Japan's board makers continue to grow – and invest heavily abroad.
In 2004, Japanese PCB production reached $10.3 billion, about 90% of its past peak. Japanese overseas production of PCBs was $3 billion. This amounted to over $13 billion in domestic and overseas production in 2004, approximately 33.5% of the world's production of $38.8 billion. On the other hand, Japan's strongest rival in the past, the U.S., produced about $6.5 billion altogether in the U.S. and overseas, half that of Japan in 2004. Why?
The Japanese electronics industry is diversified, with each sector of the industry equally divided: consumer electronics, computers, telecommunications, automotive and semiconductor package substrates. The Japanese PCB industry is blessed by this diversification.
Business practices in Japan also help its PCB industry. Short lead time, higher standards of quality, higher technology requirements, low-volume/high-mix ordering and flexibility required in delivery deter neighboring Asian PCB producers from entering Japan in a big way.
On the contrary, the U.S. electronics market is heavily dependent on computers and telecommunication equipment. Now, military electronics is strong and nearly 20% of domestically produced PCBs go to military applications ($850 million). Automotive PCBs, which once made up more than 15% of U.S. PCB production, have all gone to Asia, practically speaking.
Today, a huge proportion of PCB assembly for U.S. PCB users takes place in China, which pushes EMS providers to purchase more PCBs in China. But Japan still does more than 80% of its PCB assembly in-house to keep Japanese PCB makers busy. The ups and downs of PCB orders in Japan are not as drastic as experienced in the U.S.
History Class
Table 1 [PDF format] is borrowed from Japan Electronics Packaging and Circuits Association (JPCA) statistics and highlighted by this author. The author basically agrees with this data, but he shall pinpoint some of discrepancies later.
Despite small faults, data collection is improving every year as Japanese PCB makers, who report in the beginning of each year, are becoming more cooperative. The most difficult task lies in measuring flex output. Japanese flex production is dominated by several large makers such as Nippon Mektron, Fujikura Corp., Sumitomo Denko, Nitto Denko, Sumitomo Bakelite, Maruwa Manufacturing Co. and Sony Chemical. All of these board makers have substantial overseas production. As a matter of fact, today, more than half of the output of Nippon Mektron and Fujikura is derived from overseas operations. In reporting their output, some of them mix domestic and overseas production because it is difficult to draw a line between the value of the front-end processes done in Japan and the back-end processes performed largely at overseas facilities.
Microvia board production is also difficult to quantify, particularly in the "module" (IC substrate) category. A substantial portion of microvia IC substrates is sold to Intel. Because of non-disclosure agreements between Intel and its suppliers, accurate data was not reported to JPCA until recently. But everyone knows approximately how much Intel is buying from Ibiden, Shinko Electric and NTK, as these suppliers seem to report more accurate figures.
After the Plaza Accord in 1985, the value of the Japanese yen skyrocketed. In order to cope with this difficult situation, the Japanese rushed to Southeast Asia for manufacturing. Today, a good portion of PCB production in Southeast Asia is made by Japanese transplants, to the tune of $1.3 billion per annum – about a half of SEA (Singapore, Malaysia, Indonesia, Thailand, Vietnam and Philippines) production. Today, more than 10% of China's PCB production is made by Japanese transplants there.
Approximately $300 million in overseas flex output contains flex assembly (Table 2 [PDF format]). Whether or not the JPCA statistics in Table 1 contain this flex assembly value is not known. Microvia board production value is also flawed. Ibiden, CMK and Meiko are three major microvia multilayer board producers in China. Fujitsu Vietnam, Toppan-NEC Philippines and Hitachi Chemical Singapore also produce microvia multilayer boards. Daisho-Microline, a Japanese-Hong Kong JV in Huizhou, makes microvia boards. The value of microvia boards made by this JV is not accounted for because its Japanese partner, Daisho, is a minority shareholder. The production totals for these makers comes to about $200 million ($108 million in the table).
The IC substrate category is complex to understand. It is estimated that Ibiden produced about $180-$200 million worth of IC substrates in the Philippines, all of which were of microvia structure. Sumitomo Metal Electro Device in Malaysia had BGA and CSP production worth approximately $60 million in 2004. These add up to $260 million instead of the $148 million indicated in Table 1.
Overseas Production
It is unknown who reports to JPCA regarding Japan's overseas production, although this author can venture a good guess. Table 3 [PDF format] shows Japanese overseas production in 2004 by country, both according to JPCA. The total value (3,040.4 x 100 million yen) shown in this table does not match the value in Table 1 (2,709.4 x 100 million Yen). This is an error made by JPCA.
