[SLIDE 1]

Good afternoon, Ladies and Gentlemen. Now we are having the closing ceremony of the ECWC8. I am Hiroshi Hashimoto, vice chairman of the JPCA International Activities Committee. I would like to take this opportunity to express my gratitude to the participants who have come all the way to join us, as well as the staff members and industry businesspeople who made a tremendous effort to make this event possible.

Now, on behalf of the Asian Electronic Circuits Industry and JPCA, I would like to give a presentation entitled “Vision for Asian Electronic Circuits Industry.”

[SLIDE 2]

What I am going to talk about today is divided into three parts: first of all, the changes in the global environment facing the “Electronic Circuits Industry”, in which I will discuss the major changes in the Electronics Industry Structure. Secondly, I will touch on the trend of demands for Electronic Boards, focusing particularly on the world market’s demand forecast, and the promising Digital Consumer Products market that we can greatly expect from. Lastly, I will talk about the role that Asian countries and regions are expected to play in the “Electronic Boards” manufacturing.

[SLIDE 3]

Before I start, I would like to briefly explain to you the terminology that I am going to use in this presentation.

Firstly “Electronic Boards”, which includes Printed Wiring Boards and Module Boards. Module Boards includes LSI Packaging substrate and Multi Chip Module(MCM) boards. And “Electronic Circuits”, which is the general terminology involves all manufacturing factor not only “Electronic Boards” but also “Interconnection & Packaging” and Surface Mount Technology.

Next, CM or Contract-manufacturer. This type of manufacturer is not just a subcontractor or supplier with limited capabilities, but a company specializing in manufacturing consigned by a Brand Maker based on an advance planning.

EMSI, which stands for Electronic Manufacturing Services Industry. This is a group of companies specializing in procurement of “Electronic Boards” & components, and Interconnection & Packaging of “Electronic Circuits”, as well as services such as inventory management, logistics, and customer technical support for Brand Makers.

Next, Solution provider. A solution provider is an EMS company that provides Brand Makers with services for Electronic Equipment manufacturing, that is, business integration and solutions in the areas of Cost, Delivery time and Quality control.

OK., next one is Parts Supplier. A parts supplier is a company that supplies parts based on orders from its customers as well as parts manufactured through planned production.

The last one is SCM, or Supply Chain Management. It is a management methodology designed to achieve efficient and integrated operations of manufacturing, procurement and distribution by reducing the lead time and inventory.

[SLIDE 4]

Now that we have checked the relevant terms, let’s get started with the changes in the global environment facing the Electronic Circuits Industry.

As everyone in the Western countries and Taiwan is aware of, the majority of the Western brand makers perceive design and marketing as the core competence of their business. They were faced with a situation where they have to admit that they cannot deal with all the aspects regarding manufacturing, such as design, marketing, Process & production, technology by themselves. Based on that, they chose to turn themselves from manufacturing companies to Brand Makers.

The background of this situation is that the overhead cost for manufacturers were increasing, their product life cycle was shortening, more and more procured parts were stored as their inventory, and their business management was beginning to become more finance-driven. In addition to that, since 1991, a great number of Information Technology companies specializing in Internet communications have emerged, forming a new influential force in brand business in the industry. Those companies have posed an unexpected competitive threat to major Electronic companies. We generally call them “Green Field Competitor”.

Originally, those new companies did not have manufacturing capabilities, so they started outsourcing all of their manufacturing functions to out-side manufacturers. That means that the traditional Electronic Equipment makers and the newcomers began outsourcing their manufacturing vigorously, at the same time. Moreover, “TIME” has become a crucial factor in the IT communication equipment industry. Because of that, Contract Manufacturers, and EMSI, have shown a rapid growth taking advantage of Supply Chain Management.

[SLIDE 5]

Then, how has the structure of manufacturing industry changed? Take Personal Computers and Cellular phone terminals.

Two of the key words for the success of the IT communications equipment market are TTM, or Time To Market, and TTC or Time To Customer. These words imply that rather than dwelling on complicated manufacturing systems, it is important to deliver products to the customers as soon as possible, utilizing the parts procurement scheme based on what we call the “horizontal division of roles.”

For example, in case of desktop PC, the production sites of its mother boards are beginning to move to China. The important thing here is that there are few cases where brand makers manufacture PC in their in-house plants. The other thing is that the product planning is now being conducted based on the selection from peripheral devices that follow the “de facto standard”. We can say that this represents a typical structure of horizontally-divided roles. Naturally in this example, the design and production of mother boards are out-sourced to CM and EMSI. Even the production of portable computers such as laptop PC has increasingly experienced outsourcing, with manufacturing and sales being managed in an “all-in-one” style including LCD.

