Weekly Global Update for August 14, 2013
08.14.2013 // Walt D. Custer // Industry Conditions
Many (but not all) of the major members of the global electronic supply chain have now reported their second quarter financial results. A few large firms in our sample (HP, Dell, Agilent, Applied Materials & Medtronic) closed their fiscal quarter in July rather than June and have not yet reported. We have used these companies 2Q'13 "guidance" when available or estimated their results based on the growth of their peers.
Here are the results so far:
July sales results were just released for Taiwan Stock Exchange listed companies:
Top Semiconductor Suppliers in 1H'13
SK Hynix, Qualcomm, MediaTek, and TSMC each registered >20% year-over-year growth.
Later this month, IC Insights' August Update to the 2013 McClean Report will show a ranking of the top 25 semiconductor suppliers in 1H'13. A preview of the top 20 companies is listed in Chart 18. The top 20 worldwide semiconductor (IC and O S D - optoelectronic, discrete, and sensor) sales leaders for 1H'13 include eight suppliers headquartered in the U.S., four in Japan, three in Europe, three in Taiwan, and two in South Korea.
The top-20 ranking includes three pure-play foundries (TSMC, GlobalFoundries, and UMC) and four fabless companies. IC foundries are included in the top-20 semiconductor supplier ranking because IC Insights has always viewed the ranking as a top supplier list, not as a market share ranking, and realizes that in some cases semiconductor sales are double counted. With many of our clients being vendors to the semiconductor industry (supplying equipment, chemicals, gases, etc.), excluding large IC manufacturers like the foundries would leave significant "holes" in the list of top semiconductor suppliers. Overall, the list shown in Chart 18 provides a guideline to identify which companies are the leading semiconductor suppliers, whether they are IDMs, fabless companies, or foundries.
There were numerous changes within the top-20 semiconductor ranking in 1H'13 as compared to the top 20 ranking of 2012. Some of the companies rising in the ranking included SK Hynix, which moved up three places and into the top 5; Broadcom, which edged into the top 10; Elpida, which was officially purchased by Micron on July 31, 2013, shot up seven places to 17th place; and MediaTek, which jumped up four positions to make it into the top 20 (now ranked 18th). In contrast, Fujitsu dropped five places and fell out of the top 20 ranking, going from being ranked 17th in 2012 to 22nd in 1H'13. The other company to fall out of the top 20 ranking was fabless supplier Nvidia, which went from being ranked 18th in 2012 to 21st in 1H'3, even though the company posted a 2% increase in year-over-year sales. Another "casualty" in the top 20 ranking was Sony, which fell to 16th place in 1H'13 from the 12th position in 2012.
Micron's acquisition of Elpida was completed on July 31, 2013. It is interesting to note that if Micron and Elpida's 1H'13 sales were combined, the "new" company would have had $6,699 million in total sales in 1H'13 and would have been ranked as the fifth-largest semiconductor supplier worldwide. Now that the two companies are officially combined, look for Micron to move up in the ranking of top suppliers over the remainder of 2013 and in 2014.
In total, the top 20 semiconductor companies' sales increased by 4% in 1H'13 as compared to 1H'2, one point better than the total 1H'3/1H'2 worldwide semiconductor market increase of 3%. It took semiconductor sales of just over $1.9 billion in 1H'3 to make the top-20 ranking.
There was a 64-percentage-point range of growth rates among the worldwide top 20 semiconductor suppliers in 1H'3 (from +38% for SK Hynix to -26% for Sony). The continued success of the fabless/foundry business model is evident when examining the top 20 semiconductor suppliers ranked by growth rate. As shown, the top 10 performers included three fabless companies (Qualcomm, MediaTek, and Broadcom) and three pure-play foundries (TSMC, GlobalFoundries, and UMC).
Two of the three top-20 ranked companies that registered a double-digit sales decline in 1H'3 were headquartered in Japan (Renesas and Sony). Japan-based Fujitsu also registered a double-digit decline (-19%) in 1H'3 to drop out of the top 20 ranking. However, it should be noted that the conversion of Japanese company semiconductor sales from yen to U.S. dollars, at 95.47 yen per dollar in 1H'3 versus 79.70 yen per dollar in 1H'2, had a significant impact on the sales figures for the Japanese companies. Still, Sony would have logged a double-digit (12%) semiconductor sales decline even if its sales results were not converted to U.S. dollars while Renesas would have posted a 2% increase in semiconductor sales if the numbers were expressed in yen.
