Weekly Global Update for June 4, 2014

06.04.2014 // Walt D. Custer // Industry Conditions

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April U.S. Durable Goods

Preliminary U.S. electronic equipment shipments, orders and inventories were just released in the April Durable Goods report:

  • The electronic equipment 3-month average book/bill rose to 1.05 (Chart 1) as orders remained well above shipments (Chart 2).
  • Electronic equipment order and shipment growth remained in positive territory (Chart 3).
  • Electronic equipment inventories relative to orders remained well below their December 2013 high (Chart 4).
  • Defense capital goods orders surged (Chart 5).
  • Aircraft shipments held steady (Chart 6).
  • Communication equipment orders slipped slightly (Chart 7) but computer equipment demand improved (Chart 8).

North American PCB Shipments Up 1.6% in April 2014 from April 2013 (Chart 9)

  • Slow growth continues for the North American PCB Industry
  • Year-on-year sales growth was up slightly in April and the book-to-bill ratio remained positive at 1.01.
  • Sales and orders slow but Improving

Total North American PCB shipments increased 1.6% in April 2014 from April 2013, which moved year-to-date shipment growth to -0.2%. Compared to the previous month, PCB shipments declined 12.0%.

PCB bookings strengthened but continued negative at -1.5% year-over-year. Year-to-date order growth, while still negative, improved to -5.6%. Order growth fell 8.1% from the previous month.

"With year-to-date growth rates improving but still negative, and a book-to-bill ratio just barely in positive territory for the second month, the North American PCB industry appears to be moving very slowly toward a modest recovery this year," said Sharon Starr, IPC's director of market research. "The negative month-to-month growth rates in April reflect normal seasonal patterns," she added.

Worldwide Smartphone Shipments will Increase 23.1% y/y to 1.2 Billion Units in 2014 (Charts 10-12)

International Data Corporation (IDC) said worldwide smartphone shipments will reach a total of 1.2 billion units worldwide in 2014, marking a 23.1% increase from the 1.0 billion units shipped in 2013. From there, total volumes will reach 1.8 billion units in 2018, resulting in a 12.3% compound annual growth rate (CAGR) from 2013–2018.

"What makes smartphone growth so amazing is where the growth will be taking place," said Ramon Llamas, Research Manager with IDC's Mobile Phone team. "Smartphone shipments will more than double between now and 2018 within key emerging markets, including India, Indonesia, and Russia. In addition, China will account for nearly a third of all smartphone shipments in 2018. These – and other markets – will offer multiple opportunities to vendors and carriers alike, but the key will be balancing affordability with expectations."

On a worldwide basis, IDC expects the average selling price (ASP) of smartphones to reach $314 in 2014, down 6.3% from the $335 ASP in 2013. From there, ASPs are expected to reach $267 by 2018. While these prices point to a definite decline, users still expect top-notch experiences regardless of what smartphone they purchase.

"Until recently, low cost has equaled poor quality in the smartphone space," said Ryan Reith, Program Director with IDC's Worldwide Quarterly Mobile Phone Tracker. "Given the competition at the high end, vendors like Motorola are trying to skate to where the puck is going by offering extremely affordable devices like the Moto E, which offer a ‘good enough’ experience that will suit the needs of many. This goes to show that components that were used 2-3 years back in high-end smartphones are still sufficient in many aspects, and ultimately will allow vendors to come to the table with viable low-cost solutions."

Continental and Robert Bosch Leading Suppliers of Automotive Under-the-Hood Electronics (Chart 13)

According to Semicast Research, Continental and Robert Bosch maintained their positions as the dominant suppliers of automotive under-the-hood ECU electronics in 2013, considerably ahead of third placed Denso. Collectively these three suppliers are estimated to account for half of the automotive under-the-hood ECU electronics market.

Semicast defines automotive under-the-hood ECU electronics to include body, chassis, powertrain, safety and security applications, but excludes audio, infotainment, embedded navigation and embedded telematics (which are covered in a separate study on automotive entertainment systems).

Worldwide Tablet Projections Lowered to 245.4 Million Units for 2014 (Charts 14-15)

Based on a greater decline in demand than predicted in the first quarter and concerns that tablets and 2-in-1s will face additional market challenges the rest of the year, International Data Corporation (IDC) has lowered its 2014 worldwide tablet plus 2-in-1 forecast to 245.4 million units, down from the previous forecast of 260.9 million units. The new forecast represents a 12.1% year-over-year growth rate, which is notably lower than the 51.8% year-over-year growth of 2013.