The number of makers reported does not add up to the total because some makers have multiple plants in different countries. In North America, there were two PCB makers: Ibiden at Elgin, IL, and Kyosha in Tijuana, Mexico, which was closed at the end of March.
In Europe, Nippon Mektron's JV, Freudenberg-Mektec, operates two plants in Germany and one in Budweise, Czech Republic. CMK had a single-sided board plant in Belgium, but it was closed last year.
In China, we find Ibiden, CMK (three locations plus the JV CMK-GBM), Nippon Mektron (three locations), Meiko (two plants in Nansha, a third one yet to be built, and one more to be built in Wuhan), YKC (one location and a JV), Fujikura, Cosmo Denshi, Daisho (a JV), Yamamoto Mfg., Sony Chemical, Nitto Denko, Sumitomo Denko (a collaborator and a new plant), Santa Light Metal, Shirai Denshi (a JV), Kyosha, Maruwa Mfg. and Matsushita Electric Works. This totals 17 plus two JVs with Japanese minority shares.
In Taiwan, there are four Japanese makers: Hitachi Chemical, Nippon Mektron (two plants), Tai Hong Circuit Industry (two plants plus one in China) and Panasonic Electronic Devices.
In Malaysia, there are five: Hokuriku Denko, CMK, Sumitomo Metal Electro Devices, Maruwa Mfg. and Elna.
In Singapore, Hitachi Chemical is the only Japanese PCB manufacturer. CMK got out of manufacturing and Senri went bankrupt and was bought by Circuit Plus (its manufacturing plant is in Malaysia and no longer considered Japanese). CMK maintains just a sales and service office in Singapore.
In the Philippines, there are six manufacturers: Ibiden, Toppan-NEC, Itabashi Seiki, Nippon Circuits, Sumitomo Denko (First Sumiden) and Sumitomo Bakelite.
The "others" mentioned by JPCA are probably Vietnam (Sumitomo Bakelite, Fujitsu, Nitto Denko), Thailand (Toei Denshi, Panasonic Electronic Devices, Nippon Mektron and Fujikura) and Indonesia (CMK and Kyosha). For those who have time, please count the total. The total enumeration of Japanese overseas PCB production by this author is about $2.815 billion, excluding the "assembly value" mainly involving flex.
PCB trade between Japan and Asian countries has increased dramatically (Tables 4 and 5 [PDF format]). About 30% of Japanese exports to Asia go to Intel, which operates in the Philippines, Malaysia and China. Most of the remaining exports go to Japanese OEMs, which indicates increased Japanese electronics manufacturing activities in non-Japan Asia.
More than a third of Japan's exports are IC substrates, mainly to Intel, Samsung Electronics and other semiconductor makers. Most exports are complex products that cannot be fabricated easily overseas.
Of about $1.3 billion in imports in 2004, less than half come from foreign board makers. In other words, a major portion of imports are from Japanese PCB makers operating in Asia. Unlike North America and Europe, which are bombarded with imports from Asian countries (very few from their own stocks), Japanese imports from non-Japanese PCB makers are relatively low, especially considering that Japan is surrounded by low-cost countries.
There are several reasons for this import/export imbalance. PCBs used in Japan generally require higher density than those mass produced in non-Japan Asia. Quality requirements are also tough. Many Asian PCB makers lament that Japanese demand "international price with Japanese specs." Requirements for "green" PCBs are also increasing rapidly in Japan, much faster than in the rest of Asia. Short delivery time requirements challenge Asian makers. And most Asian makers are not efficiently set up to handle Japan's typical high-mix, low-volume orders. As Japanese PCB makers have been stepping up overseas expansion, it is a tough slope to climb for foreign makers to export into Japan, but the reward is high once they succeed.
Microvia Production
Although non-Japan Asian countries are rapidly growing their microvia production, Japan still leads this field with $2.3 billion (at 1.05 yen/$US exchange rate) in 2004, according to JPCA. Actually, this author believes the figure was more like $2.55 billion. Of the estimated $350 million rigid-flex boards produced in Japan, two thirds had microvia structures not accounted for by JPCA.
In 2004, Ibiden was the largest microvia board maker in the world, with approximate production of $1 billion, of which 75% was IC substrates. Ibiden makes a substantial portion of this in the Philippines (somewhere around $200 million, as mentioned). This author's estimate of microvia IC substrate production in Japan in 2004 is about $1.32 billion.
Overseas production of Japan's microvia boards in 2004 is estimated to have been $375 million (Ibiden had the lion's share). Therefore, the total Japanese microvia board production including domestic and overseas productions was about $2.925 billion in 2004, or about 47% of the total global production of $6.25 billion that includes IC substrates.
