Taiwan/China – Still Expanding but at a Much Slower Rate

Although Taiwan-listed OEMs (many with major manufacturing in China) saw sales grow 18% in May’08 versus May’07 ( Chart 1 ), this year’s seasonal downturn has been very pronounced. Compared to recent years’ much loftier growth rates of 35%+ ( Chart 2 ), these Taiwan/China firms’ expansion this April and May was at a 6-year low. Most companies would rejoice at year-on-year growth rates in the mid-teens. But, when recent benchmarks have been much higher, 2008 has to be classified as a slow-growth year in southeast Asia.

	Chart 1

	Chart 2

Taiwan-listed ODMs (Acer, Qisda (BenQ), Compal, First Intl Computer, Inventec, Mitac & Quanta as a group) also had a sharp seasonal downturn this year ( Chart 3 ), and motherboard makers ( Chart 4 ) were hit even harder.

	Chart 3

	Chart 4

PCB manufactures ( Chart 5 ) also experienced a sharp sales decline, but TFT-display makers ( Chart 6 ) and passive component producers
( Chart 7 ) weathered the storm somewhat better.

	Chart 5

	Chart 6

	Chart 7

On the positive side Taiwan-listed wafer foundries reported a revenue upturn in both April and May ( Chart 8 ). Since these chip foundries have traditionally been a leading indicator to global semiconductor shipments, Chart 8 suggests that a modest worldwide chip shipment upturn may be imminent.

	Chart 8

Undaunted by both seasonality and global economic woes, Taiwan-listed makers of solar/photovoltaic panels ( Chart 9 ) grew 85% in May’08 versus May’07. Recently there have been many reports of key managers exiting the EMS and chip industries to join high growth solar/photovoltaic panel producers.

	Chart 9

Global Sales Growth of Semiconductors in 2008 cut from 7.7% to 4.3% ($266.6 Billion) Memory Price Erosion Slows Industry Growth ( Chart 10 and Chart 11)

	Chart 10

	Chart 11

The Semiconductor Industry Association reported that healthy demand from key end markets will keep worldwide semiconductor sales at record levels through 2011. Continued strong competition in memory chips - principally DRAMs - will result in slower growth in 2008. SIA lowered its forecast for 2008 semiconductor sales growth from 7.7% to 4.3% despite continued healthy demand from key end markets. Total semiconductor sales excluding memory products are forecasted to grow by 7.4% in 2008.

The SIA mid-year forecast projects that 2008 sales will reach $266.6 billion and grow to $324.1 billion in 2011. SIA projects a compound annual growth rate of 6.1% for the forecast period, 2008-2011. The revised forecast projects that sales will grow by 6.2% to reach $283.2 billion in 2009, by 8.4% in 2010 to $307 billion.

"Key end-markets that drive demand for semiconductors continue to be healthy," said SIA President George Scalise. "Sales of personal computers, the largest single market for semiconductors, continue to be strong, especially in emerging markets. Total unit sales of PCs are on pace to grow by 10% this year to around 300 million units. Cell phone unit shipments are expected to grow by about 12% to more than 1.3 billion units, with the largest growth coming from China, India, and other emerging markets."

SIA reported that unit sales of many other consumer products continue to be strong despite widespread concerns about consumer confidence and rising energy prices. Unit sales of flat-panel televisions are expected to grow by more than 29% and digital cameras are forecasted to grow by 11% this year.

Scalise cited continued price pressure in the memory sector as the principal reason for lowering the SIA sales forecast. "DRAM revenues declined by 34% even as unit shipments increased by more than 30% in the first four months of 2008 compared to the same period last year. A recent JPMorgan report projected a 65% increase in DRAM bit shipments in 2008. Memory products account for about 20% of total semiconductor sales," Scalise said.

Notebook Computer Shipments Up 35% in 1Q’08 versus 1Q’07 ( Chart 12 )

	Chart 12

DisplaySearch stated that 31 million notebook computer units were shipped in the first quarter of 2008, noting that the notebook PC market shrank 6% on quarter, but increased 35% on year during the period. HP remained in the lead for seven consecutive quarters with shipments about two million units over number two Dell in the first quarter of 2008.

HP's market share was over 20% for six consecutive quarters. Dell's market share grew to 15% due to the company's focus on its retail sales and business in China. However, Dell's lead over Acer is small, and with Acer's acquisitions of Gateway and Packard Bell, DisplaySearch expects to see the company to put a renewed effort on growing those brands.

