvia board makers in Taiwan made about 31% of the world's cell phone boards. There are several other HDI microvia board makers in Taiwan such as GCE, Chin Poon and Ya Hsin serving the cell phone industry. In view of this, it is estimated that Taiwan produces 35% of the HDI microvia boards for the world cell phone industry.

High layer-count multilayer boards are the natural market Taiwan has been grooming for. The most prominent multilayer board makers in Taiwan emphasize the manufacture of high layer-count multilayer board in Taiwan, but Wus is best known in China for this product. Unimicron is also developing its skills for high layer-count multilayer boards. The most remarkable transition in Taiwan from "me too!" multilayer board to high layer-count was made by Gold Circuit Electronics (GCE), with 80% of its revenue in Taiwan coming from products having a layer count of 10 or more. GCE's major clients for such boards include Hewlett-Packard, Cisco, IBM, Lucent Technology, etc. GCE's China subsidiary is also trying to push the layer count upward by moving toward laptops and network applications. Multilayer board for LCD drivers has caught fire with Taiwan PCB makers. Tripod is one of the strong producers of multilayer boards for this application.

TPCA made a summary of Taiwan's PCB production distribution in 2002. The author made a 2004 estimate based upon his own investigation during visits to Taiwan in 2004. TABLE 2 compares the breakdown in 2002 and 2004 Taiwan PCB distribution.

The reduction of multilayer board share is probably caused by a shift of production to China. The 2004 multilayer board output includes $820 million in HDI microbial boards. Of the $1 billion in IC substrates, about $300 million has a microvia structure. Therefore, total microvia boards amount to $1.13 billion or 22% of the total $5.2 billion.

Noteworthy Topics

Japan is undoubtedly a leader in PCB technologies in Asia, particularly in the area of mass production implementation. In recent years, many Japanese "early retirees" have started working for Korean, Taiwanese and Chinese PCB makers, some successfully and some not so. When products using certain technologies begin to become popular in Japan, they draw attention almost immediately from the PCB makers in these countries, whose board makers "hunt" for Japanese engineers for implementing mass production of these technologies in order to cut short the development time. HDI microvia and flex/rigid-flex technologies are good examples, although flex has been made in fairly large quantities for many years in these countries.

"Engineer hunters" are mainly those makers who are entering these markets afresh and trying to go into mass production as quickly as they can. It takes about one year for hunting to produce a good "teacher," and then the market is flooded by the products they tried to mass-produce a year earlier.

Along with mass production, high prices are gone forever. The speed of technology transfer is getting faster, and so is price erosion. For example, when a six-layer HDI microvia board was first used for a cell phone in Japan in 1996, suppliers commanded $1,500/[m.sup.2] for the boards. In 2004, similar six-layer fetched only $200! Taiwan is killing its hens that lay golden eggs. Unfortunately for the world's PCB makers, this vicious cycle will not stop for the foreseeable future.

Taiwan's PCB output in the first half of 2004 was growing at an annualized rate of 28-30%. However, it slowed down considerably in the last half of 2004 to 18-20%. This growth rate includes some portion of China's output made by Taiwan transplants. The recovery started in the latter half of 2003 and the momentum went on into the first quarter of 2004. But both orders and shipments seem to have slowed down from mid-November into December 2004. The year 2005 started slow in Taiwan, but it began to gain momentum by the beginning of August. Growth for 2005 is expected to reach somewhere between 8 and 10%.

Because of faster growth in flex and rigid-flex, traditional rigid board makers are now in that market. In the adhesiveless, double-layer flexible CCL (2-CCL) business, Thinflex Corp. has been the only manufacturer in Taiwan. Now, TUC (Taiwan Union Technology Corp.) is also entering this market. Nearly 40% of TUC's business comes from mass lamination service, particularly for HDI microvia. Its mass lam has been approved recently by some of Japanese HDI microvia board makers. Rather than enlarging its regular laminate business, which is encountering cutthroat price competition, TUC seems to target more lucrative areas of business such as 2-CCL. It is not only Taiwan that targets this Japanese dominated product; Korean material makers such as Doosan seem to be launching 2-CCL business.

So, it is not only PCB products that non-Japanese Asians go after. They target the material business as well.

