We hear plenty about the disastrous situation “sub primes” got us into and we have felt the effect very severely in our industry. The downturn is into its second year, the really crucial questions are, “Where are we on the cycle?” and “When will things pick up?”

At BPA, we have been facing these issues head on for the last thirty years. We have been monitoring the industry cycles for electronics equipment, semiconductors, and PCBs, and making some pretty accurate forecasts. (Download a companion article on the accuracy of BPA’s forecasts at www.bpaconsulting.com.)

Let’s take a look. Comparing the World PCB forecast with the Semiconductor forecast in Figure 1, it can be seen that, indeed, where the PCB trough falls to -20 percent, the Semiconductor trough has fallen further to -25 percent.

We can also see that this decline in growth started from a peak that was lower than the 2001 decline. At that time, inventory levels were at an all-time high in anticipation of orders for computers and networking infrastructure equipment that never came. You will remember the dotcom boom that did not materialize.

The circumstances are not the same this time around. As can be seen from Figure 1, we believe the contraction will not be as great as it was in 2001. Why? Three major reasons,

• The growth rates did not reach the extraordinary high peak as those in 2001
• The levels of inventory are not of the same magnitude
• The slowdown was seen over a longer period of time before demand went negative

On the demand side, semiconductor manufacturers late in the first quarter reported minor improvements in order rates and capacity utilization rising above the 50 percent levels, the first quarter-on-quarter increase since the second quarter of 2008. Typical utilization rates are 85 percent or above during a normal growth phase (e.g. UMCs utilization rate for Q308 was reported to be 85 percent).

Responses to BPA’s quarterly survey1 indicate that output from many Asian and European fabricators has declined by more than 40 percent in Q109. North America has been in slow decline for more than a year and its first quarter revenues have not been hit quite as badly. High-volume manufacturing has disappeared from North America and Europe, with the exception of the latter case for automotive PCBs, which have still been made in mid-sized volumes in Germany. Indeed, it is estimated that between 40 and 50 percent of the country’s output is in this sector, compared to a worldwide sector figure of approximately 4 percent of total PCB shipments.

Surplus inventory is now all but used up, with laminators in particular reporting a slight increase in demand. However, this is coming from a level that is only half of what it was a year ago. The quarterly results indicate that there has been no significant overall increase in the order books for the second quarter (where some companies have won, others have lost) and so Q2 is expected to remain dampened to the same level as Q1. From such a low base, even with recovery in Q3 and Q4, it will be impossible for the industry to stage a full recovery in 2009 and only low growth is expected for 2010.

To further compound the fabricators misery, the competitive marketplace has put intense pressure on prices, which have been forced down by 5-10 percent at a time when most fabricators were hoping to push prices up a bit to compensate for the higher raw material costs experienced in 2008 as fuel prices surged. This has resulted in BPA reducing its value forecast made in November 2008 for 2009 from just under -10 percent to around -16 percent for this year. A small percent growth is predicted in 2010 as the trend line emerges past the 0 line by the end of the first half of 2010. By 2012, BPA’s Forecast PCB demand will be back to 2007’s level of just over USD49 billion.

1. The PCB service includes a regular quarterly survey of the PCB Industry and the supply industries worldwide.