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Weekly Global Update for December 11, 2013

12.11.2013 // Walt D. Custer // Industry Conditions

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U.S. Electronics Growth Improves

The Department of Commerce just released its October “Factory Orders” report with electronic equipment and component shipments, orders and inventories.

  • Electronic equipment order and shipment growth rates both moved into positive territory (Chart 1) as orders are exceeding shipments (Chart 2).
  • Electromedical, measurement & control equipment (Chart 3) are the main driver of the present domestic electronic equipment growth while military electronics orders weakened in October (Chart 4).
  • Vehicle (Chart 5) and aircraft (Chart 6) shipments improved.
  • Electronic component orders and shipments improved slightly (Chart 7).

Chart 8 summarizes the annualized (12/12) and 3-month (3/12) growth of the domestic electronic supply chain. A value of 100 indicates no growth versus the same period a year earlier. The 3/12 “leads” the 12/12 growth.

www.census.gov/indicator/www/m3/

WSTS Forecasts Semiconductor Market to Keep Steady Growth until 2015 (Chart 9)

The World Semiconductor Trade Statistics (WSTS) released its updated semiconductor market forecast that the world semiconductor market in 2013 will be US$304 billion, up 4.4% from 2012. The market is expected to recover throughout 2013, driven mainly by double digit growth of memory product category. By region, all regions except Japan will grow from 2012. Japan market is forecast to decline from 2012 in US dollar basis due to steep Japanese yen depreciation compared to 2012.

Worldwide semiconductor market is forecast to be up 4.1% to US$317 billion in 2014 surpassing historical high of US$300 billion registered in 2011. For 2015, the market is forecast to be US$328 billion, up 3.4%. All product categories and regions are forecast to grow positively in each year, with the assumption of macro economy recovery throughout the forecast period. By end market, wireless and automotive are expected to grow faster than total market, while consumer and computer are assumed to remain stagnant.

www.wsts.org

Worldwide Semiconductor Revenue Grew 5.2% to $315.4 billion in 2013 (Chart 10)

Booming DRAM Market Propelled Strong Growth for Memory Makers

Worldwide semiconductor revenue totaled $315.4 billion in 2013, a 5.2% increase from 2012 revenue of $299.9 billion, according to preliminary results by Gartner, Inc. The top 25 semiconductor vendors' combined revenue increased 6.2%, a significantly better performance than the rest of the market, whose revenue growth was 2.9%. This was, in part, due to the concentration of memory vendors, which saw significant growth in the top ranking.

"After a weak start to 2013 due to excess inventory, revenue growth strengthened in the second and third quarters before leveling off in the fourth quarter. Memory, in particular DRAM, led this growth, not due to strong demand, but rather weak supply growth," said Andrew Norwood, research vice president at Gartner. "In fact, the overall market faced a number of demand headwinds with PC production declining 9% and the premium smartphone market showing signs of saturation, with growth tilting toward lower-priced, entry-level and midrange smartphone models. These demand headwinds become very visible when looking at revenue growth outside of memory, where the rest of the semiconductor market could only muster 0.4% growth."

As a group, memory vendors outperformed the rest of the semiconductor industry.

"Within the memory market DRAM was in the midst of a strong rebound following two years of revenue decline; the recovery started at the end of 2012 when the market was moving back into an undersupply due to lack of new capacity resulting in commodity DRAM pricing more than doubling during the year," Norwood said.

www.gartner.com

Worldwide New Semiconductor Manufacturing Equipment Sales will Contract 13.3% to $32.0 Billion in 2013 (Chart 11)

SEMI projects that worldwide sales of new semiconductor manufacturing equipment will contract 13.3% to $32.0 billion in 2013, according to the SEMI year-end forecast, released here today at the annual SEMICON Japan exposition. In 2014, all regions except Rest of World are expected to have strong positive growth, resulting in a global increase of 23.2% in sales. 2015 sales are expected to continue to grow — increasing 2.4% with Japan, Europe, Korea, China, and Rest of World regions registering positive growth.

The SEMI Year-end Forecast predicts that wafer processing equipment, the largest product segment by dollar value, is anticipated to decrease 10.7% in 2013 to total $25.1 billion, on par with 2004 spending levels. The forecast predicts that the market for assembly and packaging equipment will decline by 22.1% to $2.4 billion in 2013. The market for semiconductor test equipment is forecasted to decline by 20.7%, reaching $2.8 billion this year. The “Other Front End” category (fab facilities, mask/reticle, and wafer manufacturing equipment) is expected to decrease 25.2% in 2013.

Korea, Taiwan, and North America remain the largest spending regions, though of the three only Taiwan is expected to show an increase in spending for 2013. According to SEMI, in 2013, Taiwan will reach equipment sales of $10.2 billion, with North American sales totaling $5.7 billion and Korea sales registering $5.5 billion. Regions experiencing the steepest declines in spending in 2013 include: Korea, North America, and Europe. The equipment market in Rest of World, primarily Southeast Asia, is expected to increase 3.2%.

Worldwide Server Shipments Grew 1.9%; While Revenue Decreased 2.1% in the Third Quarter of 2013 (Chart 12-15)

In the third quarter of 2013, worldwide server shipments grew 1.9% year-on-year, while revenue declined 2.1% from the third quarter of 2012, according to Gartner, Inc.

"The worldwide server market remains in a relatively weak performance mode as we move through the second half of the year," said Jeffrey Hewitt, research vice president at Gartner. "There were only three regions that exhibited positive vendor revenue growth. They were Canada at 6.5%, the Middle East and Africa at 12.1% and the United States with 0.9% growth. In shipments, the Middle East and Africa had the greatest increase at 13% compared to the third quarter of 2012."

