Overview of PCB Industry

logo-yatatResearch Methodology

CRI prepared the CRI Report based on data and intelligence collected from various sources including but not limited to government statistics, industry reports and industry associations’ publications and data. CRI also conducted primary research such as interviews with manufacturers, distributors, consumers and experts in the PCB industry to gather and synthesise market information.

To ensure the credibility, accuracy and reliability of the forecasts, the market specialists at CRI firstly assessed and recalculated, if necessary, relevant data from different institutions according to actual conditions. They subsequently integrated a variety of information, including the assessed and recalculated data, and opinions gathered from the market research process and put forward their own views. Such views, in conjunction with (i) the aforesaid parameters such as the global and the PRC’s macroeconomic data; and (ii) forecasts on economic trends, were then internally discussed on for validating the forecast data. Before finalizing the CRI Report, the market specialists verified the reliability and logic of the forecast data by sample inspecting various data or information in the reports and results of the interviews.

The CRI Report includes both historical and forecast information on the global and the PRC PCB market, which has been quoted in this prospectus. Forecasted data was projected on the basis of analysis of the global macroeconomic data as well as that of historical data of global and the PRC PCB market and specific industry related drivers. In compiling and preparing the research, CRI also adopted certain assumptions and relied on other sources of information and conventions while making projections for the PCB industry in the globe and the PRC, including the following:

(i) global economy will keep increasing in 2014 to 2018. It is estimated that the global economic growth rate will be 3.7% in 2014.

(ii) the economic growth rate of emerging markets, such as the PRC, is expected to surpass developed countries. The PRC economy is expected to maintain the annual growth rate of approximately 7% in the next three to five years, with large investment in fixed assets from the PRC Government stimulating economic growth; and

(iii) PCB downstream markets are expected to continue to grow, including consumer electronics,

communication and automobile sectors.

 

Based on the above, our Directors and the Sole Sponsor are satisfied that the disclosure of future projection and industry data included in this section is not misleading. Our Directors confirmed that, as at the Latest Practicable Date, after taking reasonable care, there is no adverse change in the market information since the date of the CRI Report which may qualify, contradict or have an impact on the information in this section.

 

Except as otherwise noted, all of the data and forecasts contained in this section are derived from the CRI Report.

 

OVERVIEW OF PCB INDUSTRY

Introduction

PCBs connect electronic components using conductive pathways, pads and other features etched from copper clad laminate sheets onto a non-conductive substrate. By number of layers, PCBs are classified into three major categories, namely (i) single-sided PCBs, (ii) double-sided PCBs, and (iii) multi-layered PCBs.

Single-sided PCBs

Single-sided PCBs are the most basic type of PCBs. On single-sided PCBs, all components are on

one side while all the conductors are on the other side. The conductors cannot intersect and must have

their own circuits, leading to many strict restrictions on the design of circuits.

Double-sided PCBs

Double-sided PCBs have conductors on both sides. Conductors on different layers are connected with plated-through holes called vias. A via is an electrical connection between layers in a physical electronic circuit that goes through the plane of one or more adjacent layers. With the area twice as large as single-sided board, double-sided board solves the difficulty in arrangement of conductors, which can be connected through vias. It is suitable for more complicated electric circuits.

Multi-layered PCBs

Multi-layered PCBs, including four-layer, six-layer and more layers PCBs, use double-sided PCBs as inner layers and two single-sided boards as outer layers. The layers are connected by the positioning system and insulating adhesive materials alternately while the conductive pattern is connected in accordance with the design. The number of PCBs does not necessarily equal to that of independent conductor layers. On special occasions, empty layers are added to control the thickness of the board. Usually, the number of layers is even, including the outermost two layers.

Conventional and special material PCBs

PCBs usually use common materials such as glass epoxy laminate sheets. PCBs can also use special materials in their base raw materials, such as polyimide, teflon, stainless steel, copper, ceramic and aluminum.

 

Raw Materials

PCBs are made-to-order and their pricings depend on the specifications of the PCBs ordered. The costs of raw materials account for more than half of the total costs of PCBs.

Raw materials of PCBs include (i) main materials (mostly base materials), including copper clad laminate, prepreg and copper foil; and (ii) auxiliary materials, including films, dust cleaning materials, filtering materials, positioning drilling materials, tape and plastic materials, laboratory consumables and various chemicals.

According to CRI Report, copper foil accounts for 30% to 50% of the cost of copper clad laminate, depending on the thickness of the laminate. As a result, the increase in copper foil price would cause an increase in copper clad laminate price, and vice versa. The copper foil price is generally influenced by copper price, which experienced a significant decrease during the second half of 2011.