Unfortunately for AMD, it cannot attribute its extremely poor 1H'13 sales performance (-25%) to currency conversion issues. However, the company's 3Q'13/2Q'13 guidance is for a 22% surge in sales, a significant rebound but one that still may not prevent the company from posting another full-year decline in sales in 2013 (AMD registered a steep 17% sales decline in 2012).
More details on the 1H'3 top 25 semiconductor suppliers, including a look at the companies' 3Q'13 expectations and guidance, will be provided in the August Update to the McClean Report.
After 43 Years, DRAM Market Finally Reaches Maturity (Chart 19)
DRAM capex as a percent of sales forecast to fall to all-time low in 2013.
Forty-three years after Intel introduced the first DRAM device in 1970, the DRAM market has finally matured to the point where there are only three major suppliers remaining—Samsung, SK Hynix, and Micron, which recently closed on its acquisition of Elpida. A good sign that the DRAM market has reached maturity is that capital expenditures in 2013 are forecast to be $4.0 billion, only slightly more than the $3.9 billion spent during the great recession year of 2009 according to IC Insights. Meanwhile, the DRAM market is forecast to reach $33.7 billion. This means DRAM capital spending as a percent of sales is forecast to fall to an all-time low of only 11.9% this year. Lower-trending capex investment for new DRAM fabs and process technology upgrades have contributed to rising average selling prices (ASPs) for DRAM so far in 2013. For the year, the DRAM average selling price is forecast to jump 40% and lift total DRAM market growth 28%.
The ability of suppliers to spend large sums of money to build a brand new wafer fab or to upgrade existing fabs has become nearly prohibitive for all but the leading DRAM manufacturers. With the price of a new wafer fab approaching $5 billion, only Samsung, SK Hynix, and the new Micron-Elpida will be able to continue investing in new and/or upgraded facilities this year.
Samsung perennially has had the DRAM industry's largest capital expenditure budget, which has allowed it to reduce costs and offer advanced products more quickly than its competition. From 2010-2013, Samsung's cumulative four-year DRAM capital spending ($10.95 billion) is forecast to far exceed the amount spent by either of its two nearest rivals—SK Hynix, $6.1 billion; and Micron, $5.1 billion—over the same period. (DRAM capex by the newly formed Micron-Elpida venture amounts to approximately $7.8 billion over the four-year span).
Perhaps more telling is how quickly the level of DRAM capex spending falls off after SK Hynix and Micron. After investing heavily to bring 50nm- and 40nm-class processes to their 300mm wafer lines, Taiwan-based suppliers are out of cash. Facing intense pressure from the world's leading DRAM vendors, second-tier players like Nanya, Powerchip, and Winbond are having to look for niche markets in order to revive their respective IC businesses.
In the five-year span from 2004-2008, DRAM capital expenditures as a percent of sales averaged 42.1%. In contrast, that ratio over the five-year span from 2009-2013 is forecast to average 21.5%. Since only the top DRAM suppliers will be able to continue investing in new facilities, IC Insights forecasts the ratio of DRAM capex to sales to be in the 15-20% range through 2017, greatly reducing the potential for huge swings in the market based on too much or too little capacity in the system.
LED Wafer Fab Equipment Spending to Rise 17% to $1.2 Billion In 2014, Following a 30% Decline This Year and 45% Decline in 2011 (Chart 20)
The LED industry is working through its over-capacity problems and will renew capital spending and capacity increases in 2014. According to the SEMI Opto/LED Fab Forecast quarterly on HB-LED front-end fabs, 2014 LED wafer fab equipment spending will rise 17% to nearly $1.2 billion in 2014, following a 30% decline this year and 45% decline in 2011. Equipment spending trends also reveal a new era in the LED industry as equipment spending now is concentrated among the industry leaders, and aspiring survivors, rather than widely distributed among new entrants to the industry or new technologies.
Following the explosion in LED interest sparked by the LED TV boon and exuberant optimism for the long-term growth in solid state lighting, the LED industry dramatically expanded worldwide capacity over the past three years, partly fueled by lucrative government subsidies in China. Total worldwide capacity rose 49% in 2011 and 39% in 2012 and continued to grow by 19% this year. Driven by national and provincial subsidy and incentive programs, China LED manufacturing rose from approximately 100,000 4" equivalent wafers per month in 2010 to an astounding 620,000 4" wafers per month this year.
