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Weekly Global Update for January 15, 2014

01.15.2014 // Walt D. Custer // Industry Conditions

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Global Supply Chain Update

The entire global electronic chain ended last year in expansion territory (Chart 1). On a 3/12 growth basis (comparing the most recent three months versus the same three months in 2012), 2013 semiconductor shipments were up almost 7%, printed circuit boards grew nearly 4% and the Global PMI Leading Indicator was up 7%. However the growth rates appear to be peaking so further expansion in 1Q’14 may be muted.

December was an unseasonably strong month for world electronic equipment shipments (Chart 2). The normal post-Christmas holiday season downturn did not occur last month as robust China/Taiwan end market sales drove the year end revenue spurt (Chart 3). SE Asia and Japan finished 2013 with the strongest growth (Chart 4).

Printed circuit shipments were also expanding on a 3/12 basis comparing 4Q’13 to 4Q’12 (Chart 5). However the normal seasonal downturn had already begun as sales dipped in Taiwan/China (Chart 6) and globally (Chart 7).

Source: Custer Consulting Group

Taiwan/China – a Strong 2013 Finish

December sales were released by Taiwan-listed companies, many of which manufacture in China.

  • A group of 101 OEMs reported December 2013 revenues up 10.3% versus December 2012 and up 1.4% sequentially from November 2013. The normal December downturn did not occur this year (Chart 8).
  • A group of 10 large ODM’s sales rose 12% in December 2013 compared to December 2012 (Chart 9) although they were down 3% annually in 2013 versus 2012 (Chart 10). All of the ODM 2013/2012 growth was in the fourth quarter (Chart 11).
  • Motherboard (Chart 12) and PCB (Charts 13 & 14) monthly sales continued their normal seasonal downturn in December.
  • Semiconductor shipments to SE Asia were in balance with electronic equipment production (Chart 15). There was no sign of excess chip purchases.
  • Wafer foundry sales increased from November to December (Chart 16) suggesting that global semiconductor sales will grow further (Chart 17).
  • Package and test revenues plateaued (Chart 18), memory sales increased (Chart 19) and passive components declined (Chart 20).
  • Solar/photovoltaic companies continued to rebound (Chart 21).

Source: Taiwan stock exchange listed company reports with Custer analysis

U.S. Update

Based upon the recent Department of Commerce’s November "Factory Orders" report:

  • Electronic equipment orders increased while shipments were flat (Chart 22).
  • Instrument and control and communication equipment orders drove the November increase (Charts 23 & 24).
  • Automotive shipments have been very strong (Chart 25) while aircraft sales are steady (Chart 26).
  • Military electronics orders weakened slightly (Chart 27) but electromedical, instrument and control bookings improved (Chart 28).
  • Passive component orders and shipments were little changed (Chart 29).

Chart 30 summarizes the growth of the U.S. electronic equipment supply chain on both an annualized (12/12) and 3-month (3/12) basis. A value of 100 indicates zero growth versus the same period a year earlier. The 3/12 "leads" the 12/12.

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

World PC Shipments Declined 6.9% y/y to 82.6 Million Units in 4Q’13 (Charts 31-36)

In 2013, Global PC Shipments Suffered the Worst Decline in PC Market History, but Analysts Say Industry Has Bottomed Out

Worldwide PC shipments totaled 82.6 million units in the fourth quarter of 2013, a 6.9% decline from the fourth quarter of 2012, according to preliminary results by Gartner, Inc. This is the seventh consecutive quarter of shipment decline.

"Although PC shipments continued to decline in the worldwide market in the fourth quarter, we increasingly believe markets, such as the U.S., have bottomed out as the adjustment to the installed base slows," said Mikako Kitagawa, principal analyst at Gartner. "Strong growth in tablets continued to negatively impact PC growth in emerging markets. In emerging markets, the first connected device for consumers is most likely a smartphone, and their first computing device is a tablet. As a result, the adoption of PCs in emerging markets will be slower as consumers skip PCs for tablets."

HP and Lenovo have been virtually neck and neck for the top global position in the PC market throughout 2013. Lenovo took the lead in the fourth quarter, as it did last quarter, accounting for 18.1% of global PC shipments. Lenovo's victory over the top position became apparent in 4Q’13. Lenovo showed strong growth in all regions, except Asia/Pacific, where China continued to be a problematic country for the company. HP experienced a shipments decline of 7.2% in the fourth quarter. U.S. and Latin America were two regions where HP could not increase its shipments, and it experienced a steeper decline compared with the regional average.

