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Weekly Market Updates for April 11, 2012

04.11.2012 // Walt D. Custer // Industry Conditions

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Domestic Electronics Demand Improves

U.S. Factory Orders: February Electronic Equipment and Components Shipments, Orders and Inventories

The U.S. Department of Commerce released the February Factory Orders report last week. Here are some key findings:

  • Electronic equipment orders and shipments rose (Chart 1) and 3/12 growth rates edged up (Chart 2)
  • Orders for all electronic equipment categories improved (Charts 3-5)
  • Electronic equipment inventories were stable (Chart 6)
  • Vehicle shipments continued to increase (Chart 7)
  • Aircraft and parts shipments declined (Chart 8)
  • Defense capital goods (Chart 9) and military electronics (Chart 10) increased as did those for search and navigation equipment (Chart 11)
  • Electro-medical, measurement and control equipment orders declined slightly following a big jump in January (Chart 12)
  • Communication (Chart 13) and computer (Chart 14) equipment orders improved
  • Electronic component book-to-bill was at parity (Chart 15) as orders and shipments were flat on a US$ basis (Chart 16) but their 3/12 growth rates improved (Chart 17)
  • Electronic component order growth is currently in balance with electronic equipment order growth (Chart 18)

Chart 19 summarizes the annualized (12/12) and 3-month (3/12) of the U.S. electronic supply –the 3/12 leads the 12/12.

Source: www.census.gov/indicator/www/m3/

Global Industrial Production Growth by Country

Chart 20 provides industrial production growth for a number of key countries.

Source: www.economist.com

Global PMI Leading Indicator: Manufacturing Growth Holds Steady through Q1’12 (Chart 21)

The global manufacturing sector posted further modest expansions in production, new orders and employment at the end of Q1’12. However, input cost inflationary pressure continued to surge upward, mainly as a result of high oil and transportation prices.

At 51.1 in March, little-changed from 51.2 in February, the JPMorgan Global Manufacturing PMIT posted above the no-change mark of 50.0 for the fourth month running.

Production also expanded for the fourth consecutive month in March, following a brief growth hiatus in November 2011.

Although the rate of increase reached a nine-month high, it remained slightly below the long-run survey average. Growth continued to accelerate in the U.S., but this was offset by contractions in the Eurozone and China.

The rate of output expansion in India slowed sharply, but remained well above the global average. Among the other major industrial nations, pockets of resilience were seen in Japan, the United Kingdom, South Korea, Brazil and Russia, which saw faster growth in March than February.

Following a further increase in March, levels of incoming new orders have expanded throughout the opening quarter of the year. Although the rate of increase remained only modest, it was nonetheless an improvement on the contractions seen toward the end of 2011. A broadly similar trend was signaled for incoming new export business.

Input price inflation surged higher in March. The rate of increase hit an eight-month peak, still mild compared to those signaled during Q1’11. All of the nations covered by the survey reported an increase.

March data indicated that supply-chain constraints were subsiding. Average vendor lead times showed a slight improvement during the latest survey period, after lengthening in each of the prior 31 months.

Manufacturing employment rose for the twenty-eighth consecutive month in March. Job creation was recorded in the U.S. (nine-month high), India, Brazil, Taiwan, South Korea, Canada and Turkey. Payroll numbers were reduced in the Eurozone, China, Japan, Russia, Poland and Switzerland.

Global Manufacturing PMIT Summary
  February March Summary, rate of change
Global PMI 51.2 51.1 - Expanding, slower rate
Output 52.6 52.7 + Expanding, faster rate
New Orders 51.4 51.1 - Expanding, slower rate
Input Prices 56.7 57.0 + Rising, faster rate
Employment 51.1 51.2 + Rising, faster rate
(50 = no change on previous month)

Commenting on the survey, David Hensley, director of global economics cordination at JPMorgan, said, "The global PMI changed little in March and remained at a relatively low level consistent with subdued growth in goods expenditures. The growth of global manufacturing, which has been strong relative to the PMI due to the recovery in flood ravaged Thailand and the resulting restoration of supply chains, is poised to moderate as implied by the PMI."

