Weekly Global Update for May 7, 2014
05.05.2014 // Walt D. Custer // Industry Conditions
1Q’14 World Electronic Equipment Growth by Product Type
First quarter global electronic equipment sales growth was good but not as strong as the prior quarter.
Source: Custer Consulting Group analysis based on company financial reports
The March “Factory Orders” report just released by the U.S. Department of Commerce presented an improving view of the domestic electronics demand.
North American PCB Industry Results for March 2014 (Charts 8-10)
IPC — Association Connecting Electronics Industries® announced the March findings from its monthly North American Printed Circuit Board (PCB) Statistical Program. Sales were up in March and the book-to-bill ratio strengthened, returning to positive territory.
Positive Sales Growth Returns
Total North American PCB shipments increased 4.8% in March 2014 from March 2013, strengthening year-to-date shipment growth to -0.8%. Compared to the previous month, PCB shipments jumped 18.9%.
PCB bookings continued negative at -5.5% year-over-year. Year-to-date order growth, while still negative, improved to -6.9%. Order growth climbed 20.9% over the previous month.
The North American PCB book-to-bill ratio strengthened in March for the fourth straight month, reaching 1.01, just above parity.
"The book-to-bill ratio's climb and positive year-on-year sales growth in March are encouraging signs of a recovery ahead," said Sharon Starr, IPC's director of market research. She cautioned, however, that "the book-to-bill ratio has just reached positive territory after six consecutive months below 1.00. Economic indicators are positive for 2014, but the PCB industry's recovery is developing slowly."
U.S. Supply Chain Growth Summary
Chart 11 summarizes the annualized (12/12) and 3-month (3/12) growth of the domestic electronics supply chain. The 3/12 “leads” the 12/12. Note that most of the groups are now in positive territory based on 3/12 growth rates!
Source: Custer Consulting Group
March Semiconductor Shipments up 11.4% Globally
SIA just released its March semiconductor shipment results:
SEMI Equipment Shipments up 39% in 1Q’14 vs. 1Q’13
As noted earlier and based on still incomplete company financial results SEMI equipment demand increased strongly in the first quarter (Chart 16). This cyclical expansionary behavior is typical in a business cycle upturn (Chart 17).
Source: Custer Consulting Group based on company financials and SIA semiconductor shipments
Worldwide Semiconductor Capital Equipment Spending to Increase 12.2% in 2014 (Chart 18)
Worldwide semiconductor capital equipment spending is projected to total $37.5 billion in 2014, an increase of 12.2% from 2013 spending of $33.5 billion, according to Gartner, Inc. Capital spending will increase 5.5% in 2014 as the industry begins to recover from the recent economic downturn and total spending will follow a generally increasing pattern in all sectors through 2018.
"While capital spending outperformed wafer fab equipment (WFE) spending in 2013, the reverse will hold for 2014," said Bob Johnson, research vice president at Gartner. "Total capital spending will grow by 5.5%, while WFE will increase 13% as manufacturers pull back on new fab construction and concentrate in ramping new capacity instead. Momentum from exceptionally strong fourth-quarter 2013 sales is carried forward into the first quarter, then is expected to bounce around a flat trend line through the remainder of 2014. In the longer-term profile, growth continues through 2015, dips slightly in 2016 and increases through 2018."
Logic spending remains the key driver of capital spending throughout the forecast period, but due to the anticipated softening of mobile markets it will grow less than memory. Memory will provide most of the growth in capital spending through 2018, with NAND Flash being the primary impetus.
Capital spending is highly concentrated among a handful of companies. The top three companies (Intel, TSMC and Samsung) continue to account for more than half of total spending. Spending by the top five semiconductor manufacturers exceeds 64% of total projected 2014 spending, with the top 10 accounting for 78% of the total.
Gartner predicts that 2014 semiconductor capital spending will increase 5.5%, followed by 10% growth in 2015. The next cyclical decline will be a slight drop of 3.3% in 2016, followed by a return to growth in 2017 and 2018.
Semiconductor inventories combined with overall market weakness depressed utilization rates at the end of 2013. Although demand from smartphones and media tablets is producing leading-edge demand for logic production, it is not enough to bring total utilization up to desired levels. Gartner expects utilization rates to climb upward again in 2014, as demand for chip production returns, and overall utilization rates will return to normal levels through 2014, providing continued impetus for capital investment.
Overall wafer fab manufacturing capacity utilization responded to increasing inventories at the end of 2013 by staying in the low-80 percent range at the end of 2013. In 2014, a return to more normal inventory levels will propel overall utilization of almost 90% by year end. Leading-edge utilization will remain in the mid-90% range through 2014, providing for a positive capital investment environment.