Dell continued to maintain the third position and accounted for 11.8% of the market. With the completion of the leveraged buyout, Dell has redefined its strategic focus onto its PC and device businesses. Dell's focus is now beyond its traditional strength in the professional PC market; its focus is now also on consumer PCs, particularly in emerging markets.

Acer and Asus's ranking remained unchanged compared with a year ago. Both companies have more focus on tablets, and their fourth-quarter results clearly proved their strategic focus. Ms. Kitagawa said Acer has established a strong position in the Chromebook market, while Asus has built a solid reputation as a tablet vendor. PCs are still strategic products for both companies, but share gain is not the top priority for them.

"Holiday sales of technology products were strong in the U.S. market, but consumer spending during the holidays did not come back to PCs as tablets were one of the hottest holiday items," said Ms. Kitagawa. "We think that the U.S. PC market has bottomed out. A variety of new form factors, such as hybrid notebooks, drew holiday shoppers' attention, but the market size was very small at the time. Lowering the price point of thin and light products started encouraging the PC replacement and potentially some PC growth in 2014."

For the year, PC shipments were 315.9 million units, a 10% decline from 2012 (see Chart 33). This is the worst decline in PC market history, equal to the shipment level in 2009. Lenovo took over the top spot in the global PC market, accounting for 16.9% of the market. HP moved into the second spot after experiencing shipment decline of 9.3%.

Source: www.gartner.com

Worldwide IT Spending on Pace to Reach $3.8 Trillion in 2014 (Chart 37)

IT Spending Across All Segments to Grow in 2014 after a Flat 2013

Worldwide IT spending is projected to total $3.8 trillion in 2014, a 3.1% increase from 2013 spending of $3.7 trillion, according to the latest forecast by Gartner, Inc. In 2013, the market experienced flat growth, growing 0.4% year-over-year.

Spending on devices (including PCs, ultramobiles, mobile phones and tablets) contracted 1.2% in 2013, but it will grow 4.3% in 2014 (see Chart 37). Gartner analysts said convergence of the PC, ultramobiles (including tablets) and mobile phone segments, as well as erosion of margins, will take place as differentiation will soon be based primarily on price instead of devices' orientation to specific tasks.

Enterprise software spending growth continues to be the strongest throughout the forecast period. The 2014 annual growth rate is expected to grow 6.8%. Customer relationship management and supply chain management (SCM) experienced a period of strong growth.

"Investment is coming from exploiting analytics to make B2C processes more efficient and improve customer marketing efforts. Investment will also be aligned to B2B analytics, particularly in the SCM space, where annual spending is expected to grow 10.6% in 2014," said Richard Gordon, managing vice president at Gartner. "The focus is on enhancing the customer experience throughout the presales, sales and post sales processes."

The Gartner Worldwide IT Spending Forecast is the leading indicator of major technology trends across the hardware, software, IT services and telecom markets. For more than a decade, global IT and business executives have been using these highly anticipated quarterly reports to recognize market opportunities and challenges, and base their critical business decisions on proven methodologies rather than guesswork.

Last quarter, Gartner's forecast for 2014 IT spending growth in U.S. dollars was 3.6%, a 0.5 percentage points higher than the current forecast.

"A downward revision of the 2014 forecast growth in spending for telecom services — a segment that accounts for more than 40% of total IT spending — from 1.9% to 1.2% is the main reason behind this overall IT spending growth reduction," said Gordon. "A number of factors are involved, including the faster-than-expected growth of wireless-only households, declining voice rates in China and a more frugal usage pattern among European customers. The latter coincides in Western Europe with a breakout of fierce price competition among communications service providers to retain customers and attract new ones."

The data center systems spending growth outlook for 2014 has been cut from 2.9% in our previous forecast to 2.6%. This is mainly due to a reduction in the forecast for external controller-based storage and enterprise communications applications. These segments represent 32% of total data center system end-user spending.

Gartner has slightly revised downward the IT services compound annual growth rate between 2012 and 2017. The largest contributor to this revision comes from reductions in IT outsourcing — specifically, in colocation, hosting and data center outsourcing growth rates. "We are seeing CIOs increasingly reconsidering data center build-out and instead planning faster-than-expected moves to cloud computing. Despite these small reductions, we continue to anticipate consistent four to five percent annual growth through 2017," said Gordon.

Source: www.gartner.com

Worldwide Traditional PC, Tablet, Ultramobile and Mobile Phone Shipments On Pace to Grow 7.6% in 2014 (Charts 38-40)

Android to Surpass One Billion Users Across all Devices in 2014

Worldwide combined shipments of devices (PCs, tablets, ultramobiles and mobile phones) are projected to reach 2.5 billion units in 2014, a 7.6% increase from 2013, according to Gartner, Inc. Among the operating system (OS) market, Android is on pace to surpass one billion users across all devices in 2014. By 2017, over 75% of Android's volumes will come from emerging markets.

