ONLINE EXCLUSIVE: Advanced Ceramics' Market Prospects for 2002 and Beyond
Layoffs, plant closings and declining profits have had ceramic manufacturers in the electronics sector feeling grim this past year. After achieving record sales in 2000, industry giant AVX Corp. announced in October that second quarter sales had declined 16% from the previous quarter. Its parent company, Kyocera, was facing similar woes. For the first half of its fiscal year, which ended September 30, overall sales were down 13.9% compared to the same period last year, primarily due to a sharp decline in demand for components for mobile communications, PC-related equipment, optical communications devices and other information equipment. The company said that it expected sales for the entire fiscal year, which ends in March, to be down by 18.3%.
CoorsTek and Kemet have been hit especially hard. CoorsTek announced in November that its third quarter revenue was down over 40% compared to the same period last year, due in large part to the persistent and severe downturn in the semiconductor capital equipment and telecommunications industries; while Kemet reported that sales for its second quarter, which ended in September, were down 67% compared to last year, due to weak demand for capacitors.
However, the end may be in sight. In early December, financial services firm UBS Warburg said that it expected the cyclical downturn in chipmakers’ new-equipment orders to bottom out during the month, and declines in chip-equipment makers’ revenues to hit bottom in February.
“Historically, the semiconductor industry has been characterized by boom-and-bust cycles, with periods of tight supply and strong demand followed by spells of overcapacity and slumping profitability. Over the past year, the industry has suffered one of its most punishing downturns ever as the normal cycle, combined with rapidly deteriorating economic conditions, led to heavy losses among many chip companies,” the company said in a report. UBS Warburg’s Byron Walker said he’s convinced the upturn has begun.
If this forecast is correct, it bodes well for companies like CoorsTek, whose businesses rely heavily on the strength of the semiconductor equipment market. And increased sales for the electronics industry as a whole may not be far behind, as many economists predict an overall economic recovery by at least the second quarter of 2002.
Proppants and ArmorNot all advanced ceramics segments will have to wait until the first or second quarter of this year to regain their profits. In fact, despite tough economic conditions, some companies were still reporting record sales in 2001 and good prospects for early 2002. In September, CARBO Ceramics Inc., a manufacturer of ceramic proppants for use in the hydraulic fracturing of natural gas and oil wells, announced that both its third quarter revenue and net income were the highest realized for any quarter in the company’s history. Its revenues of $106.1 million were a 45% increase compared to the third quarter of 2000. While this was partly due to price increases, the company also experienced a 32% increase in sales volume. CARBO Ceramics is operating at full capacity and recently broke ground on a new manufacturing facility in Louyang, China. C. Mark Pearson, president and chief executive officer, admitted that a decline in gas prices and drilling activity might cause a modest decline in sales volume for the fourth quarter of 2001, but he said that the company’s biggest challenge would be “adding capacity to meet growing demand.”
Companies that manufacture ceramic armor and other defense-related items were also beginning to get a much-needed boost by the end of 2001. After struggling through most of the year to overcome reduced demand for its advanced ceramics, semiconductor and fused silica products, Costa Mesa, Calif.-based Ceradyne Inc. announced in late October that it had received a small arms protective inserts (SAPI) lightweight ceramic personnel armor award from the U.S. Defense Logistics Agency. Joel Moskowitz, Ceradyne chief executive officer, was optimistic that future orders would follow.
“We anticipate that once Ceradyne’s SAPI armor First Article is approved and the initial contract order is shipped, the government will continue to issue monthly ‘delivery orders’ at a rate of $1.8 million per month for up to six months,” depending on military requirements and Ceradyne’s ability to meet those requirements, Moskowitz said.
“I believe the U.S. military’s needs are greater than this initial award and may extend out several years,” he added. “As a result, I am particularly pleased that the multimillion-dollar expansion of our armor-producing capacity was recently completed at our Costa Mesa, Calif., facility, since it will allow us to meet and exceed the delivery requirements and, thereby, contribute to America’s war on terrorism.”
Alternative EnergyOther advanced ceramics manufacturers that stand to gain in the near future are those in the alternative energy markets, such as fuel cells and batteries. While full-scale commercialization of some of these products may still be several years away, they will eventually transform the automotive and stationary power markets, if all the hype is to be believed. Companies such as FMC Lithium, Altair Nanotechnologies Inc. and Superior MicroPowders LLC have announced major breakthroughs in fuel cell and battery development over the past several months, and many major corporations have either partnered with fuel cell manufacturers or developed their own fuel cells in an effort to bring products powered by alternative energy sources to the market. In mid-November, Caterpillar Inc. and FuelCell Energy, Inc. signed an agreement to distribute ultra-low emission fuel cell products for industrial and commercial use, while in early December, Ballard Power Systems’ Transportation Division signed a three-year agreement with Ford Motor Co. to supply Ford with fuel cell engines. Ford, General Motors and DaimlerChrysler have all unveiled fuel-cell-powered automotive prototypes in the U.S. and Canada, and Honda plans build 300 fuel–cell-powered vehicles a year starting in 2003 for sale in Japan and the U.S. Most of the other major automakers in Europe and Asia have also said that they are developing fuel-cell-powered vehicles.
A study by Allied Business Intelligence (ABI) predicts that 1.5 million fuel cell vehicles could be on the roads by 2011, accounting for a 2.7% market share. However, when regulatory incentives and key technical challenges are overcome by the active players around the globe, ABI expects that number to increase to 2.4 million vehicles, a 4.3% market share in global auto production by 2011.* And market research firm Business Communications Co., Inc., is equally optimistic, forecasting that the total market for fuel cells (both stationary and automotive) will increase at an average annual growth rate of nearly 62% to $2.4 billion by 2005.**
Solid-oxide fuel cells (SOFCs) based on ceramics (usually zirconia with some yttria added to stabilize the compound) are only one of a number of types of fuel cells being developed for commercial use. However, ceramics may also be a key component of hydrogen generation catalysts, which are used to chemically extract the hydrogen required for operating the fuel cell from fossil fuels such as petrol, methanol or natural gas. Ceramic membranes may also be used in the production of syngas (CO+ H2), another potential fuel for fuel cells.
Opportunities AboundThe markets have been difficult for many advanced ceramic manufacturers over the past year. But the good news is that every recession is followed by a recovery. In other words, what goes down, must come up. Some sectors may recover sooner than others, and some companies might not be able to weather the storm. But those that do are sure to find a wealth of new opportunities on the horizon as we enter the next “boom” in ceramic demand.
Editor's NoteEditor’s note: For more information about the topics discussed in this article, be sure to check upcoming issues of Ceramic Industry magazine throughout the year.
*U.S. and Global Automotive Fuel Cell Markets, http://www.alliedworld.com (Allied Business Intelligence)
**Fuel Cells: On the Verge, http://www.buscom.com (Business Communications Co.)