But the news wasn't all bad. Companies responded to the drastic drop in sales in 2001 by reorganizing for improved efficiency and productivity, paying down debt, and increasing product diversity. As a result, many businesses experienced significantly reduced operating losses - and in some cases even posted profits - and emerged from the recession as much leaner, healthier organizations overall. Companies outside of the electronics sector fared even better, with some manufacturers experiencing record sales compared to previous years.
So what's in store for the coming year? No one has a crystal ball, and results are once again likely to vary widely by industry sector. But one thing is certain - manufacturers in all of the advanced ceramic markets are positioning themselves for improved profits and increased business in the months ahead.
Still, there are some signs that the electronics sector appears to be improving. The Semiconductor Industry Association (SIA) recently reported that worldwide sales of semiconductors increased to $12.9 billion in July 2003, up from $12.5 billion in June. This was the fifth consecutive monthly increase and was a 10.5% increase from July 2002 revenues of $11.68 billion. The SIA said it believed the industry would exceed the forecasted sequential growth of 5.9% for the third quarter and that capacity utilization at the leading edge of the market had reached 94% by September - another positive sign for future growth.
"We believe that excess inventory in the supply chain is now negligible and in-line with normal patterns," said SIA President George Scalise.
According to the SIA, worldwide sales should increase by 10.1% in 2003, 16.8% in 2004, 5.8% in 2005 and 7% in 2006, growing from $141 billion in 2002 to $205 billion in 2006. However, much of the growth seen recently in this industry has occurred outside of the U.S., and this trend seems likely to continue. The SIA reported that in May 2003, sales in Japan rose 26% on a year-over-year basis, Asia Pacific was up 11.7%, and Europe was up 9.3%, while sales in North and South America declined by 6.7% as a result of the continued outsourcing of electronic equipment production to Asia. In July, sales in Japan rose 4.8% over June sales levels, Asia Pacific was up 2.9%, Europe was up 2.4%, and the Americas increased 1%.
Many U.S. ceramic manufacturers have responded to this trend by changing their business tactics. CoorsTek, for instance, stepped out of the stock market spotlight in the spring of 2003 when it became a private company through a merger with Keystone Acquisition Corp., which is owned by various Coors family members and related family trusts. Although CoorsTek did not publicly share its reasons for the move, it is likely that the company will now be able to focus more of its efforts on longer-term growth strategies rather than quarterly earnings expectations.
Others, such as KEMET Corp., have decided to take their manufacturing capabilities to where the market is. The company announced in July 2003 that it plans to relocate all of its commodity manufacturing currently in the U.S. to lower-cost manufacturing facilities in Mexico and China over the next two years, resulting in the loss of approximately 650 production-related jobs in the U.S. Production that remains in the U.S. will focus primarily on early stage manufacturing of new products and other specialty products for which customers are predominantly located in North America. The company estimates that the move will yield a one-year payback based on anticipated fiscal 2004 volumes, and a $50-60 million savings with volume recovery by fiscal year 2006, when the reorganization is complete.
"The last several years have seen profound changes in the competitive landscape of the electronics industry," said Jeffrey Graves, Ph.D., KEMET's president and CEO. "We have listened closely to our customers describe their future directions, and we are aligning KEMET's future plans closely with them."
KEMET and other companies in the electronics sector are also focusing on product innovations such as higher performance and smaller component sizes to help boost demand.
Double-digit growth hasn't been limited to the armor business - all three companies referenced above also reported growth in their other segments, such as automotive products and ceramic materials used in the oil sands mining industry. Carbo Ceramics, Inc., a manufacturer of ceramic proppants for use in the hydraulic fracturing of natural gas and oil wells, has also reported significant growth this year and a positive outlook for the near future, as well as long term.
Although such sales growth is certainly welcome in today's difficult economic conditions, it also brings some challenges.
Ceradyne, Inc., for example, experienced manufacturing and production inefficiencies because of the steep manufacturing learning curves involved in scaling up to full production in its automotive line. The company also experienced poor product yields and other manufacturing inefficiencies as production capacities were being increased to meet the rising demand for personal armor and diesel engine components. To overcome these problems, the company implemented Demand Flow Technology, a scaleable, mathematically based business strategy that is designed to allow manufacturers to respond faster and more efficiently to the needs of their customers and the marketplace. Other companies have implemented similar lean manufacturing programs to help them cope with the challenges of operating in a fast-paced environment.
Companies in these sectors are also not immune to cyclical demand. For instance, some Wall Street analysts have speculated that Ceradyne has grown too large too fast, with too much dependence on ceramic armor orders for its revenues. (Sales of armor and other products to the military account for about 50% of the company's total sales.) To counter this effect, the company is making an effort to increase sales of other products, such as ceramic components for diesel engines, silica nose cones for Lockheed Martin Corp., PAC-3 and Arrow Missile ceramic radomes and translucent orthodontic brackets. But the company also believes that sales of ceramic armor won't drop any time soon.
"Because of the success of ceramic armor in Afghanistan and Iraq, the military will have years of procurements to fill the pipeline. There could certainly be a reduction in the urgency to requirements, but the absolute numbers are about tenfold what can be shipped right now," said Ceradyne's chairman and CEO, Joel Moskowitz.1
Another potential growth area for advanced ceramics is in micro-electronic mechanical systems (MEMS) and micro-systems (MST), which have proven to be enabling technologies in several key economic sectors, such as telecommunications and health care. According to a report from Business Communications Co., Inc., the worldwide market for MEMS/MST is currently estimated at $11 billion.3 By 2007, market revenues are forecast to exceed $26.4 billion, growing at an average annual growth rate (AAGR) of 19.1%. Beyond 2007, growth is expected to continue as new applications and products are developed, and global market penetration continues.
For many companies, advances in the medical sector might help offset losses in other areas. For example, in early 2003, CeramTec AG announced that its BIOLOX forte acetabular cup inserts had been approved by the U.S. Food and Drug Administration in conjunction with the ceramic devices of two of its customers for use in hip joint replacements. This approval is likely to pave the way for future growth of ceramic-on-ceramic joint replacement devices in the U.S. Additionally, improvements in diagnostic technologies such as X-ray and ultrasonic imaging machines are creating additional demand for the ceramic components used in these devices.
Some unusual applications for ceramic products are also beginning to emerge. For example, Advanced Cerametrics, Inc., has developed a line of piezoelectric fiber materials that are being incorporated into the newest generation of active, "smart" sporting goods. Tennis rackets and skis made with the new material have the ability to dampen the vibration created during a ball strike or edge chatter from a ski turn and use the energy to create electrical force to control the shape of the ski or racket by counteracting the forces. The product is also being investigated for use in the form of flexible, motion-sensitive shapes that can be placed in shoes, boots, clothing or any location where they can harness waste energy or mechanical deflection using microprocessor controls. Projects currently under development with major manufacturers include self-heated boots for hiking, skiing and military applications. Other potential applications of these PZT materials include controlled automotive suspensions, fishing lures and acoustic transducers.
As the markets for advanced ceramics continue to change, today's manufacturers are finding that the only sure way to stay ahead of the curve is to adapt along with them.
2. "World Fuel Cells to 2007," May 2003, 394 pp. The full report is available for $4900 from The Freedonia Group, Inc., 767 Beta Dr., Cleveland, OH 44143-2326; (440) 684-9600; fax (440) 646-0484; e-mail email@example.com; or www.freedoniagroup.com.
3. "RGB-270 MEMS Technology: Where To?" December 2002. The full report is available for $3850 from Business Communications Co., Inc., 25 Van Zant St., Norwalk, CT 06855; (203) 853-4266, ext. 309;