"The device market continues to evolve, with buyers deciding which combination of devices is required to meet their wants and needs. Mobile phones are a must have and will continue to grow but at a slower pace, with opportunities moving away from the top-end premium devices to mid-end basic products," said Ranjit Atwal, research director at Gartner. "Meanwhile users continue to move away from the traditional PC (notebooks and desk-based) as it becomes more of a shared content creation tool, while the greater flexibility of tablets, hybrids and lighter notebooks address users' increasingly different demands."

Mobile phones are expected to dominate overall device shipments, with 1.9 billion mobile phones shipped in 2014, a five percent increase from 2013 (see Chart 38). Ultramobiles, which include tablets, hybrids and clamshells, will take over as the main driver of growth in the devices market from 2014, with a growth rate of 54%.

"Complimentary smaller tablets will take over from the larger tablet form factors, providing the added mobility that consumers desire at a lower cost and will compete with hybrids for consumer attention," said Atwal.

In 2014, the worldwide tablet market is forecast to grow 47% with lower average selling prices attracting new users. Consumers continue to buy tablets as an additional device that they carry everywhere. According to a recent consumer study that Gartner conducted in the third quarter of 2013 across Brazil, China, France, Germany, Italy, the U.K., the U.S. and Japan, over two-thirds of tablets were used outside the home for activities such as vacation or concert. This is a similar pattern to that of smartphones as smaller form factors are driving more portability outside the home.

Worldwide shipments of traditional PCs are forecast to total 278 million units in 2014, a 7% decline from 2013. Driven by an uptake in Windows ultramobiles, the PC market is estimated to remain flat in 2014 (0.2%), after a decline of 9.9% in 2013. The Gartner consumer survey showed that less than eight per cent of users would replace their laptop with a tablet, while a transfer to an Ultrabook is almost twice this figure.

In the OS market, Android continues to be the OS of choice across all devices. Gartner estimates that Android will reach 1.1 billion users in 2014, a 26% increase from 2013. "There is no doubt that there is a volume versus value equation, with Android users also purchasing lower-cost devices compared to Apple users. Android holds the largest number of installed-base devices, with 1.9 billion in use in 2014, compared with 682 million iOS/Mac OS installed-base devices," said Annette Zimmerman, principal analyst at Gartner.

Source: www.gartner.com

World Consumer Electronics Manufacturing Revenue Will Fall to $250 Billion in 2014, Down 2% from $255.7 Billion in 2013 (Chart 41)

Consumer Electronics Market to Contract in 2014 as Market Awaits Innovative Products to Catch Fire

The 2014 International CES event in Las Vegas will serve as a showcase for exciting new products like ultra-high-definition (UHD) televisions and wearable technology devices. However, these products won’t ship in high-enough volume in 2014 to rescue the traditional consumer electronics (CE) device from a decline in revenue this year, according to IHS Inc.

Worldwide CE manufacturing revenue will fall to $250.0 billion in 2014, down 2% from $255.7 billion in 2013, based on data from the IHS Internet-Enabled Consumer Electronics Market Tracker. This will mark the fourth consecutive year of decline for the CE market.

The traditional CE market consists of a range of devices, including televisions, set-top boxes, digital still cameras, video game consoles and Blu-ray players. The market is under increasing pressure from wireless devices—i.e., smartphones and tablets—which consumers increasingly are purchasing and using in place of traditional CE devices.

In a dramatic illustration of this trend, global factory revenue for smartphones and tablets in 2013 rose to be larger than for the entire CE market—the first time this has ever occurred.

"While exciting new technologies such as UHD and wearable devices are being shown at CES, it will take a few years until these products attain enough of a volume to drive the growth of the overall CE market," said Jordan Selburn, senior principal analyst, consumer devices, for IHS. "Until these products enter the mainstream, traditional CE revenue will continue to dwindle."

IHS now predicts 38.5 million UHD LCD TV sets will ship in 2018, up from 1.5 million in 2013, according to the TV Systems Intelligence Service at IHS. Shipments will fly up more than 500% to reach 10 million in 2014. However, UHD sets still have a long way to go before they command a major share of the overall market. In 2018, UHD will account for only about 16% of all LCD TV shipments.

Global market shipments of wearable devices for infotainment applications will grow to 130.7 million units in 2018, up from 51.2 million in 2013. The infotainment segment consists of products including Bluetooth headsets, head-up displays, imaging products, smart glasses and smart watches.

Source: www.isuppli.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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