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.
European electronic equipment shipments declined in March 2012 (Chart 1). The growth rates on annualized (12/12) and 3-month (3/12) basis (Chart 2) point to continued slowing – probably made worse by Europe’s current economic woes.
Chart 3 shows annualized and 3-month growth rates by sector for the European electronic supply chain. For unexplained reasons Eurostat did not report March values for office equipment and electronic instruments.
Chart 4 provides 1Q’12 vs. 1Q’11 growth by sector.
Historical European sector charts and recent trends:
Motor vehicle production declined. (Chart 5)
Automotive electronics rose slightly. (Chart 6)
Aerospace vehicles and equipment continued their strong growth. (Chart 7)
Electronic instruments and controls had no March update (Chart 8) but medical electronics declined. (Chart 9)
Domestic appliance (Chart 10) and consumer electronics (Chart 11) production declined.
Computer and peripheral production rose sharply. (Chart 10)
Electronic equipment has moved to zero growth but semiconductor shipments to Europe appear to have completed their excess downward correction and should begin moving to balance on a 3/12 growth basis with end-market demand. (Chart 13)
Loaded board production increased. (Chart 14)
Components and boards declined (Chart 15) but wiring device production increased. (Chart 16)
The U.S. Census Bureau just updated its historic benchmark series for, among other things, electronic equipment and component shipments, orders and inventories from 1992 until March 2012. This was an annual revision but some of the changes were quite large. After downloading and updating our database we noticed what appears to be a large ongoing imbalance between total electronic equipment orders and shipments. Before reporting based on this May 18 revision we plan to investigate further.
In 2012, the global IC substrate market will reach a value of US$8.67 billion, according to research in China's Global and Chinese IC Substrate Industry Report, 2011-2012. As IC operating frequencies improve and integration increases, traditional leadframe packaging is giving way to substrate-based semiconductor packaging, such as ball grid array (BGA), chipscale packages (CSP) and flip chips (FC), of which the latter two now prevail.
IC substrate vendors are principally printed circuit board (PCB) manufacturers, selling IC substrates to IC packaging companies, which also exert the most influence on substrate suppliers.
CPUs and GPUs use FC-BGA packaging, featuring large packaging area, many layers, and high unit price. FC-CSP packages are designed into smartphones, PCs, and other products. Most of the ICs in mobile phones (such as Bluetooth / WiFi / FM, CMOS image sensor, USB controller, GPS, touch screen controllers, audio codec, MOSFET, DC/DC converter, etc.) adopt wafer-level chipscale packaging (WLCSP).
Taiwan's IC packaging and testing industry holds majority (56%) market share globally. Three out of the global top four packaging and testing corporations are from Taiwan (Advanced Semiconductor Engineering Incorporated and Siliconware Precision Industries Co. Ltd included). Chinese mainland performs just 3% of IC packaging and testing. Taiwan's semiconductor packaging and test services (SATS) providers support its world-leading wafer foundries; 60% of the 50nm and smaller node IC business is undertaken by TSMC, with nearly 100% market share in ICs made for smartphones fabricated by TSMC and UMC, Research in China reports. In the global IC substrate packaging market, Taiwanese players sweep more than 70% share.
Japanese manufacturers occupy the market of CPU, GPU and Northbridge IC substrate for PC. In 2012, NGK shuttered, and its market share was taken by Taiwan's Nanya PCB. Also, Japanese companies reign in the high-end market, they develop the FC-BGA technology with Intel and their positions remain quite stable. IBIDEN is building a base in the Philippines to lower prices.
IBIDEN and Shinko focus on Ajinomoto Build-up Film (ABF) substrates, both of which take no interest in bismaleimide-triazine (BT) substrates in the field of communications.
SEMCO is a leading South Korean manufacturer, with large orders from Qualcomm and Samsung Electronics and a small portion of orders from Intel or AMD. SIMMTECH, also a leading memory PCB maker, is mainly engaged in the memory substrate packaging. Memory PCBs will apply substrate packaging widely, in particular all of MCP memory PCBs may utilize substrate packaging in 2013.
Samsung's Android-Based Smartphone Sales in First Quarter of 2012 Represented more than 40% of Android-Based Smartphone Sales Globally; No Other Vendors Achieved more than a 10% Market Share.
Worldwide sales of mobile phones to end users reached 419.1 million units in the first quarter of 2012, a 2% decline from the first quarter of 2011, according to Gartner, Inc. This is the first time since the second quarter of 2009 that the market exhibited a decline.