The capital spending forecast estimates total capital spending from all forms of semiconductor manufacturers, including foundries and back-end assembly and test services companies. This is based on the industry's requirements for new and upgraded facilities to meet the forecast demand for semiconductor production. Capital spending represents the total amount spent by the industry for equipment and new facilities.
The WFE forecast estimates market revenue based on future global sales of the equipment needed to produce the wafers on which semiconductor devices are fabricated. WFE demand is a function of the number of fabs in operation, capacity utilization, their size and their technology profile.
Worldwide Semiconductor Assembly and Test Services Market (Chart 19)
The worldwide semiconductor assembly and test services (SATS) market totaled $25.1 billion in 2013, a 2.3% increase from 2012, according to final results from Gartner, Inc.
"The SATS market grew slower than expected in 2013," said Jim Walker, research vice president at Gartner. "Japanese Yen depreciation against the U.S. dollar resulted in a drastic reduction in Japanese SATS companies' revenue compared with 2012, which impacted the overall growth of the market."
Another contributing factor was that "DRAM memory producers increased use of internal manufacturing capability, resulting in tighter capacities and higher utilization rates in 2013," Walker said. "This, in turn, reduced the need for outsourcing and resulted in lower revenue for the SATS market."
The top SATS companies continue to distance themselves from the more than 150 companies in the market. The top three vendors, ASE, Amkor Technology and SPIL, grew faster than the market average, and took market share away from other, lower-ranked companies. Their focus on advanced technologies, including wafer level packaging and flip chip, resulted in increased revenue, due to the higher average selling prices (ASPs) of these packages. As a result, for a few of the top companies, advanced packaging is approaching half of their total packaging revenue.
Continued weakness in the PC market and lower overall consumer demand contributed to the slow growth as well. The weaker demand also resulted in lower factory utilization and an oversupply situation for many of the more mature packages.
Although there was slower growth, the second- and third-tier SATS companies transitioned into copper wire bonding technologies that had been started a few years earlier by the top SATS companies. Although the savings from this lower-cost packaging technology over the gold process it replaced has been shared with customers, this adoption further contributed to the reduced revenue experienced by the SATS marketplace.
Worldwide Semiconductor Manufacturing Equipment Spending Declined 11.5% in 2013 (Chart 20)
Worldwide semiconductor capital equipment spending totaled $33.8 billion in 2013, an 11.5% decline from 2012, according to final results by Gartner, Inc. Wafer-level manufacturing equipment demand performed above the market with strength in lithography and associated processes, while back-end manufacturing segments fared significantly worse than average.
"With this as a backdrop, capital spending was muted and dominated by a few top players," said Klaus-Dieter Rinnen, managing vice president at Gartner. "A revival of memory-related spending during the year was not enough to stem the decline in equipment sales. Despite increased foundry investments, logic-related spending was a dampening force. Consequently, manufacturing equipment sales saw slow, sequential quarterly growth, and a fourth-quarter sales explosion was not enough to stop the second straight year of decline."
Applied Materials held onto the number one spot based on its relative strength in deposition and etch (see Table 1). Relative strength in lithography (albeit with limited sales in extreme ultraviolet [EUV]) helped ASML to retain the number two position. Lam Research moved into the number three spot due to its strong performance in etch and deposition. Tokyo Electron, just like other companies headquartered in Japan, was impacted by the significant decline in the yen-to-U.S.-dollar exchange rate, as well as an unfavorable customer buying pattern.
Notable is the further rise of the sales share of the top 10 vendors, now at 70%, compared with 68% in 2012. The top five vendors command nearly 57% of the total market, up five points from the prior year," said Rinnen. "The advance of these large players symbolizes losses of smaller players in the competitive race and an increasing market dependence on a few vendors in the equipment market."
Wafer-level manufacturing outperformed the market in 2013, on relative strength in dry etch, lithography, manufacturing automation and deposition. Spending was selective, focused on upgrades and latest-technology buys with little addition of capacity. Logic spending focused on preparing for 20nm/14nm (nanometer) production. Only a few sub-segments managed to expand — most notably, steppers in lithography, nontube chemical vapor deposition, conductor etch, rapid thermal processing and furnaces, and select process control segments (such as patterned wafer inspection, defect review and classification).
In the back-end segments, all major categories experience significant declines. The fourth quarter of 2013 was particularly slow as major semiconductor assembly and test services (SATS) vendors pushed out orders due to market uncertainty.
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