However, enhanced technical requirements lead to a decrease in the number of copper foil suppliers, which may resulted in tightened domestic supply of copper foil in the PRC. High-end copper foil, which features high-extensity, high tensile strength, high stability, high rigidity and eco-friendly resin-coated copper foil, and 3 micrometer / 9 micrometer ultra-thin copper foil, remains to place a heavy reliance on importation from overseas. This to certain extent offsets the effect of the decrease in copper price or the copper foil price and copper clad laminate price during the same period.

Historical Price Trends of Raw Materials

The chart below illustrates the monthly average copper price (per tonne) in LME for the period indicated.

Monthly average copper price in LME

Finished PCB Price

According to CRI Report, the prices of PCBs are a function of raw material costs, manufacturing

process and related techniques, production specification (including complexity and quality demanded)

and order volume. PCBs are generally made-to-order for electronics products with various applications

and the specifications are set by downstream customers. Therefore, PCBs are not generic products with

common, unified market prices. Furthermore, shortening of electronics product life cycle results in

frequent upgrades and short life cycle of a PCB. As confirmed by CRI, there is no reliable source for

the market price of PCBs.

PCB Industry Indicators

Given PCBs are made-to-order, PCB sales represent the actual demand from the downstream industries. In addition, the PCB industry is fragmented with a large number of market players. As a result, as confirmed by CRI, neither PCB book-to-bill ratio nor other demand indicators is currently available. The global and PRC PCB industries are generally evaluated through sales and production. Due to the same reason, PCB output is approximately equal to PCB sales, with a minimal security surplus to compensate unforeseen production waste and/or damages during transportation.

GLOBAL PCB INDUSTRY OVERVIEW

Macroeconomic Indicators

The global PCB industry is closely correlated with the global economy. Since 2003, the global PCB industry prospers as the major downstream application sectors, such as communication sector, develop rapidly. The global PCB industry declined sharply in 2009 due to the influence of global financial crisis. From 2013, as the market of smart phones and consumer electronics increased, the global PCB industry experienced further developments.

 

The global annual economic growth rate was approximately 3.9%, 3.1%, 3.0% in 2011, 2012 and 2013, respectively. Our Group’s PCB sales cover more than 30 countries and regions in the world including the PRC and Hong Kong. Our Group’s PCB business is thus to a certain extent affected by the global economic developments.

Global PCB Industry Maturity and Size

The global PCB industry is relatively mature, with a comparatively low annual growth rate in market size of below 5%. The global market size of PCBs kept increasing from 2009 to 2011. In terms of sales value, the global PCB market size increased from approximately US$44.7 billion in 2009 to US$63.8 billion in 2013, representing a CAGR of 9.3%. It is estimated that the sales value of the global PCB market will increase from US$66.3 billion in 2014 to US$77.2 billion in 2018, representing a CAGR of 3.9%.

The chart below illustrates the global PCB market size in terms of sales value for the period indicated.

Global PCB market size in terms of sales value (2009–2018E)

According to CRI Report, the PRC PCB market size increased from US$16.8 billion in 2009 to US$26.8 billion in 2013, representing a CAGR of 12.4%, as the PRC become the large producer of electronic products which drove the overall PCB demand. It is estimated that the sale value will increase from US$28.5 billion in 2014 to US$35.9 billion in 2018, representing a CAGR of 5.9%, with the expected growth in the mobile market and 4G network infrastructure.

PCB market in Asia (except the PRC and Hong Kong) expanded from US$21.8 billion in 2009 to US$30.1 billion in 2013, representing a CAGR of 8.4%, which was mainly due to the development of 3G network infrastructure and more consumer electronics manufacturers setting up production bases in the region. It is estimated that the sale value will increase from US$30.1 billion in 2013 to US$33.7 billion in 2018, representing a CAGR of 2.3%.

PCB market in North America increased slightly from US$3.2 billion in 2009 to US$3.6 billion in 2010 and then decreased to US$2.7 billion in 2013. PCB market in Europe expanded slightly from US$2.4 billion in 2009 to US$3.4 billion in 2011, and remained relatively stable from 2011 to 2013.

In terms of product type, multi-layered conventional PCB and special material PCB in aggregate accounted for 87.0% of the global PCB market in 2013. From 2009 to 2013, global sales value of multilayered conventional PCB and special material PCB increased by CAGR 6.9% and 12.8%, respectively.

The chart below illustrates the global PCB market size by product in term of sales value for the period indicated.