"x86 servers maintained low levels of growth at 2.1% in units year-on-year and 4.4% in revenue. RISC/Itanium Unix servers continued to decline at 4.5% and 31% in vendor revenue compared to the same quarter last year. The 'other' CPU category, which is primarily mainframes, showed an increase of 7.8%," Hewitt said.

HP had the lead in the worldwide server market based on revenue. The company posted just over $3.4 billion in server vendor revenue for a total share of 27.6% worldwide for the third quarter of 2013. This was up 2.2% year-on-year.

HP and Cisco were the only vendors in the top five to have revenue increases in the third quarter of 2013.

In server unit shipments, HP remained the worldwide leader in the third quarter of 2013 with a year-on-year shipment increase of 5.4% for the quarter. HP's worldwide server shipment share was 26.7% representing a 0.9% increase in share from the same quarter in 2012.

Of the top five vendors in server shipments worldwide, only HP and Huawei produced shipment increases in the third quarter of 2013.

www.gartner.com

Worldwide Tablet Shipments Expected to Increase 54% y/y to 221 Million Units in 2013; Shipment Growth Projected to Slow to 22% y/y to 271 Million Units in 2014 (Chart 16)

Worldwide tablet shipments are expected to reach 221 million units in 2013, up 54% on year, IDC forecasts. Next year, shipment growth is projected to slow to 22% on-year to a total of 271 million units.

And by 2017, annual market growth will slow to single-digit percentages, the research firm said.

"In the U.S. where tablets have been shipping in large volumes since 2010 and are already well established, we're less concerned about big phones cannibalizing shipments and more worried about market saturation," he added.

Mini tablets lose appeal

While consumer preferences have trended toward small tablets over the past 24 months, the rise of large phones could push consumers back toward larger tablets, the research firm said.

"The difference between a 6-inch smartphone and a 7-inch tablet isn't great enough to warrant purchasing both," it said.

"Apple's launch of the iPad Air, a much thinner and lighter version of its 9.7-inch product, could herald another market transition back toward larger screens, presuming consumers are willing to pay the higher costs associated with bigger screens," it added.

A transition toward larger tablets could be a positive development for Windows tablets, which generally offer a larger screen.

IDC forecasts Microsoft will grow its tablet market share to 10.2% by 2017, from 3.4% currently.

While Google's Andriod and Apple's iOS are set to remain leaders in the tablet space, their market share is expected to fall to 59% and 31%, respectively, by 2017, from 61 and 35%, currently.

www.idc.com

Worldwide External Disk Storage Systems Factory Revenue Declines for the Third Consecutive Quarter (Charts 17 & 18)

Worldwide external disk storage systems factory revenues posted a year-over-year decline of 3.5%, totaling $5.7 billion, during the third quarter of 2013 (3Q’13), according to the International Data Corporation (IDC). For the quarter, the total (internal plus external) disk storage systems market generated $7.4 billion in revenue, representing a -5.6% decline from the prior year's third quarter and a seasonal sequential decline of -4.1% compared to 2Q’13. Total disk storage systems capacity shipped reached nearly 8.4 exabytes, growing just 16.1% year-over-year.

"Despite the revenue contraction in the third quarter, we see strong demand for offerings targeted at heavily virtualized environments, such as integrated infrastructure," said Eric Sheppard, Research Director, IDC Storage. "However, this demand has been offset by several factors: reduced spending from the U.S. government, increased use of storage efficiency technologies, increased investment in public cloud capacity, and general price pressures associated with increased competitive environments."

www.idc.com

Worldwide Ethernet Switch Market (Layer 2/3) reached US$5.66 Billion in 3Q’13, an On-year Increase of 6.5% (Charts 19 & 20)

The worldwide Ethernet switch market (Layer 2/3) reached US$5.66 billion in the third quarter of 2013, representing an on-year increase of 6.5%. On a sequential basis the third quarter of 2013 increased 5.2%. Meanwhile, the worldwide router market jumped 7.8% on year, which was the highest annual growth rate seen in over two years. Sequentially, the router market increased 2.2%, according to the IDC Worldwide Quarterly Ethernet Switch and Router Tracker.

From a geographic perspective, third-quarter results show the Ethernet switch market had its highest growth in Middle East and Africa (22.7% on year) and very good growth in North America (12% on year). Latin America and Asia Pacific (excluding Japan) both grew in the mid-single digits while the Western Europe and Central and Eastern Europe regions were up in the 1-2% range. Meanwhile, Japan declined 13.4% on year in the third quarter of 2013.

"The worldwide Ethernet switch market is increasingly a tale of two market segments with different market dynamics: the enterprise campus segment, which includes the network edge, and the higher growth datacenter segment that is driving 10GbE and 40GbE as cloud rollouts continue to increase," said Rohit Mehra, vice president, Network Infrastructure at IDC. "It's also worth noting that growth trends and overall regional performance in these segments vary widely among the regional and country markets across the various theaters, driven by a convergence of macro-economic issues and different states of maturity of datacenter and cloud deployments."

www.idc.com

U.S. GDP Grew 3.6% in 3Q’13 (Chart 21)

U.S. Gross domestic product grew at a 3.6% seasonally adjusted annual rate from July through September, the Commerce Department said. The reading was an upward revision from an earlier 2.8% estimate and the strongest growth rate since the first quarter of 2012.

www.bea.gov/national/

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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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