Walt Custer is the founder and president of Custer Consulting Group. In 2000, he was voted "one of the 10 most influential persons in the PCB industry." He is also on the board of directors for Coretec, Inc. and holds an M.S. degree in Physical Chemistry. ( More... )
Custer's firm, Custer Consulting Group, provides market research, business analysis, and forecasts focused on printed circuit board fabrication and assembly, passive components and semiconductors, and the electronic equipment end markets.
In addition to supplying MarketEye with weekly, in-depth market analyses, Custer also writes CircuiTree magazine's monthly "Market Outlook" column.
Statements of fact and or opinions expressed in MarketEye by its contributors are the responsibility of the authors alone and do not imply an opinion of the officers or the representatives of TTI, Inc.
Based on the recent information from JEITA (Japan Electronics and Information Technology Industries Association) Japan’s domestic electronics production continued to struggle through November.
TI saw a broad resumption of demand across most of its products in December which continued into January, said TI Chief Financial Officer Kevin March.
"We think our customers have reached a point where their (inventory) numbers were extremely lean, so they needed to order new chips quickly to meet demand.”
Prices for hard drives remain high as output in Thailand has yet to rebound from the severe flooding there. A full recovery is not expected until the July-September quarter at the earliest.
Western Digital partially resumed Thai output in late November, while Nidec is poised to fully restore production at a hard disk motor plant in February, ahead of its scheduled April restart.
Global hard-disk shipments likely decreased to 122 million units in the October-December period, down 30% on the quarter, according to Tokyo-based Techno Systems Research Company. The number is expected to rise to 140 million units in the January-March period, but it would still be 20% less than six months earlier.
Source: The Nikkei
A recent CNET column included Chart 13 from Fubon Research which provides an estimate of Hon Hai’s revenue 2012 breakdown. Hon Hai is the parent of Foxconn.
Following a year of expansion in 2011, the global electronics contract manufacturing business is expected to decline slightly in 2012, as continuing economic uncertainty in Europe and the United States constricts growth, according to an IHS iSuppli EMS & ODM Market Brief report.
Total contract manufacturing revenue this year is expected to decline to $357 billion, down by slightly less than 1% from $360 billion in 2011. This compares to 4.7% growth in 2011.
Both the electronic manufacturing services (EMS) and original development manufacturing (ODM) segments of the industry are not projected to perform well this year. Revenue in the EMS sector for 2012 will be practically flat at $207.5 billion, up by a negligible 0.3% from $206.8 billion in 2011. The ODM sector will be in even more dire straits, shrinking 2.3% to $150.0 billion, down from $153.0 billion, as shown in the figure below.
The anticipated performance for the overall contract manufacturing industry this year represents a big step down from its results in 2011, particularly during the first half of the year, when growth was solid.
Last year, EMS boasted 10.1% growth on top of a 34.7% increase in revenue during 2009. However, the ODM market already was struggling in 2011, with a 1.7% decline.
“The paramount factor affecting the electronics contract manufacturing business in 2011 is the sovereign debt crisis in Europe,” said Thomas Dinges, senior principal analyst for EMS and ODM at IHS. “Europe remains a key market for products built all over the globe. If Europe goes into recession because of its financial problems, and the recession then spreads to the United States—already hobbled by high unemployment and assorted economic travails—there will be very little that the global contract manufacturing industry can do, other than hope that the pipeline of new business remains strong and that the price increases enacted this past year serve as a buffer to prop up margins somewhat.”
To be sure, a recession is not certain to occur this year. Still, the forecasts paint a picture of reduced growth for both Europe and the United States in 2012.
China Offers Hope; Other Issues also Weigh In
A bright spot can be discerned, however, coming from the industry’s single biggest growth engine: China. Overall expectations point to another round of high, single-digit growth this year in that country, which already accounts for more than half of the contract manufacturing industry’s aggregate revenues.
China also has grown to be the world’s largest consumption market of smartphones and PCs—some of the end products it helps produce—so China’s pace of growth in those markets will determine how quickly those areas expand.
China, though, is no longer the nexus of cheap labor, instead sitting atop a list of countries characterized by low manufacturing wages. China in 2011 had wages averaging $2.19 for each worker per hour, which is rising at nearly 15% per year.
Despite this, IHS does not believe another region in the world is likely to emerge as a new low-cost manufacturing location. In most cases, the infrastructure—including power, water and transportation—of locations under consideration is simply not adequate or robust enough to support large-scale manufacturing, especially when compared to what the industry now deploys in two of its largest manufacturing locations in China or Mexico.
The Bottom Line
The worldwide contract manufacturing industry also will contend with other significant issues in 2012. For instance, the soundness of companies and their balance sheets will continue to be scrutinized after the bankruptcy filing in October 2011 of major player Elcoteq from Finland. In addition, there likely will be continued pressure on suppliers to ensure among customers that they are in compliance with all local labor laws given the recent announcement by Apple to allow outside monitors into its supplier facilities.
On a positive note, the continuing popularity among consumers of devices like smartphones and tablets means contract manufacturing in these areas can be expected to help compensate for slow growth elsewhere in the industry. A shift toward fewer product offerings in the notebook industry also will have positive impacts, leading to improved inventory velocity throughout the besieged PC notebook supply chain. Moreover, lower component pricing this year should help improve industry margins for the near term.
Top 10 Original Equipment Manufacturers represented $105.6 billion of semiconductor demand, accounting for 35% of total semiconductor chip revenue in 2011.
