China's SMT equipment market to reach $3.5 billion in 2011

China's SMT equipment market is predicted to have rapid and continuous growth due to increasing market demand from end-user sectors. However, this industry must also face the challenge of declining SMT equipment prices.

Recent data from Frost & Sullivan reveal that China's SMT equipment market earned revenues of $1.8 billion in 2004, and this is expected to reach $3.5 billion in 2011.

"The Chinese SMT equipment market has been developing rapidly since 2001 primarily from the growth of the EMS industry in China," said analyst Fan Zhu of Frost & Sullivan Research. "An increasing number of OEMs are outsourcing their manufacturing operations to EMS providers in order to focus on key core competencies such as marketing and R&D. Sales to the EMS providers have been significantly replacing sales to OEMs in the total SMT equipment market since 2003."

EMS providers such as Flextronics, Solectron, FoxConn and First Computer become the biggest buyers of SMT equipment in China and the Asia Pacific rim since 2003.

Market challenges
But China's SMT equipment industry also has its problems. Factors such as price erosion, industry restructuring and the under-utilization of existing equipment also affect the market, with falling equipment cost leading to declining market revenues. SMT equipment vendors must also strike balance between cost reduction for customers, new product development and effective customer support, and efficient after-sales service and continuous growth amid severe competition.

"Since 2001, SMT equipment manufacturers have seen prices decline drastically, which has pushed their profit margin towards the breakeven point and reduced the overall size of the market," revealed Fan. "The price of SMT machines has experienced a steady decline during the historical period because of heavy competition and the imbalance between demand and supply. As a result, there is periodic flooding of the market with equipment leading to major price discounting."

To increase market penetration, SMT equipment vendors offer attractive prices and financial support packages as well as lease out SMT equipment with return/upgrade options.