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EL SEGUNDO, CA -- China's red-hot telecommunications equipment market is expected to cool significantly in 2005 due to decreasing revenue from local-phone services and a delay in the deployment of next-generation wireless technology, says a leading research firm.

The two major Chinese fixed-line carriers, China Telecom and China Netcom, are expected to suffer declines in local-phone revenues over the next five years, according to iSuppli. Meanwhile, China has delayed the awarding of licenses for 3G service providers. This will impede capital spending and deployment of those services.
Because of these factors, the period of phenomenal growth for China's fixed-line telecommunications carriers is rapidly coming to an end. These companies are expected to cut capital spending in 2005, iSuppli predicts. Spending is expected to amount to $10.2 billion in 2005, down 10% from 11.3 billion in 2004.

Potential bright spots include booming demand for broadband access, Next-Generation Networks (NGNs) and Internet Protocol Television (IPTV)—plus the eventual advent of the 3G market.

At the end of 2004, China was home to 16% percent of the world's broadband subscribers. By 2008, 23% of the world's broadband subscribers will be in China, iSuppli projects. XDSL now is the major broadband access technology in China.

In 2005, Chinese telecommunications carriers will spend $133.2 million to accelerate the construction of commercial NGNs that can provide packet services like Voice over Internet Protocol (VoIP) and IP video to subscribers.

iSuppli forecasts that China's NGN market will take off in 2005. Furthermore, China Telecom and China Netcom have launched IP TV services in more than 20 cities. The two carriers are aiming for 200,000 to 300,000 subscribers in 2005, which could increase their capital expenditures in this area dramatically.

The largest expenditures in China's telecommunications market over the next few years will be on 3G mobile networks. Carriers, including wireline service providers like China Telecom and China Unicom, are eager to obtain 3G licenses from the government.

iSuppli predicts that the Chinese government probably will begin issuing 3G licenses at the end of 2005, when the nation's homegrown Time Division Synchronous Code Division Multiple Access (TD-SCDMA) system matures. The awarding of 3G licenses could result in a major inflection point in carriers' capital expenditure plans.

The telecom industry plays an important role in China's electronics industry. Although carriers will reduce their capital spending in 2005, iSuppli still predicts China's telecom market will grow during the next five years, driven by the nation's huge potential market.

EL SEGUNDO, CA - The top 10 EMS firms grew a combined 22% last year, to nearly $80 billion in sales, according to a report just released by iSuppli Corp.

Flextronics, the largest EMS firm, grew 20.1% to $16.1 billion. Hon Hai, again in second place, grew 30.6% to $14.7 billion.

Sanmina-SCI ($12.5 billion) jumped 20.5% to overtake Solectron ($11.6 billion, on 5.6% growth) for the number three spot. Celestica, up 31.3% to $8.8 billion, rounded out the top five.

TAMPA -- Executives of Jabil Circuit yesterday provided a bullish outlook for the company and the industry, predicting the EMS market will soak up $22 billion in new orders over the next 24 months.

Jabil, which did not provide new guidance, predicts sales to grow 20 to 25% range per year through fiscal 2007. The company forecasts a 25% return on invested capital during that time.

TEMPE, AZ - Three-Five Systems has signed a definitive agreement to sell the assets of its small form factor-display business to International Display Works. The deal is expected to close within two to four weeks and is valued at $11 million to $21 million.

The deal covers all outstanding shares of TFS's China-based display subsidiary, and display-related equipment in its Manila, Philippines factory.

IDW will also assume the obligations of TFS Beijing, including a $2.4 million line of credit established with a bank located in China.

The sale does not include TFS's display monitor business or electronic manufacturing services businesses in Redmond, WA; Penang, Malaysia; and Manila.

TFS estimates the total value of the transaction at $11 million to $21 million, including $8 million in cash to be paid to TFS at closing; up to $3 million more in cash to be paid over time, based upon inventory consumption and accounts receivable collections; and up to $9 million in IDW common stock to be paid to TFS in May 2006.

ALAMEDA, CA - Computer systems account for 44% of all outsourcing - a figure that will remain constant even as ODMs grab a larger portion of the market, a top research firm said last week. The total value of computer systems market, including revenues from EMS and ODM manufacturing, will grow 25% to $376 billion by 2008 from $300 billion today, predicts Technology Forecasters Inc.

"The opportunity to manufacture computers for brand-name OEMs ... ," said senior analyst Matt Chanoff, " ... remains the largest opportunity available to outsourcers. In short, computer system manufacturing has been and is likely to remain the lifeblood of the outsource manufacturing industry, but today those outsourcing revenues are being captured more by ODMs rather than EMS companies.

Chanoff said Taiwanese ODMs have supplanted competitors to become the top builders of computing products. "In many respects, the dynamics of the industry have shifted. Most dramatically, Taiwanese-based ODMs, with most of their manufacturing capacity in mainland China, have become the largest manufacturers of PCs and notebooks, outpacing EMS companies for the first time in 2004."

TFI also reported on the getting ready for the WEEE directive, identifying concrete ways that companies can reduce material and assembly costs, accelerate time to market and improve product reliability. "We encourage our member management teams to avoid the reactive tactical approach and take a broader more strategic view of the opportunities these initiatives offer both for the environment and the bottom line," said Pamela Gordon, president.

Finally, the firm introduced a new qualitative research tool that combined signals collection and analysis for identifying opportunities in strategy formulation processes and product innovation. The data suggest that one of the main problems for the industry has been a focus on process rather than on customers.

"The data reflect an industry that is reactive by nature and stuck in its standard way of doing things," said Eric Miscoll, principle analyst. "The dominating perspective seems to be recognition of the changes in the industry and competitive landscape but uncertainty as to how these should to be addressed."

TFI focuses on electronics manufacturing outsourcing.

The SMTA seeks abstracts for the 2nd Annual International Wafer-Level Packaging Congress and Exhibition (IWLPC). The event, scheduled for Nov. 3-4 in the San Jose Doubletree Hotel, will track leading-edge IC packaging and test technologies with special emphasis on 3-D stacked packaging.

200-word abstracts are being accepted through April 1 for two tracks, Wafer-Level Packaging (WLP) and 3-D Stacked Packaging/Chip-Scale Packaging.

For more information:
http://www.smta.org/iwlpc/call_for_papers.cfm