There were also some significant shifts among the smaller brands, including Apple, which surged to number seven from eight in the first quarter after four consecutive quarters, while Asustek grew to number eight. Most of the other top ten brands have maintained their ranking over the past several quarters, with the exception of Sony, which was originally ranked sixth in the third quarter of 2007, then slid to seventh in the fourth quarter of that year and has recently dropped down to ninth in the first quarter of 2008.

Worldwide PC Shipments on Pace for 13% Growth in 2008 ( Chart 13 and Chart 14)

	Chart 13

	Chart 14

Worldwide PC shipments are on track to reach 297 million units in 2008, a 12.5% increase from 2007 shipments of 264 million units, according to Gartner, Inc. Gartner analysts have increased their outlook from their previous forecast due to the continued strength in mobile PC growth. In March, analysts had projected an increase of 10.9%.

“Mobile PC shipments exceeded our expectations in the first quarter of 2008,” said George Shiffler, research director at Gartner. “Mobile PCs continue to have strong momentum and the global economic environment is proving to be less punishing than we expected. Even so, it’s a bit premature to say PC shipments won’t be impacted by a weaker global economy, especially if oil and food prices continue to soar.”

“PC shipments should continue to maintain double-digit growth so long as emerging markets remain strong,” Mr. Shiffler said. “Emerging markets appear less imperiled by the economic slowdowns taking place in the United States and other mature markets than we once thought. However, rising oil and food prices are accelerating inflation in many emerging markets and this could begin to squeeze PC demand in those markets, especially if local policymakers respond by curbing GDP growth to cool inflation. Even so, it is unlikely that emerging market PC growth would slow so much that global PC growth would slip into the mid-single digits.”

Recent Electronic Component Market Comments and Forecasts

• Automotive semiconductors are expected to grow from $20 billion in 2007 to just over $30 billion in 2015. - Semicast
• Automotive sensor industry revenue will grow 19.4% YoY to $13.5 billion in 2008. - CCW Research
• Femtocell semiconductor market will grow from just under $72 million in 2008 to over $1.8 billion in 2013. - ABI Research
• Global combined OEM and aftermarket revenue for automotive infotainment systems will rise 7.9% YoY to $39.8 billion in 2008. - iSuppli
• Global semiconductor market growth rate is shrinking from 17-19% in 1990, 11-12% in 2001, to around 5% by 2020. - Gartner
• IC packaging houses are developing copper-wire bonding processes as a less-expensive substitute for gold.
• Notebook chips shipments are expected to exceed PC chips shipments for the first time, in late 2008 or early 2009. - In-Stat
• RFID to become a $9.7 billion industry by 2013 based on a 15% CAGR beginning in 2008. - ABI Research
• Semiconductor fab market to hit bottom in 4Q’08 and then grow over 12% YoY in 2009. - SEMI World Fab Forecast
• WiMAX semiconductor revenue worldwide will almost reach US$480 million in 2008. - IDC
• Wireless chip sales grew by 7.6% to $29.5 billion in 2007. - iSuppli
• Worldwide market for touch-screen modules is expected to grow from 341 million units (US$3.4 billion in value) in 2008 to 833 million units (US$6.4 billion) by 2013. - iSuppli
• Worldwide optoelectronics annual market is projected to grow from $15.9 billion in 2007 to $17.4 billion in 2008. - DataBeans
• Worldwide sales of probe cards will grow 3.4% YoY to $1.41 billion in 2008. - VLSI Research
• Worldwide silicon wafer area shipments were 2,163 million square inches in 1Q’08. - SEMI Silicon Manufacturers Group

EMS & PCB Markets:

Taiwan’s PCB makers plan to raise prices by between 5% and 15% in 3Q’08 to recoup added expenses from higher labor costs in China, rising gold and copper prices and tight capacity.

EMS market:

• EMS Industry grew at the annual rate of 17% in 2007, generating $268.1 billion in revenues. - IDC
• iSuppli trimmed its 2006 through 2013 growth forecast for global EMS revenue from 9.3% to 8%.
• Technology Forecasters revised its five-year forecast for the EMS industry downward to 11.2% and raised its ODM sector growth rate to 11.9%

Economic Statistics:

Purchasing Managers’ Indices:

• Euro-zone’s factories’ Purchasing Managers’ Indices fell to 50.7 in April, the lowest index since May 2005.
• USA’s ISM Manufacturing index increased from 48.6 in April to 49.6 in May.
• China’s PMI fell to 53.3 in May from 59.2 in April.

Tin prices reached a record high of $11.60/lb in mid-May 2008. Aluminum prices increased 21% globally since the end of December, copper climbed 26% and platinum rose 25%. Vietnam’s inflation rate reached a 10-year high of 25.2% in May 2008.