Pou Chen Group (PC China) built a substantial multilayer board plant in Kunshan, not very far from Nan Ya Kunshan. Its plant size is about 70,000 [m.sup.2] and its initial production capacity is 400,000 [ft.sup.2] per month. Its final target is 1.5 million [ft.sup.2] per month. PC China signed a collaboration agreement with Photocircuits recently. Foxconn is building a plant of similar scale near Yantai, Shandong Province, in addition to the one in Shenzhen. Uniflex-Kunshan's flex plant, a JV between Unilflex and Unimicron, is now operational. Compeq is now in the flex business at its second plant in Huizhou and is operating a PCBA business in Suzhou. Unimicron Shenzhen hired a few ex-Sanmina-SCI engineers to go up the ladder of higher layer-count products. HannStar, Tripod, Plotech, Uni-Circuit Nan Ya and a dozen more Taiwanese makers are increasing their production capacity in China.

Despite many successes, there have been several casualties, such as Unicap and Dowlentec a few years back. The recent failures of Uni-Circuit, PWC, Maxedge and a few others suggest that Taiwan is going through some major changes. Industry experts have commented that there will be more failures in the next 12 months.

In all likelihood, Taiwan makers may capture more than 50% of China's PCB output in several years at the rate of their expansion in China. By that time, Taiwan's production in China may match that in Taiwan itself.

There is no doubt that China will be the No. 1 PCB producing country in the world, but only 10% of that output will be produced by native Chinese makers. In 2004, less than 12% of China's output was made by "Chinese" makers. Of the approximately 100 Taiwan PCB makers that are said to be operating in China, the author was able to identify 23 in Shenzhen, 21 in Dongguang and 13 in other cities of Guangdong Province, 13 in Kunshan, 12 in Suzhou and Wuxi and 6 in Shanghai, for a total of 88 board makers.

Of the top 45 makers in China in 2004, 21 are Taiwanese makers, approximately 47%.

With 35% of China's output coming from Taiwanese makers in 2004, Taiwan may output more than 50% of China's PCB production in the not-too-distant a future.

DR. HAYAO NAKAHARA is president of N.Z Information (Huntington, NY) and consulting editor to PCD&M. He can be reached at 631-673-8571; [e-mail].

TABLE 1. The top 25 PCB manufacturers in Taiwan

                     2003 REVENUE    2003 TOTAL

                    TAIWAN   CHINA    REVENUE

 1  Unimicron         418     209      627
 2  Compeq *          285     143      428
 3  Nanya             449      18      467
 4  Wus Group         139     134      273
 5  Gold Circuit      211      37      248
 6  Tripod            188      12      200
 7  Unitech           177      31      208
 8  ASE               140      --      140
 9  Chin Poon         207      32      239
10  Mektec            199      --      199
11  Career            117      18      135
12  Goda               --     170      170
13  Ya Hsin            15     136      151
14  Vertex             82      74      156
15  PPT               135      --      135
16  Pou Chen GR        --     138      138
17  HannStar           81      43      124
18  Kinsus             67      --       67
19  Tai Hong          100      22      122
20  APCB               39      50       89
21  Foxconn            --      61       61
22  Yeti              105      --      105
23  Unic               58       6       64
24  Yu Fo              46      25       71
25  Flexium            48      --       48
Top 25 Total         3306    1359     4665
Others               1044     521     1565
Total Taiwan         4350    1880     6230

                   2004 REVENUE     2004 TOTAL
                   TAIWAN   CHINA   REVENUE

1   Unimicron         502     265      767
2   Compeq *          387     208      595
3   Nanya             526      40      562
4   Wus Group         227     192      419
5   Gold Circuit      260      80      340
6   Tripod            187     125      312
7   Unitech           265      40      305
8   ASE               280      20      300
9   Chin Poon         232      52      284
10  Mektec            215      --      215
11  Career            120      90      210
12  Goda               --     200      200
13  Ya Hsin            18     180      198
14  Vertex            100      90      190
15  PPT               177      --      177
16  Pou Chen GR        --     175      175
17  HannStar           82      81      163
18  Kinsus            140      --      140
19  Tai Hong          110      26      136
20  APCB               46      65      111
21  Foxconn            --     105      105
22  Yeti               95      --       95
23  Unic               60      23       83
24  Yu Fo              49      30       79
25  Flexium            78      --       78
Top 25 Total         4156    2087     6239
Others               1021     703     1728
Total Taiwan         5177    2790     7967

Note: In US $M. converted to US$ at
NOT 33/US$.

* Compeq's China production includes
about $45M from Salt Lake City.

Source: N.T. Information Ltd.

TABLE 2. Breakdown of Taiwanese
PCB technology distribution for
2002 and 2004

CATEGORY             2002   2004

Single-sided board     3%     2%
Double-sided board     8%     7%
Multilayer board      68%    57%
Flex                   8%    15%
IC substrate          13%    19%

Source: TPCA and NTI