[SLIDE 6]

Now let’s take a look at the situation of cellular phone terminals that have explosively been popularized in recent years. Basically, cellular phones are being produced in locations close to their consumption markets, but the most advanced models are manufactured in plants close to the companies’ headquarters or research institutes, which allows more technological options. That is a typical structure of what we call the “Vertical Division of Roles.” In this market several standards and no definite selection of “Electronic Circuits”.

[SLIDE 7]

Recently in particular, the CM and EMS that I mentioned earlier have been thriving and their presence in the industry is getting bigger. The production size of EMSI in 1998 was 90 billion dollars, and it is expected to double, or 180 billion in 2001. Having said that, the current outsource business accounts for only 12% of the entire market, and nearly 80% is still taken care of by in-house production of major electronic device manufacturers. It is estimated that the share of the EMS production will reach 20% in 2001, and it is not unthinkable that the EMS production might grow to the same level as that of the brand makers’ in-house production.

One thing that attracts the attention of us, the Electronic Circuits Industry, is the expectation that the structure of Electronic Boards procurement will change. The situation is, the PWB cost to the entire CM sales at present is said to be about 5%, which represents 5 billion-US Dollars worth of demand. This is expected to increase to 10 billion US Dollars worth of demand in the year 2001. It is almost certain that the demand of the markets with high metabolism such as PC market will shift to EMS in the near future.

[SLIDE 8]

It is true that EMS companies have swiftly expanded their business scale through their large-scale merger and acquisition, but the Printed Wiring Board business has not been incorporated into their capital alliance concerns. The reason behind this is clear if you look at the picture on the left that compares their production size with their revenue; their business size is relatively small, the technology they need is quite diverse, making it hard to bring about a great cost merit and revenue contribution to the parent company.

However, as I showed you in the slide regarding the cellular phone market, the Printed Wiring Board represents the key technology in the technology-driven market. Therefore, the PWB technology development cannot but be dependent on the Printed Wiring Board manufacturers. Especially, as we expect the potential growth of the Digital Consumer Electronic Equipment market, additional technical requirements will be presented to “Electronic Boards”, which include higher speed, heat analysis, EMC measures, and environmental concerns. Thus the technology concerning the Printed Wiring Board is expected to play a significant role in the industry as active devices.

[SLIDE 9]

Now, I would like to move on to the second part of my presentation, which refers to the trends in demand for “Electronic Boards”. A world demand forecast for PWB is shown here. The world Electronic Equipment production volume is forecasted by region and application, and Japan’s PWB demand coefficient is calculated. In this time, the global demand here is forecasted with this coefficient applied to all regions of the world, this is a little bit rough estimation, but generating the world’s PWB demand by region and application.

[SLIDE 10]

Japan’s PWB demand coefficient is approximately 3.2% on the average. The number is highest in the multilayer boards used for communications equipments. While carefully looking at the trends for the past five years, we forecasted the PWB demand coefficient for the years 2001 and 2004.

[SLIDE 11]

Though the overall coefficient is the same, the coefficients for communications and computers have slightly increased. As the markets of computer peripheral devices and mobile communications terminals grow, the use of complicated electronic circuit boards is expected to increase further from now on.

Now the result of PWB demand forecast is shown. This is a forecast by region, and the slide indicates that the demand in Asia in terms of the amount is anticipated to grow on an overwhelming scale compared to the other regions. In this time “Asia” region includes East Europe, South America, and rest of the world. According to our study here, this “Asia” market including Japan is expected to consume more than 50% of PWB.

[SLIDE 12]

The next slide demonstrates the demand forecast by application. Computer and communications are the two areas of highest demand in terms of scale and expansion potentials, and they will be the major driving force in the market.

[SLIDE 13]

From now on, expectations are quite high for the growth of semiconductor packaging substrates and state-of-the-art, newly-engineered Electronic Boards such as built-up substrates. It is anticipated that these new markets of packaging substrates and built-up substrates will expand to 250 billion yen and 300 billion yen respectively in the near future.

The emerging market of environmentally-friendly green materials is likely to rise quite rapidly, with the ratio of Non-Halogen materials increasing from 3% now to over 50% during the period between 2005 and 2010. I am convinced that a great deal of technological innovations will serve as a driving force for the expansion of the Electronic Boards market.