“Global sales of mobile devices declined more than expected due to a slowdown in demand from the Asia/Pacific region,” said Anshul Gupta, principal research analyst at Gartner. “The first quarter, traditionally the strongest quarter for Asia – which is driven by Chinese New Year, saw a lack of new product launches from leading manufacturers, and users delayed upgrades in the hope of better smartphone deals arriving later in the year.”
All vendors have been impacted at different levels; however, white-box vendors seem to have suffered the most. While tier-one players such as Nokia were negatively impacted on sell-in numbers (sold into retail), white-box vendors were unable to adjust production and were left with a build-up in inventory by the end of the quarter. Gartner expects some of this volume to be sold during the next couple of quarters because the channel is likely to lower the prices to dispose of the stock.
“The lower results in the first quarter of 2012 have led us to be cautious about sales for the remainder of the year,” said Annette Zimmermann, principal research analyst at Gartner. “The continued roll-out of third generation (3G)-based smartphones by local and regional manufacturers such as Huawei, ZTE, Lenovo, Yulong and TCL Communication should help spur demand in China. In addition, the arrival of new products in mature markets based on new versions of the Android and Windows operating systems (OS), and the launch of the Apple iPhone 5 will help drive a stronger second half in Western Europe and North America. However, as we are starting to update our market forecast we feel a downward adjustment to our 2012 figures, in the range of 20 million units, is unavoidable.”
Samsung became the world’s top mobile handset vendor during the quarter, displacing Nokia which had held the number one spot since 1998. Samsung’s mobile phone sales reached 86.6 million units, a 25.9% increase from last year. Samsung took back the world’s No. 1 smartphone position from Apple, selling 38 million smartphones worldwide. In addition, Samsung’s Android-based smartphone sales in the first quarter of 2012 represented more than 40% of Android-based smartphone sales worldwide; no other vendors achieved more than a 10% share of the market.
Sales of smartphones continue to drive the mobile device market growth, reaching 144.4 million units in the first quarter of 2012, up 44.7% year-over-year. This quarter also saw the top smartphone vendors, Apple and Samsung, raising their combined share to 49.3%, up from 29.3% in the first quarter of 2011, and widening their lead over Nokia – which saw its smartphone market share drop to 9.2%.
The massive gray market for cell phones is propelling sales of lower-cost flash memories like embedded multimedia card (eMMC) and serial peripheral interface (SPI) NOR, as manufacturers of the unregulated phones strive to keep production costs low.
Shipments of gray market cell phones are set to amount to 210 million units in 2012, representing 13% of the global mobile handset business, according to IHS iSuppli.
While this is down from the peak year of 2011, when the gray market totaled 250 million units, shipments are set to remain high, amounting to 189 million units, or 11% of the global cell phone shipments in 2013, as presented in the figure below. The gray market business is dramatically larger than it was just three years ago in 2009, when shipments amounted to 145 million units.
“Gray-market phones represent a huge segment of the overall mobile handset industry,” said Michael Yang, senior principal analyst for memory and storage research at IHS. “For manufacturers of these phones, keeping up with consumer trends while maintaining low costs will continue to be a concern as they fight to remain viable in a fiercely competitive market. As a result, the adoption of inexpensive flash memories like eMMC and SPI NOR have been a key trend in the segment for gray-market handsets.”
Gray-market handsets are cell phones manufactured in China that are not recognized or licensed by government regulators. Makers of these products generally do not pay China’s value-added taxes and, therefore, profit illegally from their participation in the market.
The gray market for mobile handsets thrives mostly in developing countries where a large underground economy exists and where people are keen to obtain phones at low prices bearing desired functionalities—often those copied from authentic handsets made by name brands.
In China, for instance, gray-market handsets include counterfeits as well as so-called white-box units in which any logo can be slapped on a ready device. Frequently these white-box phones also feature smuggled chips, lack official certification and use fake international mobile equipment identity (IMEI) codes otherwise used to distinguish genuine handsets.
Asia, including China, remained the top opportunity, accounting for 62% of the gray market in 2011. Growth sectors like Indonesia and Vietnam are also moving beyond low-cost gray market handsets into gray-market feature phones, which are considered a step above low-cost handsets because of slightly more sophisticated functionalities.
The next two growth segments for the gray market are Latin America, which skews more toward low-end smartphones, as well as the Middle East/Africa (MEA) region, where entire new populations are being exposed to mobile devices for the first time.
As a whole, the gray market for handsets is also steadily moving upstream, with smartphones rising from 1.4% of gray-market handset shipments in 2011 to 6.0% this year. Feature phones, however, will continue to command the lion’s share of gray-market handset shipments this year, at well over 60%.