IBM Yasu (now Kyocera SLC Technology) developed the first microvia technology called Surface Laminar Circuits in the late 1980s and commercialized the technology in 1991. It was based on a photosensitive dielectric material, "Probimer 52," developed by Ciba Geigy. Today, few parts are fabricated with the "photovia" process and only in Japan. The majority of microvia boards are fabricated using the laservia process. However, in Japan, there are other variations of microvia processes, such as ALIVH, B2it, FACT-EV, PALAP, NMBI, etc. The total output by these technologies is estimated to be about $400 million ($320 million from ALIVH alone).
It is useful to compare microvia output for 2003 and 2004 (Tables 6 and 7 [PDF format]). It is estimated that in monetary terms, about 50% of microvia boards were those used for cell phones worldwide in both 2003 and 2004. However, the situation is different in Japan. Japan had much more diversified applications of microvia boards. Besides IC substrates that took up more than half of the microvia boards produced in Japan, cell phones, car navigation systems, digital still cameras, video cameras, battery drivers, camera modules, Bluetooth modules and a variety of other applications are found in Japan. More than 50 PCB makers are actively engaged in the manufacture of microvia boards in Japan with about 1,200 laser drilling machines.
Japan's PCB Manufacturers
A list of the top 2004 Japanese PCB makers is shown in Table 8 [PDF format]. There are approximately 320 PCB makers in Japan. In 2004, the top 40 makers produced $8.647 billion in Japan ($11.59 billion including overseas) and $2.948 billion overseas. Since the total domestic production was about $10.23 billion, the $8.647 billion output by the top 40 makers accounted for 85%. When it comes to overseas production, nearly 100% was manufactured by the top 40 board makers. Their overseas production will continue to expand as they add new plants and expand existing operations. This is similar to the case of the large U.S. makers such as Multek, Viasystems, Sanmina-SCI, M-Flex, Innovex, 3M, Parlex, etc.
Other PCB makers will probably show up in the top 2005 list, such as Sharp Corp., which commenced a new flex operation. Japanese PCB makers are investing more than $1.2 billion in the 2005/2006 time frame – not only in China and other Asian countries, but also in Japan. This investment is for new plants, the expansion of existing plants and new equipment. This amount of investment will certainly bear fruit in the 2006/2007 period. There will be a new Ibiden plant in Beijing, a new Nippon Mektron plant in Suzhou, two new Meiko plants (one in Nansha and one in Wuhan), a new Sumitomo Denko plant in Suzhou, a new CMK plant in Thailand or Vietnam, and much more.
After the IT bubble burst in 2000, laminate production in Japan stayed low for a few years, though the volume kept inching up. Then, 2004 saw a big jump in production volume (Table 9 [PDF format]).
Japanese laminate production is unique in that rigid FR-4 is much less than CEM-3. The majority of double-sided boards for consumer products are made of CEM-3 laminates. Paper phenolic laminate production volume has dwindled, with only one small subcontract board maker engaged in paper laminate production. Eventually, paper laminate production will disappear in Japan.
Matsushita Electric Works makes more than 500,000 m2 per month in China (Suzhou) and 700,000 m2 in Thailand (Ayuthaya). Sumitomo Bakelite makes about 1 million m2 per month in Malaysia (Johor). Hitachi Chemical also makes about 1 million m2 per month in Johor. The Sumitomo and Hitachi plants are five minutes apart. The total production volume by these three paper laminate makers is about the same as at the peak volume in Japan 15 years ago.
These three laminators make also glass epoxy laminates in China. Matsushita in Guangzhou (located very close to Taiwan's Grace Electron) has current capacity of about 200,000 m2/month. Matsushita closed its Oregon glass epoxy laminate plant in June 2005 and moved the majority of that equipment to Suzhou. The Suzhou plant, scheduled to commence production in the end of 2006, will have glass epoxy laminate production capacity of 200,000 m2/month. In the meantime, Matsushita trimmed its Taiwan capacity in from 640,000 m2/month to 400,000 m2/month by closing one of the two factories in Hsinchu. This Matsushita operation, NPL, is a JV between Matsushita and Compeq. Matsushita operates two plants in Europe – one in Austria, one in Italy. Both are engaged in the manufacture of glass epoxy laminates.
Sumitomo Bakelite makes glass epoxy laminate and CEM-3 in Macao, where Nittobo has a glass cloth manufacturing operation (2 million m2/month). Hitachi Chemical commenced glass epoxy laminate production in Hong Kong in collaboration with Hong Kong-based Meadville Group (Mica-Ava). Hitachi recently expanded its capacity to 150,000 m2/month. Hitachi's laminates made in Hong Kong are high-Tg and halogen-free laminates.