"Two major issues are causing the tablet market to slow down. First, consumers are keeping their tablets, especially higher-cost models from major vendors, far longer than originally anticipated. And when they do buy a new one they are often passing their existing tablet off to another member of the family," said Tom Mainelli, Program Vice President, Devices & Displays at IDC. "Second, the rise of phablets – smartphones with 5.5-inch and larger screens – are causing many people to second-guess tablet purchases as the larger screens on these phones are often adequate for tasks once reserved for tablets."

In the past year alone, the phablet share of smartphone shipments has more than doubled, from 4.3% in the first quarter of 2013 to 10.5% in the first quarter of this year, representing 30.1 million units shipped. As large phones clearly impact near-term tablet growth, IDC expects the market to rebound by shifting its focus back toward larger-screened devices. Products with larger screens - like Microsoft's new 2-in-1, the 12-inch Surface Pro 3— are expected to play a greater role in the market going forward.

"The shift back toward larger screens will mark a welcome sea change for most vendors as the average selling price for these devices will remain roughly 50% higher than the average sub-8-inch device," said Jitesh Ubrani, Research Analyst, Worldwide Quarterly Tablet Tracker. "Microsoft is also expected to benefit from this shift as the share for Windows-based devices is expected to double between now and 2018."

Worldwide Server Shipments Grew 1.4% in 1Q'14; Revenue Declined 4.1% (Charts 16-19)

"The first quarter of 2014 produced relatively weak growth on a global level with a variation in results by region," said Jeffrey Hewitt, research vice president at Gartner. All regions showed a decline in either shipments or revenue except for Asia/Pacific. Asia/Pacific posted a 3.3% increase in revenue and an 18% increase in shipments. In Japan shipments increased by 13.5%, but revenue declined by 9.2% while in Western Europe shipments declined by 4.8% and revenues rose 6.7%.

"Although shipments contracted, the fact that the server market has finally shown revenue growth will be a welcome relief for server vendors," said Adrian O’Connell, research director at Gartner.

Worldwide WLAN Market Up 7.0% y/y in 1Q’14 (Chart 20)

Enterprise WLAN Market Grew 10.3% Year over Year in First Quarter of 2014

The combined consumer and enterprise worldwide wireless local area network (WLAN) market segments increased 7.0% year-over-year in the first quarter of 2014 (1Q’14). According to the preliminary results from International Data Corporation (IDC), the enterprise segment continued to grow at a healthy rate and increased 10.3% over the same period last year. While the pace of the enterprise WLAN market growth has been steadily decreasing over the last several quarters, the market continues to be one of the faster growing networking market segments.

The consumer WLAN market also had a stable quarter in 1Q’14 and grew 3.8% year-over-year. The growth in the consumer WLAN space benefited from the ongoing transition from the older 802.11n standard to the newer and faster 802.11ac standard as well as a solid performance in emerging markets.

"WLAN infrastructure continues to be a bright spot in the networking market, with mobility and cloud driving investments and refresh cycles across geographies and verticals," said Rohit Mehra, Vice President, Network Infrastructure, at IDC. "While a stabilizing growth rate suggests the market maturing, new vertical-specific use cases and the ramping adoption of the emerging 802.11ac standard will fuel sustained growth in the enterprise WLAN market for the foreseeable future."

"Although some of the leading vendors experienced flattening revenues in the first quarter, growth in the worldwide enterprise WLAN market will remain strong as technological evolutions drive network upgrades as well as greenfield deployments," said Petr Jirovsky, Research Manager, Worldwide Networking Trackers.

Global Digital Camera Demand to Decrease 19.8% in 2014

Global demand for digital cameras in 2014, due to increasing competition from smartphones and tablets, will decrease by 19.8% on year to 65 million units, Taiwan-based supply chain makers cited research companies as saying.

Branded NAND Flash Suppliers' Revenues fell 6.6% q/q to US$ 7,244 Million in 1Q’14 (Chart 21)

The shipment performances of Smartphones, Tablets, and Notebooks were relatively weak in the first quarter due to seasonality. As a result of the entire NAND Flash market’s oversupply in 1Q 2014, the branded suppliers’ Q1 revenues saw a 6.6% drop compared to the previous quarter, and slid to approximately US$ 7,244 million, according to Sean Yang, Assistant Vice President at DRAMeXchange, the memory and storage research division of TrendForce.

Ultra HD TV Panel Shipments Expected to increase 475% y/y to 17.83 Million Units in 2014 (Chart 22)

The average Ultra HD TV panel size shipped in 2014 is expected to be 50.8-inch, while the average-size LCD TV panel is expected to be 39.8-inch.

Taiwan makers have been responsible for most Ultra HD TV panel shipments in the past but Samsung Display and LG Display are expected to hold almost a 40% share in 2014.

Ultra HD TV panel shipments are expected to reach 72.5 million in 2017, with most 50-inch and above size TVs expected to be Ultra HD, added Digitimes Research.

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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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