LED Equipment Spending
Much of this capacity expansion was driven by extremely optimistic forecasts in 2010 and 2011 that the LED market would grow to over $20 billion as soon as 2015. Current market forecasts for the packaged LED market in 2015 hover around $15 billion with compound annual growth rates below 5%. Principle reasons for the decline in growth forecasts are the greater efficiency (i.e. improved light guides in displays) in using LEDs, the greater efficacy of packaged LEDs, and the minimum size of a replacement market for LED lamps. According to Strategies Unlimited, the average cost per kilo lumen has declined from $13 in 2011 to less $3.65 today. The number of LEDs used in TVs has declined by one-third and many SSL luminaires require less than half the LEDs used just a few years ago. LEDs in mobile devices and notebook computers have also declined. Automotive remains a growth market, but represents only around 10% of the market.
With so much new capacity, new entrants, and declining growth rates, prices for packaged LEDs dramatically declined in recent years, creating severe financial hardship for many, especially new entrants and those restricted to lower margin mid- and low-power segments. Fab utilization dropped worldwide, especially in China. Sales for MOCVD systems, the critical production tool for LED epitaxial operations, plummeted. Leading MOCVD companies, Veeco and Aixtron, who saw sales triple in 2010, watched revenues plummet by nearly the same amount in 2012.
Compensating for some the decline in packaged LED prices are steep declines in sapphire wafers, used by over 80% of the LED industry. Sapphire prices for 4" wafers are now approximately $32, down from their high of $130 in 2011, and 6" inch sapphire prices are now below $300, down from $450 eighteen months ago. Patterned sapphire substrates have rapidly become standard at 2" and 4" and are promising for 6" wafers. Declining sapphire prices and continued competitiveness of silicon carbide has dampened prospects for the penetration of GaN on Silicon in LEDs, once thought likely if not inevitable. A new report, titled "Dimming the Hype: GaN-on-Si Fails to Outshine Sapphire by 2020," by Lux Research sees SiC and sapphire continuing to dominate the LED market, benefitting from added capacity and continued technology improvements. The report says that "new methods like hydride vapor phase epitaxy (HVPE) will further improve throughput and cut costs, keeping sapphire highly competitive for the rest of the decade."
The global LED industry now appears to be stabilizing as leading manufacturers invest in 6" wafer production systems and associated equipment purchases to deliver improved yield and throughput. Recent LED manufacturing investment has centered on the move to 6" wafers by Cree (Silicon Carbide), Philips and OSRAM (Sapphire). Nichia continues to invest in capacity and technology improvements, and Epistar, Formosa Epitaxy, and Genesis Photonics from Taiwan all made significant manufacturing investments this year. Nearly all leading manufacturers appear to be modernizing their production systems with increased in investments in metrology, automation, etch, and lithography.
China will resume its MOCVD purchasing in 2014 in the absence of government subsidies. SEMI estimates a nearly 50% increase in MOCVD reactors will be purchased in 2014, up from 150 reactors purchased in 2013. At the same time, many LED fabs will close or be repurposed in China as the market consolidates and non-competitive players disappear.
San'an with over 120 MOCVDs and ETi (Elec-Tech) with 90 reactors are operating at increasing fab utilization rates and appear to be emerging as significant players. Some medium-size LED fabs in China like Canyang Opto and HC Semitek are also operating at near full capacity and are optimistic for their future. China will represent approximately 44% of total equipment spending in 2014, up from 33% in 2013. More information will be available at LED Taiwan 2013, which is co-located with SEMICON Taiwan, on September 4-6.
In conclusion, the global LED manufacturing market appears to be stabilizing and working through its rapid capacity expansion of 2010-2012. Significant packaged LED price declines have been partially offset by wafer cost reduction, yield improvements and wafer size increases. Global leaders like Nichia, Cree, Philips, Osram, and LG Innotek have continued to modernize their production operations for improved yield and throughput. The shakeout of the China market has begun and the survivors look to have staying power for long-term competitiveness.
With the overall LED market appearing to have modest growth rates for the next five years, and with many manufacturers being vertically integrated lighting manufacturers, the incentives for significant investments in manufacturing to gain cost advantage and market share are not high. In addition many mid-power packaged LEDs are migrating to lighting applications once thought reserved for advanced high-power products, opening up market opportunities for Chinese companies. However, many lighting manufacturers are looking to reduce parts count (die sizes, package and phosphor types) and stabilizing their product lines after many years of dynamic technology change, limiting the demand for new suppliers and product-types. It seems the stakes for success in the LED marketplace have revealed themselves and it remains to be seen how competition drives further manufacturing investments in the coming years.