As the investment by Japanese PCB makers is increasing in China, Risho Kogyo (little known outside Japan) also constructed a laminate plant in Suzhou. The average annual revenue growth of Japanese PCB makers in China is expected to be between 13 and 14%, according to JPCA inquiry. The growth of laminate consumption by Japanese PCB makers in China is expected to be in the vicinity of 8 to 9%.
Current monthly production capacity of rigid PCBs in China by Japanese makers stands at about 300,000 m2, of which 20% is for microvia boards. There are several PTH board makers in China that have similar production capacity per month, but the value of the PCBs Japan produces seems to be higher than that of conventional PTH boards.
RoHS and WEEE
The Japanese to take the Waste Electrical and Electronic Equipment (WEEE) and Restrictions on Hazardous Substances (RoHS) directives seriously. Usage of halogen-free laminates and solder resist is becoming more pronounced each year. JPCA inquired about the proportion of halogen-free laminates to the total in Japan in 2001. About 3% of glass epoxy laminates and 5% of paper laminates were halogen-free in 2001. Since then, for some reason, JPCA stopped making inquiries regarding halogen-free laminates.
Although the accurate percentage of halogen-free laminates out of all laminates produced in Japan is not known, it is considered to be in the vicinity of 10 to 15% in 2005, more in paper laminates than epoxy glass laminates, according to the laminators interviewed.
Use of lead-free soldering is more in the limelight than halogen-free substances because the WEEE and RoHS directives forbid the use of six substances, including lead, as of July 1, 2006 in the European Union. Many variations of lead-free solder have been suggested and used. However, the SnAgCu combination seems to be the most popular, making up probably 90% of today's lead-free solder.
Due to the higher soldering temperatures required compared to that of PbSn solder, SnAgCu solder causes some problems – damage to components, laminates and solder tanks. However, one American EMS engineer recently commented that among 20 or so solders he tried, the top five solders from the viewpoint of performance (wettability, repairbility and reliability in soldered joint) came from Japanese suppliers.
It is recognized that 100% lead-free solder is not possible. So the world seems to have accepted a final lead content below 0.1%, at least for the time being.
Various attempts are being made in Japan to improve lead-free soldering. A more highly active flux to compensate for the poorer wettability of lead-free solder is one idea, but in solving one problem it creates another: worse long-term reliability. SnZn solder is being investigated in an effort to reduce high soldering temperature of SnAgCu solder, whose melting point is between 220°C and 230°C.
Although the PCB industry in Japan saw healthy growth in 2004, the business in the first half of 2005 was lukewarm. Figures 1 and 2 are borrowed from Custer Consulting and depict shipment trends compiled by JEITA, which covers about 70% of the total shipments in Japan.
FIGURE 1. Japanese PCB shipment trends in billions of yen. Figures are JEITA data, courtesy Custer Consulting.
FIGURE 2. Japanese PCB shipment trends at 12/12 rate of change.
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Although Japan's PCB shipments started to decline around August 2004 and stayed fairly flat for the next nine months, there is a sign of activities from the end of the second quarter of 2005. The author predicts plus or minus zero growth for Japan's PCB industry in 2005, considering a poor first half but a reasonably strong second half.
Mass production of commodity PCBs will continue to migrate to China and other low-cost Asian countries. Technology development is the key element for the Japanese PCB industry, not only for survival but also for growth. With the loss of nearly all of the captive shops that provided much of the R&D in the past, the collaboration among PCB, equipment and material makers are an absolute necessity for the development of advanced technologies.
These manufacturers are doing exactly that. Such collaboration is visible in laser drilling technologies, AOI equipment, laser direct imaging, more stable halogen-free laminates, lead-free soldering, production equipment of flex (reel-to-reel), and adhesiveless FCCL, to name a few. In the two years from 2005 through 2006, Japanese PCB makers will spend about $1.2 billion for expansion and new plants in Japan and abroad. The fruits of this investment will come after 2006 and Japan will still be able to maintain above 30% share of the global PCB production for the foreseeable future.
Yes, China's production will exceed that of Japan, but 90% of China's production comes from foreign transplants, including Japanese board makers. Japan's presence in China will continue to increase, considering the heavy investment being made there. PCD&M
DR. HAYAO NAKAHARA (This email address is being protected from spambots. You need JavaScript enabled to view it.) is president of N.T.
Information (Huntington, NY) and a contributing editor at PCD&M.