Source: www.jpmorgan.com

Global Semiconductor Sales $22.9 Billion in February (Charts 22 & 23)

Sequential Sales Growth of 1.1 % in the Americas Region

The Semiconductor Industry Association (SIA) announced that worldwide semiconductor sales were $22.9 billion in February 2012, a 1.3% decline from the prior month’s $23.2 billion. February semiconductor sales declined 7.3% year-over-year, while the Americas region showed sequential growth at 1.1% over last month. All monthly sales numbers represent a 3-month moving average.

“It’s encouraging to see that the U.S. posted the third consecutive month of job gains which points to momentum in the U.S. economic recovery. However, the global picture bears close watching given the continued sluggish economies in Europe and Asia,” said Brian Toohey, president, Semiconductor Industry Association. “Overall, the combination of improved U.S. macroeconomic factors along with sequential semiconductor sales growth in the Americas region warrants an optimistic view for growth in 2012.”

With a continued macroeconomic recovery, semiconductor sales are expected to improve this year in part due to positive demand drivers across a range of end markets. As products with improved functionality in mobility, sensing and energy efficiency come to market to meet consumer and enterprise demand, semiconductor sales are expected to continue along the path of long-term growth.

Source: www.sia-online.org

Printed Electronics Global Market Projected to Grow at 29.4% CAGR Over the Next Five years, from $3.5 Billion in 2011 to $12.6 Billion in 2016

According to BCC Research the global market for printed electronics was nearly $3.5 billion in 2011 and is projected to increase to $12.6 billion in 2016, a 5-year CAGR of 29.4%.

The market for printed electronics can be broken down into five segments: optoelectronics, energy, sensors, radio frequency and other.

  • The optoelectronics segment was nearly $2.3 billion in 2011 and is projected to grow at a CAGR of 31.6% to $8.9 billion in 2016
  • The energy segment accounted for $525 million in 2011 and is expected to increase at a CAGR of 22.8% to nearly $1.5 billion in 2016
  • The sensor segment, worth $145 million in 2011, is projected to grow at a CAGR of 40.4% to nearly $794 million in 2016
  • The radio frequency segment was valued at $35.3 million in 2011 and should reach nearly $152 million in 2016, a CAGR of 33.9%
  • The other segment was worth $518 million in 2011 and by 2016 should be nearly $1.3 billion, a CAGR of 20%

Source: www.bccresearch.com

Worldwide IT Spending is forecast to be $3.7 Trillion in 2012, up 2.5% from 2011 (Chart 24)

Worldwide IT spending is forecast to total $3.7 trillion in 2012, a 2.5% increase from 2011, according to the latest outlook by Gartner, Inc. This is down from Gartner's previous forecast of 3.7% growth for 2012.

Gartner analysts said the lower growth rate has more to do with the U.S. currency value than an actual decline in spending. The recent strengthening in the value of the U.S. dollar versus other currencies has resulted in the reduced growth rate. However, when looking at spending in constant U.S. dollars, Gartner analysts said IT spending is on pace to increase 5.2% in 2012, up from its previous projection of 4.6%.

"Despite ongoing concerns about the global economic recovery — most notably around the resolution of Eurozone sovereign-debt problems, worries about the potential for China's real estate 'bubble' to spillover and affect the rest of the economy and rising oil prices — early signs in 2012 suggest that the global economic outlook has brightened a little," said Richard Gordon, research vice president at Gartner.

Gartner analysts said IT spending in the government sector is expected to contract moderately on a global basis in 2012 and 2013, driven by austerity measures in the Eurozone. While there has been much commentary about the need for government cuts since the sovereign debt crisis emerged in Europe, it is only now that the impact of government budget cutbacks is being felt on IT spending in the region. Similarly, we expect U.S. government spending to be essentially flat in 2012 before contracting in 2013.

In the small and midsize business market, which represents approximately a quarter of all enterprise IT spending, spending is forecast to reach $874 billion in 2012 and grow to $1 trillion by 2016. Throughout the forecast period, midsized business IT spending outperforms other sectors in each of the next five years, driven by growth in spending on enterprise software.
The worldwide telecom equipment market is forecast to show the strongest growth with spending reaching $472 billion in 2012, a 6.9% increase from 2011. Gartner attributes this growth to the continued health of the mobile devices market as well as a more positive outlook for enterprise network equipment, which is being driven by spending on application acceleration equipment, network security, WLAN and Ethernet switches.