Leading electronic equipment manufacturers remained the center of the semiconductor world in 2011, accounting for $105.6 billion of semiconductors on a design total available market (TAM) basis — 35% of semiconductor vendors' worldwide chip revenue, according to Gartner, Inc. This represented a year-over-year increase of $1.8 billion, or 1.8% from 2010.
Design TAM represents the total silicon content in all products designed by a certain electronic equipment manufacturer or in a certain region, while purchasing TAM represents the total silicon content purchased directly by a certain electronic equipment manufacturer or in a certain region. Design TAM is a useful index for semiconductor vendors when they are considering how to allocate their sales or field application engineer resources by customer or region. Purchasing TAM is a useful index for semiconductor vendors when they are considering how to establish an efficient distribution network by customer or region.
"The major growth drivers in 2011 were smartphones, media tablets and solid-state drives (SSD)," said Masatsune Yamaji, principal research analyst at Gartner. "Those companies that gained share in the smartphone market, such as Apple, Samsung Electronics and HTC, increased their semiconductor demand, while those who lost market share in this segment, such as Nokia and LG Electronics, decreased their semiconductor demand. Media tablets were also a growth driver for the semiconductor market throughout 2011."
"Given the rapidly changing competitive structure of the IT and electronics industry, no semiconductor device vendor can afford just to monitor the requirements of the current market leaders," Mr. Yamaji said. "Vendors need to be constantly looking for new market entrants who will, in turn, be tomorrow's market leaders."
Within the top 10 rankings, three companies were from the Americas, three from Asia/Pacific, three from Japan and one from Europe, the Middle East and Africa (EMEA). Apple led the market in 2011 (see Table 1), achieving significant growth, as it has done for the past five years.
As a result, Apple became the biggest customer of semiconductor chip vendors in 2011, climbing two places in the ranking, from third in 2010.
Apple gained a much greater share of the smartphone market, and its media tablet business was also highly successful in 2011. While DRAM prices fell drastically in 2011, and many PC vendors decreased their total semiconductor demand accordingly, the success of the MacBook Air enabled Apple to increase semiconductor chip demand even in its PC business.
Mr. Yamaji said that as more brand-name companies are increasing their production outsourcing to original design manufacturers (ODM) and electronics manufacturing services (EMS) providers, semiconductor procurement by ODMs and EMS providers has increased
year−over−year. Currently, three of the top 10 purchasing TAM companies are so-called contract manufacturers.
"Semiconductor chip vendors must pay attention not just to the design TAM and purchasing TAM by company, but also by region," said Mr. Yamaji. "This is the key to avoiding inappropriate sales resource allocation. They must keep an eye on design-win opportunities in the U.S., while also establishing a strong distribution network in China."
Seeing weaker demand, especially for regular mobile consumer PCs, Gartner now expects PC unit growth in 2011 to be flat at about 0.3% and predicts 5% growth in 2012.
The long-term growth forecast has also been lowered slightly.
The new growth driver for PC suppliers and chip firms is expected to be mobile PCs.
"Overall PC production will sustain only single-digit growth through 2015, and that the ongoing momentum in the growth of media tablets will continue rapidly," said Gartner.
Source: Electronics Weekly
The U.S. economy grew at its fastest pace in more than a year and a half in the final three months of 2011.
Consumer spending, which accounts for more than two-thirds of demand in the economy, rose 2.0% in the fourth quarter compared with 1.7% in the third and 0.7% in the second quarter.
Exports rose 4.7%. Economists have warned that exports could be a vulnerable part of the economy as conditions in the euro-zone deteriorate this year.
Economists are expecting the economy to grow only modestly in 2012, as the sovereign-debt crisis in Europe threatens to hurt U.S. exports, and while governments at home continue to cut.
The Conference Board's gauge of the outlook for the next three to six months increased 0.4% after climbing 0.2% in November.
Gains in manufacturing and consumer spending, the biggest part of the economy, are sustaining the expansion. At the same time, the European debt crisis threatens to limit growth, helping explain why the Federal Reserve said it will keep the benchmark interest rate low until at least late 2014.
"Economic activity picked up toward the end of 2011," Stuart Hoffman, chief economist at PNC Financial Services Group Inc. in Pittsburgh, said before the report. "This provides support for our forecast for continued but moderate economic expansion in 2012."
German business confidence increased in January to a 5-month high, signaling Europe's largest economy may avoid a recession.
The Ifo institute's business climate index, based on a survey of 7,000 executives, climbed to 108.3 from 107.3 in December.
Juniper Research forecasts that shipments of Ultrabooks will grow at three times the rate of tablets over the next five years. However, tablets volume will remain higher, with 253 million shipped in 2016, compared with 178 million Ultrabooks.
Biting Back Against Apple
The report finds that while vendors have quickly responded to Apple's launch of the iPad with an array of competing products, the industry has been slow to respond to 2008's Macbook Air; leading vendors only launched the first Ultrabooks − a new category in mobile computing driven by the world's largest semiconductor manufacturer, Intel − in late 2011.
Balancing the Ultrabook Load
While the market is bursting with new products post-CES, a number of challenges remain for the industry. As we have seen in the tablet market, without products which are significantly differentiated from those of Apple in terms of price and features, gaining traction for its competitors is a difficult value proposition. Furthermore, Intel's Ultrabook specs bring their own challenges.
According to report author Daniel Ashdown: "While Intel's control of the brand ensures that Ultrabooks stand out from traditional notebooks, vendors face a balancing act in terms of product strategy. Meeting Intel's specification secures brand status and funding, but the step-change from notebooks means many of today's Ultrabooks are too expensive for many consumers."
Other key findings from the report include:
The Ultrabooks whitepaper is available to download from the Juniper website together with further details of the full study.