[SLIDE 14]

Now, there is one particular market that I definitely need to mention today. That is the Digital Audio Visual equipment market, which is extremely promising going forward. A rapid growth is anticipated for this market and Asian countries and regions including Japan will play a major role in manufacturing of products in this area. With the promise of higher performance of IT communications equipment and the rise of Digital consumer equipment, there will be a tremendous increase in technical requirements for the Electronic Boards Industry. In particular, lead-free materials and non-halogen materials to cope with the environmental requirements, and heat analysis and EMC measures for high-speed performance are extremely important. In addition, the needs for impedance integration will help develop the new type of Technology that allows to manufacture Electronic Boards embedded with electronics devices.

[SLIDE 15]

Now I would like to get into the last section. As I have just stated, the Electronic Circuits Industry has gone through a “polarization” of two completely different structures of operations, which are the horizontal division of roles and the vertical integration or Vertical division of Roles.

However, creation of new electronic equipment challenges a company to have a comprehensive capability in businesses ranging from planning of electronic systems, design and manufacturing of LSI and Electronic Circuits, to Interconnection & Packaging. It is readily anticipated that mature markets such as PC market, where the “de facto standard” dominates the business, the horizontal division of roles will be the most feasible direction for the future. Among them, development of LSI and Electronic Circuits will be the areas in which the key manufacturing technology and expertise will accumulate from now on.

[SLIDE 16]

While the horizontal division of roles is progressing in some markets, vertical integration or vertical division of roles are developing in other markets.

Japan has traditionally been characterized by its vertically-integrated industrial structure. Meanwhile, the digital AV equipment market that I mentioned earlier is unique in the sense that each of the Asian countries and regions can become the base station from which the relevant information spreads all over the world. It is a market that is made viable by innovations in technologies for LSI, interconnection and packaging, and Electronic Boards. In the anticipated industry structure, front-runners will provide integrated solutions that have capabilities to overcome technological challenges that loom ahead. In this framework, what we need to aim at is a collective win-win situation, instead of a win-lose situation.

[SLIDE 17]

Now let me repeat what I said earlier, manufacturing of Electronic Boards was one of the areas in which EMS could not be involved. In other words, the additional value used to lie only in the Electronic Boards. In the growing digital AV equipment market, Asia will serve as the information base station, and that will entail there will be a market where technologies related to LSI, interconnection and packaging, and Electronic Boards need to be vertically divided in terms of roles. Each player’s role in manufacturing will need to be made increasingly clear to catch up with the times.

[SLIDE 18]

Lastly, I would like to make a few points as my suggestions. Traditionally in our industry, the United States has played the role of creation and Asia has been in charge of production. From now on, we Asian countries need to create new Electronic equipment, while playing the role of the leader in the development of materials, devices, and manufacturing techniques.

In an effort to continue the sustainable research and development in technologies in materials, devices and manufacturing, we should make basic rules for a fair transfer.

Furthermore, I feel that there are limitations in the business merely looking at the Electronic Boards. We must get out of scrambling for a better and bigger piece of pie within the limited framework, and establish a collective Win-win relationship among industry players.

My suggestion for the Asian Electronics Circuit Industry should seek the structure of “horizontal division of roles” in the mature markets. Meanwhile in the frontier market, we should aim at either the “vertical integration” from semiconductor to Electronic circuits or the “vertical division of roles” where a solution for each process is provided by multiple entities.

In that sense, I think that now is the time for us to identify industrial tasks and the role of each organization involved, so that we can further enhance this alliance to build our future.

[SLIDE 19]

At our previous convention “PCWC7,” many people were describing Asia as the growing manufacturing base for the world. However, the widening gap between supply and demand, as we tried to expand our capabilities, has caused the rapid decline in prices of our products. A structural reform of the user industry is urged, and we are facing the challenge of new technical requirements in the areas of packaging substrate, built-up boards, and green materials.

At this convention, ECWC8, I assume that many participants are fully aware of the need for collaboration, since there are so many problems and issues that cannot be handled by each of the companies alone. Now we are entering the age of Co-existence, when every player needs to realize its strengths and weaknesses and explore opportunities of cooperating with each other.

Let’s get out of the microcosm of the individual organization mindset to achieve a wider perspective of co-existence.

[SLIDE 20]

I strongly hope that we together will aim to build the era of “cooperation in Asia” so that we can make a great contribution to the world’s Electronic Circuits industry.

This concludes my presentation.

Thank you very much for your attention.