Global PCB market size by product in terms of sales value (2009–2018E)

According to CRI Report, downstream sectors of PCB mainly include automotive, business retail, communication, computer, consumer electronics, military and aerospace, industrial electronics, instrumentation and medical. Our Group mainly focuses on automobile, communication, consumer electronics, industrial automation and medical sectors. Communication and consumer electronics sectors were the first and second largest downstream sectors for PCB, in aggregate accounted for over 50% of the global PCB market in 2013. The chart below illustrates the global PCB market size by downstream sectors on which our Group focused for the period indicated.

Global PCB market size of certain industry in terms of sales value (2009–2018E)

Supply

According to CRI Report, the global output value of PCBs equals to the sale value of PCBs, based on the assumption that PCBs are in general made-to-order. Output value of PCBs in the PRC and Asia (excluding the PRC and Hong Kong) accounted for nearly 90% of the global output value. The output value in the PRC increased from US$16.3 billion in 2009 to US$26.6 billion in 2013, representing a CAGR of 13.0%. In 2006, the PRC surpassed Japan to become the world’s largest PCB manufacturing base. In 2013, the PRC contributed to 48.1% of the global output value. It is estimated that the output value will further increase to US$35.5 billion in 2018, representing a CAGR of 5.9%. Output value in Asia (excluding the PRC and Hong Kong) increased from US$22.4 billion in 2009 to US$30.7 billion in 2013, representing a CAGR of 8.2%. It is estimated that the output value will further increased to US$34.7 billion in 2018, representing a CAGR of 2.5%.

Key Suppliers

In 2012, there were 103 PCB enterprises with output values exceeding US$100 million in the world. The figures for number of PCB enterprises with output values exceeding US$100 million in the world was not available at the Latest Practicable Date. CRI identified the following as the top five enterprises in the world by sales value in 2013:

suppliers

Drivers of the Global PCB Market

According to CRI Report, the global PCB market is primarily driven by a robust development in the PCB downstream sectors, which in turn drives the PCB market demand. The PCB downstream sectors, including communication and consumer electronics sectors, have undergone technological advancement combined with an influx of new generation of products. In particular, since new products are introduced with sophisticated and complex design and technologies in the consumer electronics, communications and automobile sectors, the consumption of PCBs increases in a single unit of products. For example, cloud technology has set up a stage for the development of multi-layered PCBs, especially of 18 layers, which are applied in servers and network devices. The smart phone market in the emerging countries is another factor to drive the global PCB market. The developments in the medical equipment market also contributed to the continuously increased demand of PCBs.

PRC PCB INDUSTRY

According to CRI Report, the PRC PCB market size increased from US$16.8 billion in 2009 to US$26.8 billion in 2013, representing a CAGR of 12.4%. It is estimated that the sale value will increase from US$28.5 billion in 2014 to US$35.9 billion in 2018, representing a CAGR of 5.9%.

We mainly focus on double-sided and multi-layered PCBs. We also focus on developing the capabilities of Special Material PCB manufacturing. According to CRI Report, double-sided conventional PCBs, multi-layered conventional PCBs and special material PCBs in aggregate accounted for 84.8% of the PRC PCB market in 2013. From 2009 to 2013, sales value of double-sided conventional PCBs, multi-layered conventional PCB and special material PCB increased by CAGR of 6.5%, 10.5% and 18.3%, respectively. The chart below illustrates the PRC PCB market size by product in term of sales value for the period indicated.PRC PCB market size by product in terms of sales value (2009–2018E)

In 2013, our Group’s sales value of single-sided PCBs, double-sided PCBs, multi-layered Conventional PCBs and Special Material PCBs amounted to HK$3.7 million, HK$310.9 million, HK$161.5 million and HK$105.5 million, respectively, representing approximately 0.01%, 1.11%, 0.15% and 0.28% of the total market share under each of the categories, respectively.

In 2013, according to CRI Report, communication, consumer electronics and automobile were the major downstream sectors for PCBs in the PRC, in aggregate accounted for nearly 70% of the PRC PCB market. The chart below illustrates the PRC PCB market size by downstream sectors on which our Group focused for the period indicated.

PRC PCB market size by industry in terms of sales value (2009–2018E)

Supply

Global production capacity of PCBs gradually migrates to the PRC as it becomes a large manufacturer of electronic products. Domestic PCB manufacturers expand the production capacity while foreign-invested enterprises increase investments in the PRC PCB industry. The PRC surpassed Japan and became the world’s largest production base of PCBs in 2006. Being a country with the largest output value, the PRC becomes the major driving force of global PCB industry. The output value in the PRC was US$26.6 billion, accounting for over 40% of the total global output value in 2013.

