Flextronics already designs cellphones, PCs and other electronics for Nokia, Sony-Ericsson and H-P. It has signaled iin recent quarters its plans to increase its design work, which offers better margins than board assembly.
Speaking here at the opening of the PT/Expo COMM exhibition, a telecom show, president Remko Rosman said thhe global market for passives will grow 12 to 15% in 2005, reported DigiTimes. However, prices for passives are expected to fall 8% during the same period, Yageo reportedly said.
Yageo forecast its sales in China will grow 20 to 25% next year. Starting next year, the company will lower production at its Holland plant, DigiTimes reported.
Several leading solder suppliers Circuits Assembly spoke with shared insights on the causes for the price spikes - and how to plan for future volatility. Most fingered - surprise - China's consumption, coupled with refining bottlenecks, as the main culprits. While several factors are at play, most vendors agree with Kester vice president of marketing and business development Dave Torp, who cites "basic market supply/demand relationships." Excess supply in the late 1990s and early 2000s depressed prices, causing suppliers to close mines. (While not outright casting the world's tin suppliers as a cartel, vendors note it's a "relatively tight-knit group.") Since 2000, China, which produces at least half the world's tin, has shifted from a major exporter to a net importer, and that nation's energy crisis has dampened its smelting output. Other forces are the tech comeback and higher tin content in new solders, which are "definitely creating more of a demand," says Rick Black, president of AIM Inc.
Black warns that the ongoing metals inventory purge by the Defense National Stockpile Center (DLA) could exhaust certain tin stockpiles within two years. But, he says, "When the price goes up, so does investment in infrastructure. More metal will be pulled out of the ground." Indeed, few believe tin supplies will suffer from the transition to lead-free, because supply will increase to meet the anticipated demand. "It's a gradual move," says Henkel Electronics president Pat Trippel. "[I]t could be a different story if everyone switches to lead-free in a short period, but we don't expect that to happen."
What that doesn't mean, however, is that lead-free solders will cost the same as tin-lead ones. Says Cookson Electronics Assembly Materials president David Zerfoss: "We've put millions [of dollars] into research for lead-free capable materials and there's a price tag for that and the products themselves are inherently much more expensive." Bar solder contains a higher tin content than pastes, leaving some suppliers more exposed to tin pricing volatility. Zerfoss notes the shift from 63-37 to 90-plus% tin means the same joint will require less solder by 20% by weight to make, but the alloy composition by the weight of the bar will be 34% more. Bottom line: More consumption of tin and silver. Quips Zerfoss: "You cannot sell lead-free at the same price. Lead-free ain't free." Koki director of European support Gordon Clark says the "massive" research and development costs incurred by suppliers of lead-free solders have to be passed on "but in our current economic climate [it] is hard for them to swallow."
Buyers should follow Metals Week or London Metals Exchange futures, vendors advise, to anticipate sharp changes in prices of tin or other metals used in solder. Hard-core watchers can monitor speculative fund managers who play the tin market, as fund movements often have big impacts on market swings, explains Torp. Still, "you don't really know where [spot market pricing] will go," acknowledges Zerfoss. Kester and Koki see continued pressure on tin supply throughout 2005. Says Aim's Black: "I don't think [pricing] will go back anytime soon. There's definitely a shortage of supply right now."
For now, Cookson seems to be the only major firm to publicly warn of possible surcharges. Henkel, Trippel says, "hasn't decided exactly how we're going to handle it. Our customers are aware of the situation. It's something we all face." Henkel is renegotiating some contracts, he says. Clark sees parallels to the transportation industry's reaction to higher oil prices. "Some form of surcharge seems a viable option in order to protect margins, and would be best adopted as an industry norm and should be standardized via the IPC Solder Value Council," he says. Kester claims "constant communications" with customers on pricing and delivery. Black feels many customers are behind the curve. "There's a mindset among many purchasing agents that all incoming merchandise costs must be reduced each year. People kept thinking the price should keep coming down, and ... when prices started to increase, they felt hoodwinked."
Tin is just one of several raw materials hit by price hikes. There have been "significant increases" in prices of isopropyl alcohol, a component in many fluxes. Indium prices have risen from $50 per kilogram to $800. Solder vendors are at the mercy of their suppliers. "The only thing [solder vendors] can control is the cost of manufacturing," not the prices from the mines, Black says. "Typically wire and bar solders move with the market. Paste is different because the metal component as a percentage is a much smaller percentage of its value."
"The major factor is industry wide excess inventory," chief executive Mike Bradley told analysts on the company's quarterly conference call. "Inventory levels have risen and triggered broad curtailment in test capacity spending."
The company will take $3.1 million restructuring charge as it tries to pare $20 million from its quarterly overheard. The company shaved 169 jobs during the third quarter and into the fourth.
"The program going forward will be made up of a lot of very detailed changes across the business of semi test and significant changes outside of semi test," said chief financial officer Greg Beecher.
For the quarter ended Oct. 3, Teradyne reported net income of $41.1 million on sales of $457.8 million. Teradyne lost $53.5 million on sales of $329.2 million last year.
The slump came in net orders, which were off 49% sequentially and 16% year-on-year, at $284 million. Gross margins slipped to 41.2% from 43% sequentially and are expected to drop another four points in the January quarter.
Teradyne guided for Q4 sales of $360 million to $380 million and earnings of breakeven to a slight profit.
Bohemia, N.Y. ¾ V.J. Electronix Inc., an x-ray inspection technology and rework systems provider, has opened a new office in Buford, GA. With the new addition, the company now has six U.S. facilities, including those in Bohemia, NY; Dayton, OH; Shirley, MA; Poway, CA; and East Haven, CT.
The Georgia office is located at 1735 Enterprise Dr., Buford, GA 30518.
The results beat a year-ago net loss of $100.1 million, including one-time charges, on sales of $3.5 billion.
For the quarter the company took $34 million in restructuring charges and other non-operational tax adjustments. The cash conversion cycle contracted by two days to 16 days. Inventory turns improved to 10.9 turns from 10.5 sequentially.
Flextronics matched analysts' profits expectations, excluding one-time items, although it fell short of consensus projected revenue of $4.21 billion.
Part of the shortfall owes to inventory reduction at OEMs, analysts say. "There was an inventory build in the communications infrastructure market and that inventory correction is taking place," said analyst Chris Whitmore of Deutsche Bank. Sales from handsets declined about 11% sequentially and offset strong sales for CPU/office equipment and consumer electronics. Revenue from HP increased nearly 50%, DB said in a research note.
Flextronics guided for third-quarter earnings per share before items of 18 to 21 cents on revenue of $4.1 billion to $4.4 billion. For its fiscal fourth quarter, Flextronics expects earnings per share excluding items of 15 to 18 cents on revenue of $3.8 billion to $4.2 billion. Analysts' revenue estimates are higher for each quarter. However, Flextronics, which is taking over Nortel Networks' manufacturing operations, said revenue from that acquisition will not add to overall sales as quickly as once thought.
Chief executive Michael Marks said on a conference call that the December quarter may not be as strong as initially expected but the Mach quarter outlook remains solid. "It's not like we're seeing some big downturn because the March numbers look pretty solid," he said.
Flextronics did suggest that demand has slowed for consumer and communications gear. "This may be a result of some inventory reductions or it could be nothing more than some caution based on oil prices, the election and so on," Marks said. "In either case, we see that as not that big a deal, at least for Flextronics."
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