Global Tablet Unit Sales Declined 9.7% to 45.1 Million in 2Q'13 (Chart 21)
As expected, worldwide tablet shipment growth slowed in the second quarter of 2013 (2Q'13), according to preliminary data from the International Data Corporation (IDC), worldwide tablet shipments finally experienced a sequential decline as total volumes fell -9.7% from 1Q'13. However, the 45.1 million units shipped in the second quarter was up 59.6% from the same quarter in 2012, when tablet vendors shipped 28.3 million devices.
Lacking a new product launch in March to help spur shipments, Apple's iPad saw a lower-than-predicted shipment total of 14.6 million units for the quarter, down from 19.5 million in 1Q'13. In years past, Apple has launched a new tablet heading into the second quarter, which resulted in strong quarter-over-quarter growth. Now, Apple is expected to launch new tablet products in the second half of the year, a move that better positions it to compete during the holiday season. Meanwhile, the other two vendors in the top 3 also saw a decline in their unit shipments during the quarter. Second-place Samsung shipped 8.1 million units, down from 8.6 million in the first quarter of 2013, although up significantly from the 2.1 million units shipped in 2Q'12. And third-place ASUS shipped a total of 2.0 million units in 2Q'13, down from 2.6 million in 1Q'13.
"A new iPad launch always piques consumer interest in the tablet category and traditionally that has helped both Apple and its competitors," said Tom Mainelli, Research Director, Tablets at IDC. "With no new iPads, the market slowed for many vendors, and that's likely to continue into the third quarter. However, by the fourth quarter we expect new products from Apple, Amazon, and others to drive impressive growth in the market."
Not all vendors experienced a slowdown during the quarter. PC stalwarts Lenovo and Acer both re-entered the top five this quarter. Lenovo continued to make headway into the world of mobility and for the first time had shipments surpass the million unit mark in a quarter, shipping a total of 1.5 million devices. This was up 313.9% from a year ago and enough to capture 3.3% market share. Rounding out the top 5 was Acer, which shipped 1.4 million tablets in 2Q'13 for 247.9% year-over-year growth and an increase of 35.4% over the first quarter of 2013.
"The tablet market is still evolving and vendors can rise and fall quickly as a result," said Ryan Reith, Program Manager for IDC's Mobility Tracker programs. "Apple aside, the remaining vendors are still very much figuring out which platform strategy will be successful over the long run. To date, Android has been far more successful than the Windows 8 platform. However, Microsoft-fueled products are starting to make notable progress into the market."
Tablet Shipments to Grow 17.7% on Year in 2H'13 (Chart 22)
Tablet shipments in the second half are expected to reach 82.07 million units, up 17.7% on year; however, several changes will also occur during the period: hardware brand vendors will dominate the small-size tablet segment; non-iPad tablet shipments will surpass those of iPad; closed Android platforms will be impacted by the official Android platform; and Qualcomm and MediaTek will replace Texas Instruments (TI) and Nvidia in the non-Apple camp, according to Digitimes Research's latest figures.
Small-size devices are expected to become mainstream products of the tablet market, accounting for 70% of total shipments in the second half. Non-iPad tablet shipments are also expected to surpass those of iPad and reach 45.07 million units. With the non-iPad camp's strong shipments, over 50% of global tablets will adopt the Android operating system in the second half, Digitimes Research estimates.
Android's large market share will also strongly impact closed Android platforms such as Amazon's operating system for its tablets due to lack of key application support.
The Retina display-featured iPad mini may not appear before the end of 2013 due to the panel's weak yield rate and the possibility that the device may undermine sales of the new high-end iPad. As a result, Apple's shipments in the second half may drop to 37 million units with an on-year growth of 3%.
As for Windows-based tablets, although Microsoft is offering more price cuts for its Small Screen Touch (SST) program, the deal is unlikely to help push vendors to release Windows-based devices and the platform will only account for 3.8% of second-half tablet shipments.
Qualcomm became the processor supplier of the second-generation Nexus 7 and the third-generation Kindle Fire, replacing Nvidia and TI. Qualcomm will ship close to 10 million processors in the second half of 2013, becoming the largest CPU supplier of the non-Apple camp. MediaTek, thanks to its hardware brand clients' small-size tablet orders, will become the second largest supplier, followed by Samsung Electronics and Intel, both of whom will ship over seven million units.
Taiwan makers' tablet shipments will reach 59.45 million units in the second half, but as Samsung and Lenovo are increasing their in-house production rates, Taiwan makers' share of global tablet shipments will drop to around 70%. As ODMs are aggressively competing for orders, Apple, Amazon and Asustek Computer will no longer place most of their orders with only Foxconn Electronics (Hon Hai Precision Industry) and Quanta Computer and will spread out their orders more evenly, Digitimes Research believes.
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