An industrial belt of PCBs is formed around the Pearl River Delta and the Yangtze River Delta in the PRC. By the end of 2013, there were over 2,000 PCB enterprises in the PRC, of which approximately 50% were located at the Pearl River Delta and approximately 40% were located at the Yangtze River Delta. The output value of PCBs in the Pearl River Delta and the Yangtze River Delta accounted for over 90% of the total output value in the PRC. The two regions enjoy unique advantages of location, human resources and economic environment.

The PRC PCB output value increased from approximately US$16.3 billion in 2009 to US$26.6 billion in 2013, representing a CAGR of 13.0%. It is estimated that the PRC PCB output value will increase to US$35.5 billion in 2018.

Drivers of the PRC PCB Market

According to CRI Report, the PRC PCB market is primarily driven by the following drivers:

Supportive governmental policies

The electronic information industry is an important strategic pillar industry in the PRC. As a basic product of the electronic information industry, PCBs are supported by governmental policies. The PRC Government and the local governments issue policies to support the development of the PCB industry. The policies include governmental subsidies and preferential taxes.

Rapid growth of the PRC economy

The PRC economy developed rapidly with a globally leading growth rate especially after its entry into the World Trade Organization. The annual growth rate of the PRC economy is expected to remain above 7% in the next few years. Economic growth and increasing household income stimulate consumption of electronic products and further drive the PRC demand of PCBs.

Demand from downstream

Communications, consumer electronics and computer sectors remain the driving force of the PRC PCB market in the future. Smart phones, tablet PCs, cloud technology and medical electronic products may become the focus to promote the development of the PRC PCB market. For instance, there expects to be 0.4 million 4G base stations under construction in the PRC in 2014, which will stimulate demand for PCBs and bring opportunities to PCB manufacturers.

COMPETITIVE ANALYSIS

Competitive landscape of PCBs and nature of competition

The PCB market is highly fragmented in the PRC. In 2013, there were 126 PCB enterprises achieving a sales value of RMB100 million in the PRC, including 79 domestic enterprises and 47 foreign-invested enterprises.

CRI identified the following as the top five enterprises by sales value in the PRC in 2013:

top 5

Barriers to entry

According to CRI Report, major barriers to entry for potential competitors include:

  • capital Investment. Capital investments are required to purchase advanced production equipment to fulfill different products’ technical requirements and to ensure the product quality;
  • environmental regulatory compliance. PCB manufacturers in the PRC are subject to various environmental protection laws and regulations such as the Cleaner Production Standard: Printed Circuit Board Manufacturing (清潔生產標準:印刷電路板製造業), which would require extra set up efforts and costs; and
  • relationships with customers. PCBs are components to almost all electronic products which have a wide range of industry applications including communications, automobile, consumer electronics, computer, military and aerospace, industrial electronics, instrumentation and medical equipment. PCB’s electrical properties, physical properties, performance and stability are crucial for the useful life and performance of the electronic products. Therefore, customers generally prefer to maintain stable relationship with PCB manufacturers with sound track record. Well established trust and long term relationship with downstream customers would put existing PCB manufacturers in an advantage.

Future opportunities

Multi-layered PCBs are listed among key products to develop in the PRC’s Twelfth Five-Year Plan. According to the Guiding Catalogue of Industrial Structure Adjustment (adopted in 2011 and as revised in 2013), the PRC Government encourages and supports the development of the multi-layered PCB industry.

In addition, rapid development of electronic product industry in the PRC creates a favourable market environment for the PCB industry, including:

  • the emerging of domestic PRC mobile phone brands spurs further demand for PCBs. This in turn stimulates PCB manufacturers to innovate and develop advanced technology;
  • the increase in output volume of electronic products, such as electronic communication equipment, computers, tablet PC and household appliances, stimulates the rapid growth in the PCB industry; and
  • the issuance of 4G licenses attracts large-scale investments in telecommunications and large demand for servers and equipment for storage and network, which increases the demand for multi-layered PCBs.

Threats and challenges

According to CRI Report, PCB industry faces the following threats and challenges:

  • increased operating cost and capital investment. PCB manufacturers face tightening environmental policies which required more capital investments and surge in labour costs. Therefore, operating costs are expected to increase in the long run for PCB manufacturers;
  • increased in competition in the PRC and overseas. The PRC PCB production capability continues to increase which results in intensified competition amongst PCB manufacturers. Further, the dominant players in the PCB industry from around the world, such as Europe, North America, South Korea and Taiwan, seek to increase their PRC PCB market shares. This further results in challenges for local PRC companies.