Source: www.gartner.com

Worldwide Semiconductor Manufacturing Equipment Sales Grew 9% Year-Over-Year to $43.5 billion in 2011 and Global Semiconductor Materials Market Grew 7% in 2011 to $47.9 billion (Charts 25-27)

Semiconductor Market Trends
2011 was a record year for the semiconductor industry in many regards. First, semiconductor revenues approached the long elusive $300 billion mark. Second, semiconductor materials passed the record high set in 2010 to reach $47.9 billion. And, semiconductor equipment sales grew 9%, off a record growth year in 2010, recording the second highest level of $43.5 billion. Taken together, the semiconductor equipment and materials market reached its highest level ever.

Semiconductor Equipment
Worldwide sales of semiconductor manufacturing equipment totaled $43.5 billion in 2011, representing a year-over-year increase of 9%. Equipment spending in 2011 resulted in sales $4.2 billion shy of the high of $47.7 billion reached in 2000 and represents the second highest level recorded for semiconductor equipment manufacturers. Considering the phenomenal growth of over 150% experienced in 2010, the “soft landing” experienced in 2011 was a welcome relief. If you look at equipment sales by major equipment category, 2011 set an all-time high for new front-end equipment sales at $34.6 billion. Front-end equipment includes wafer processing equipment, fab facilities, mask/reticle, and wafer manufacturing equipment.

Due to aggressive spending by Intel and Samsung North America, North America claimed the top spot ($9.1 billion) in equipment spending for the first time in nine years. The Korean market claimed the second place for the second year in a row with $8.7 billion in sales. Knocked off the #1 spot, Taiwan fell to the third position with a regional decrease of 24%. Japan remained in the #4 spot with $5.8 billion in equipment sales. Spurred by GlobalFoundries, equipment sales to Europe increased 81% in 2011. China and the rest of the world (RoW) both pulled back on their spending in 2011, with each accounting for 8% of the total new equipment market. RoW region aggregates Singapore, Malaysia, Philippines, other areas of Southeast Asia and smaller global markets.

If equipment spending trends in 2000 to 2011 are compared, South Korea represents a larger share (up 12%) of the total market in 2011 versus 2000, while North America and Japan saw market shares decline 6%. Europe accounts for about 4% less in 2011 than it did in 2000, while the share in Taiwan remained flat in 2011 compared to 2000. The ROW region, including China, now accounts for 16% of the market compared to 12% in 2000.

Semiconductor Materials
The global semiconductor materials market grew 7% in 2011 reaching $47.9 billion — resulting in the second consecutive record-breaking year for the semiconductor materials market. This total includes both fab and packaging materials.

Historically, Japan has been the largest semiconductor materials consuming region but Taiwan surpassed Japan in 2011 due to strong foundry investments and the significant presence of packaging companies that assemble advanced packages in the region. Japan still has an extensive installed fab base, thus driving the materials market in the region. The RoW, primarily Southeast Asia, represents the third largest market for materials given the dominance of packaging in the region.

Outlook
Initial data for this year are promising with equipment bookings showing some improvement in recent months, although device shipments have shown some seasonal softening. Most analysts have predicted low- to mid-single digit growth for the semiconductor market for the year. Initially it was expected that the new equipment would contract about 11% this year, but given recent capital expenditure announcements by Intel, Samsung, TSMC and Hynix, the total equipment market will likely experience a single-digit decline. The outlook for materials is more positive, with materials expected to trend with device revenues at about 4% for this year.

2011 was a remarkable year for many segments in the semiconductor industry with record revenues for devices, front-end equipment, and materials. While the growth outlook for 2012 is mixed, the industry as a whole is expected to fare much better than many were anticipating six months ago.

Source: Lara Chamness, senior market analyst, SEMI
www.semi.org/marketinfo

U.S. March Manufacturing ISM PMI at 53.4%; New Orders, Production and Employment Growing; Supplier Deliveries Faster; Inventories Unchanged (Chart 28)

Bradley Holcomb, chair of the Institute for Supply Management Manufacturing Business Survey Committee stated, “The PMI registered 53.4%, an increase of 1% age point from February’s reading of 52.4%, indicating expansion in the manufacturing sector for the 32nd consecutive month. The production index increased 3 percentage points from February’s reading of 55.3% to 58.3%, and the employment index increased 2.9 percentage points to 56.1%. Of the 18 industries included in the survey, 15 are experiencing overall growth.

