PMI Leading Indicators Predict Slower Short Term Growth for Many Countries
March PMI leading indicator values decreased versus February for many countries (Chart 1). Although the U.S. PMI improved (Chart 2), the global PMI dropped slightly (Chart 3).
When viewed on a 3/12 growth basis (Chart 4) it is apparent that growth has plateaued (or in some cases is declining) for most regions. The strong global growth experienced in late 2013 now appears to have subsided – at least short term.
February Semiconductor Sales Up 11.4% Compared to Last Year (Charts 5-8)
Sales increase by 18% year-to-year in Americas region
The Semiconductor Industry Association announced that worldwide sales of semiconductors reached $25.87 billion for the month of February 2014, an increase of 11.4% from February 2013. This marks the industry’s largest year-to-year increase in more than three years. Global sales from February 2014 were 1.5% lower than the January 2014 total of $26.26 billion, reflecting normal seasonal trends. Regionally, sales in the Americas increased by 18% compared to last February. All monthly sales numbers are compiled by WSTS and represent a 3-month moving average.
“The trend lines remain positive for the global semiconductor industry, which has followed record revenues in 2013 with an encouraging start to 2014,” said Brian Toohey, president and CEO, Semiconductor Industry Association. “The Americas market continues to demonstrate impressive growth, while sales in Asia Pacific and Europe also increased substantially year-to-year, and the Japanese market continued its recent rebound.”
“The U.S. semiconductor market has been a key driver of global market growth over the last year, and policymakers in Washington can help maintain this momentum by enacting measures that remove obstacles to continued growth,” Toohey continued. “One such obstacle is America’s dysfunctional immigration system, which was revealed again this week when scarce H-1B visas were rapidly claimed by employers. Lawmakers should recognize that outdated immigration policies hamper economic growth and innovation, and they should work together to enact meaningful immigration reform in short order.”
Although semiconductor shipments have been strong, Custer Consulting Group’s semiconductor leading indicator points to an imminent slowing of growth (Chart 9). In North America semiconductor shipments dropped significantly in February when viewed on a one month rather than a three month average basis (Chart 10).
North American PCB Book-to-Bill Ratio Nearing Parity (Charts 11 & 12)
IPC announced the February findings from its monthly North American Printed Circuit Board (PCB) Statistical Program. Year-on-year sales growth was flat in February, but the book-to-bill ratio strengthened.
Industry Performance Remains Below Last Year
Total North American PCB shipments decreased 0.5% in February 2014 from February 2013. Year-to-date shipment growth remained negative compared to the same period in 2013, but is improving and reached -4.0% in February. Compared to the previous month, PCB shipments increased 8.7%.
PCB bookings continued negative at -11.5% year-over-year which pushed year-to-date order growth down to -7.8%. Order growth improved 1.8%, however, over the previous month.
The North American PCB book-to-bill ratio strengthened for the third straight month and reached 0.99, just under parity, in February.
"A strengthening book-to-bill ratio is a hopeful sign, but it is still in negative territory, which is an indicator of sluggish growth in the next few months," said Sharon Starr, IPC's director of market research. "While economic indicators are positive for 2014, the PCB industry's recovery is off to a slow start," Starr added.
Worldwide Semiconductor Revenue Grew 5% y/y to $315 billion in 2013 (Chart 13)
Intel Retained the Number One Position for the 22nd Year in a Row
Total worldwide semiconductor revenue reached $315 billion in 2013, up 5% from 2012, according to Gartner, Inc. The combined revenue of the top 25 semiconductor vendors increased by 6.9% during 2013. This was a significantly better performance than the rest of the market, whose revenue growth was 0.9%, and was due, in part, to the concentration of memory vendors in the top ranking. The memory market increased 23.5% in 2013.
"After a weak start to 2013 due to excess inventory, revenue growth strengthened during the second and third quarters before leveling off during the fourth quarter," said Andrew Norwood, research vice president at Gartner. "Memory, and in particular DRAM, led this growth; not due to strong demand, but rather weak supply growth that pushed pricing higher. In fact, the overall market faced a number of demand headwinds during the year, with PC production declining 9.9% and the premium smartphone market showing signs of saturation as growth tilted toward lower-priced, albeit quite capable, entry-level and midrange smartphone models."
Intel saw a second year of revenue contraction with sales down 1%, mostly due to falling PC sales. However, it continues to command a clear lead, holding the number one position for the 22nd consecutive year with 15.4% of the market.
Top 20 Worldwide Semiconductor Sales Leaders for 2013 included NIne Suppliers Headquartered in the U.S., three in Japan, three in Taiwan, three in Europe, and two in South Korea (Chart 14)
IC Insights' April Update to The 2014 McClean Report will show a ranking of the 2013 top 50 semiconductor suppliers. The top 20 worldwide semiconductor (includes ICs and O-S-Ds—optoelectronics, discretes, and sensors) sales leaders for 2013 included nine suppliers headquartered in the U.S., three in Japan, three in Taiwan, three in Europe, and two in South Korea, a relatively broad representation of geographic regions.
The top 20 ranking also includes three pure-play foundries (TSMC, GlobalFoundries, and UMC) and five fabless companies. It is interesting to note that the top four semiconductor suppliers all have different business models. Intel is essentially a pure-play IDM, Samsung a vertically integrated IC supplier, TSMC a pure-play foundry, and Qualcomm a fabless company.
The production capacity of Taiwan Semiconductor Manufacturing Company (TSMC) has been booked through the end of the third quarter of 2014 thanks to orders from handset solution and PC chip vendors, according to industry sources.
The planned roll-outs of new smartphones by brand handset vendors and the upcoming 4G services in China have pushed chipset solution vendors to place wafer start orders at TSMC, the sources noted.
Consumer IC suppliers are also placing short lead-time orders at TSMC as demand from downstream and end-market device makers is likely to pick up soon, added the sources.
As a result, TSMC's 8- and 12-inch fabs are currently operating at 100% and over 90% of their capacity, respectively, said the sources, adding that the foundry's 20nm and 28nm production lines are fully occupied by orders for smartphone and tablet solutions.
Global Tablet Shipments Forecast to Grow 38.5% to 270.7 Million Units in 2014
Worldwide shipments of tablet computers will continue to grow substantially in 2014 as their increasing popularity shows no signs of waning, according to Gartner, Inc.
Tablet shipments will reach 270.7 million units worldwide in 2014, up 38.5% from 195.4 million units last year.
The adoption of tablets has been largely concentrated in the U.S., with the market there dominated by Apple Inc., said Ranjit Atwal, research director at Gartner.
"Market dynamics in other regions are different, as the uptake of lower cost, smaller, non-branded tablets becomes more apparent," he said, expected most of this year's tablet growth to come from those areas.
New tablet users look for smaller screens and greater portability, while current tablet users look for better connectivity in their tablet replacements, according to the researcher.
Tablet sales will not likely get much of a boost, however, from the recent consumer trend of substituting tablets for notebooks, Atwal said.
The phenomenon, which has eroded notebooks sales, will start to fade this year, as consumers and businesses align the right device with the right usage pattern, Atwal predicted.
Based upon the more detailed data for February that was just released in the Department of Commerce “Factory Orders” report:
Electronic equipment orders and shipments are relatively flat (Chart 15).
Military electronics demand continues to shrink (Chart 16) while the instrument and control sector is growing (Chart 17).
The domestic electronic equipment product mix continues to shift toward the instrument and control sector (Charts 18 & 19).
February auto and truck sales rebounded after severe winter weather induced a slowdown (Chart 20)
Chart 21 summarizes the growth of the domestic electronics 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.
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.
Walt D. 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.