Market research firm Infonetics Research reported in its Optical Network Hardware vendor market share report that spending on optical gear dropped 23% globally in the first quarter of 2012 (1Q12) from the previous quarter.
"While optical hardware revenue trends in all world regions were not positive in the first quarter of 2012, the most alarming development is that year-over-year in EMEA, particularly Europe, spending on WDM optical equipment decreased faster than spending on legacy SDH equipment," notes Andrew Schmitt, principal analyst for optical at Infonetics Research. "This is not the behavior of a region experiencing only a minor quarterly pullback. By contrast, the trend in North America was the opposite, with carriers cutting spending year-over-year but allocating toward forward-looking technology investments like WDM equipment and ROADMs."
Schmitt adds, "EMEA and North America are both now trending downward on a rolling fourth-quarter basis, and Asia Pacific is flat. Still, conversations with vendors and carriers lead us to believe that spending in North America will resume moderate growth and we are forecasting solid gains in optical spending in China this year in large part due to our recent visits with Chinese carriers. But Europe is a tough call, with macroeconomic trends there not providing much hope and evidence that some service providers are battening down the hatches."
While the global WDM and SONET/SDH optical network equipment market declined 23% in 1Q’12 to $2.8 billion (the largest quarterly drop in years), the impact was sharpened by a strong previous quarter, when the market grew 9%. Revenue for all optical vendors declined in EMEA, with the exception of Infinera. Though EMEA typically has a seasonal sequential decline in the first quarter, 1Q’12 was the worst quarter for optical capex in over 5 years.
Fujitsu and Ciena outperformed competitors in North America. Asia Pacific was buoyed by strong spending in Japan, with NEC and Fujitsu posting eye-popping 28% gains in 1Q12 from the year-ago first quarter. Aside from the standout performances by NEC and Fujitsu, while many of the big vendors enjoyed gains the previous quarter, 1Q’12 was characterized by smaller companies such as Infinera, ADVA and Transmode outperforming the market. ROADM optical equipment spending was flat in 1Q’12, an achievement considering this category posted a record quarter in 4Q1.
The market for dynamic random access memory (DRAM) is expected to partially reverse the drastic losses it incurred in 2011 and achieve revenue growth this year, the result of balanced supply and demand following the exit of major manufacturer Elpida Memory Inc., according to an IHS iSuppli.
Global DRAM industry revenue this year is forecast to reach $30.6 billion, up 3.3% from $29.6 billion in 2011. Although seemingly small, the revenue expansion for 2012 is a welcome development given the stunning 25% contraction last year. The overall picture will continue to brighten during the next few years, as shown in the figure below, with DRAM revenue exceeding $30 billion each year for the next five years and reaching $40.2 billion in 2016−an unprecedented run scaling unparalleled heights for the market.
“This year’s anticipated turnaround comes as somewhat of a surprise, especially as the challenges of 2011 appeared to point to a calamitous 2012,” said Mike Howard, senior principal analyst for DRAM and memory research at IHS. “Weak demand was one of the major challenges last year, when revenue slipped each quarter as prices went from bad to worse. However, the key problem was excess DRAM manufacturing capacity, the same trouble that has bedeviled the industry for much of its history.”
Compounding the difficulties last year were the October floods in Thailand, which depressed PC shipments, a traditional DRAM stronghold. The perceived scarcity of hard disk drives pummeled PC sales and thereby DRAM demand; and the scarcity of hard drives meant PC manufacturers were paying more for storage—leaving even fewer dollars to spend on DRAM.
The Conference Board Leading Economic Index for the U.S. declined 0.1% in April to 95.5 (2004 = 100), following a 0.3% increase in March, and a 0.7% increase in February.
Says Ataman Ozyildirim, economist at The Conference Board, "The LEI declined slightly in April. Falling housing permits, rising initial claims for unemployment insurance and subdued consumer expectations offset small gains in the remaining components. The LEI's six-month growth rate fell slightly, but remains in expansionary territory and well above its growth at the end of 2011. The CEI, a measure of current economic conditions, has also increased for five consecutive months."
Says Ken Goldstein, economist at The Conference Board, "The indicators reflect an economy that's still struggling to gain momentum. Growth is slow, but choppy, and consumers, executives and investors are looking for more progress."
Industrial production increased 1.1% last month. March output fell a revised 0.6%.
Capacity utilization rose to 79.2% from a revised 78.4% the previous month.
Operating rates are still below their long-run average of just above 80%.