Source: www.ism.ws

Eurozone Manufacturing Downturn Worsens in March (Chart 29)

  • Final Manufacturing PMIR at three-month low of 47.7 in March, down from 49.0 in February
  • Further signs that manufacturing weakness is spreading from periphery to core
  • Cost pressures build

At 47.7 in March, the seasonally adjusted Markit Eurozone Manufacturing PMIR fell to a three-month low. New orders contracted at a faster rate than in February, leading to falling output and further job losses.

There were further signs that the manufacturing malaise already exhibited at the periphery of the currency bloc was spreading to the core. The German PMI fell below the neutral 50.0 mark for the first time in 2012, while French manufacturing contracted at the sharpest pace since June 2009.

The bright spots were modest improvements in business conditions in Ireland and Austria and a slower rate of decline in Greece, although the latter saw its PMI hit a record low in February.

Countries ranked by Manufacturing PMIR (MAR)
Austria 51.5 3-month low
Ireland 51.5 10-month high
Netherlands 49.6 2-month low
Germany 48.4 3-month low
Italy 47.9 6-month high
France 46.7 33-month low
Spain 44.5 3-month low
Greece 41.3 3-month high

Manufacturing output contracted across the region as a whole for the first time in three months, as inflows of new orders declined at an accelerated pace. Moreover, both output and new work fell across the consumer, intermediate and investment goods sectors.

Demand was weaker in both domestic and export markets. New export orders fell for the ninth month running, but to a lesser extent than signaled by the earlier flash estimate. Germany remained the main drag on new export orders, seeing a further marked reduction, though foreign demand also declined for Spanish and Greek manufactures.

German Job Growth nears Stagnation

Eurozone manufacturing employment declined for the second straight month with the pace of job losses the highest for two years.

Payroll cuts were registered in France, Italy, Spain and Greece, with French manufacturers reporting lower staff numbers for the first time in four months and Italian goods producers recording a faster rate of job cutting.

Also troubling is a further slowing in German jobs growth to near-stagnation, registering the smallest gain in jobs for two years. Employment rose in Austria, the Netherlands and Ireland, contrasting with job losses in all three countries during the first two months of 2012.

Cost Pressure Rises

Average purchase prices rose at the fastest pace in nine months during March, with rates of inflation accelerating in all nations except Italy. Oil was commonly reported as a key factor behind rising costs. Part of the increase in costs was passed on to clients, however strong competition and weak demand was often reported to have restricted firms' ability to pass higher costs on to customers, meaning charges again rose only modestly.

Subsequently, manufacturers maintained a cautious approach toward not only staffing levels but also to purchasing and inventory holdings. Input buying volumes fell at the quickest pace in three months, while further stock depletion was signaled. Lower demand for raw materials reduced pressure on suppliers, meaning average delivery times were broadly unchanged over the month.

Comment:
Chris Williamson, Chief Economist at Markit said:
"Eurozone manufacturers suffered a miserable March, with a renewed downturn in production wiping out marginal gains seen in the first two months of the year. Prospects for April also look poor, with companies reporting steeper rates of decline for both new orders and backlogs of work. At the same time firms saw their production costs rise sharply, largely as a result of high oil prices. Increasing numbers of firms therefore resorted to cutting employment to control costs, meaning employment fell overall at the fastest rate in two years.

"Manufacturing is therefore likely to have acted as a drag on economic growth in the Eurozone in the first quarter, falling to a lesser extent than in the final quarter of last year but nevertheless failing to prevent the economy sliding back into recession.”

"Ongoing steep downturns in the periphery are being accompanied by signs of renewed weakness in countries such as Germany and France."

Source: www.markiteconomics.com

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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.

Featured Contributor:
Walt D. Custer

Walt Custer

Walt Custer is an industry analyst focused on the global electronics industry. Prior to forming Custer Consulting Group he was Vice President of Marketing and Sales for Morton Electronic Materials, a global supplier of specialty chemicals and process equipment for the PCB industry.

Custer has been a member of the IPC trade organization since 1975 where he received both the President's and the Raymond E. Pritchard Hall of Fame Awards. He is currently a member of the IPC Executive Market & Technology Steering Committee. Custer is also a Director of the EIPC European PCB trade organization.

He authors regular “Market Outlook” columns for Global SMT & Packaging magazine, the Journal of the HKPCA and the TTI MarketEYE website.

Custer Consulting Group

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