MarketEye: "Less Worse" with Signs of Hope

06.02.2009 // Posted by: Walt Custer // Posted in: Articles, Industry Conditions

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.

Business Cycle “Bottom” is behind us . . . Barely

Although historical data remain bleak there are many signs that the worst of this recession is now behind us.

The 3/12 growth rates of global printed circuit boards, semiconductors and electronic equipment shipments are all either approaching or have just passed their low points in their business cycles (Chart 1). Annualized growth won’t resume until these 3/12 growth rates reach 1.0 but sequentially we are seeing month-to-month improvements in many sectors.

Gartner Slightly More Optimistic on 2009 Chip Demand

Gartner Dataquest recently tempered the magnitude of is forecasted 2009 semiconductor downturn (Chart 2) and although SIA chip shipment results are still bleak they are better than they were a few months ago. Both N America and SE Asia are now experiencing less severe semiconductor shipment declines but Japan and Europe are still struggling (Chart 3). Globally the semiconductor business cycle has bottomed (Chart 4) globally as all regions appear to have reached or passed the lower turning point in 3/12 growth (Chart 5).

SEMI Equipment Outlook – Encouraging Comments from Novellus CEO (Chart 6 & Chart 7)

Novellus Systems CEO Richard Hill said he believes the semiconductor equipment market is finally improving. "We believe the worst is behind us."

Hill noted that some markets were "marginally better" but cautioned against hope for a rapid return to strong demand for SEMI equipment. "We're not going to go back to the robust economic situation we were in a year and a half or two years ago."

“Final” Results - 1Q’09 World Electronic Food Chain Performance

With now almost complete 1Q’09 financial data available, we can publish a “final” estimate of first quarter global OEM “growth” – down 13% vs. 1Q’08 (Chart 8) and also 1Q’09 “electronic food chain” performance (Chart 9) – down for everything except military electronics. Hopefully these will be the worst quarterly numbers we see for this current recession.

U.S. End Markets – Rather Flat

Order and shipment growth improved slightly for U.S. electronic equipment (Chart 10) in April. Thanks to its more resilient (but of course lower volume) end markets; the USA has avoided the severe downturn felt in SE Asia. Domestic electronic equipment bookings and shipments have been relatively flat for the last five years (Chart 11).

Japan – Modest Improvement in March

After a huge plunge beginning in December, Japanese printed circuit shipments “turned the corner” in March (Chart 12). However they have a long way to go to return to 2008 levels. End market demand (Chart 13) remains weak in Japan.

Europe – Sector Data a Bit Cryptic

The Eurostat website promises monthly production, sales and order indices (2005=100) for many products – given by each country and in aggregate. However data sets are incomplete, the website layout changes often. A real effort is needed to retrieve useful information. (Chart 14) gives annualized (12/12) and 3-month (3/12) growth for the EEC 27 countries for a number of electronics related products. The positive 3/12 growth (+4.5%) of “Loaded Electronic Boards” is a bit of a mystery.

North American PCB Demand Remains Soft (Chart 15, Chart 16, & Chart 17)

Despite an April 2009 1-month book/bill ratio of 1.13 for rigid PCBs, printed circuit demand remains weak in North America.

European Semiconductor Distribution (DMASS) - Steep Decline in 1Q’09 (Chart 18 & Chart 19)

Per a May 29 DMASS press release:

The steepest decline of semiconductor distribution revenue since the Internet bubble burst in 2001/2002 with no region or technology spared defined the first quarter of 2009. Q1/2009 ended with consolidated sales of DMASS members through distribution of 992 Million €, the lowest quarterly result since Q4/2003. Compared to Q1/2008 this represents a decline of 26.3%. Georg Steinberger, Chairman of DMASS, commented: “Customers in the European market reacted almost digitally to their own market downturns, ‘slamming on the brakes with both feet’ in ordering new products. While this kind of reaction might be understandable from a purely commercial viewpoint, the cumulative effect of capacity and inventory reduction at manufacturers and record lows of inventory levels in distribution could lead to a reversal of fortune and severe availability problems once the market returns.”

All regions were affected almost equally. Instead of winners, the market had from a regional perspective at best some “luckier losers”: Of the bigger countries only France declined less than 20% (-17.3%) to 91 Million € compared to Q1/2008, though due to acquisitions an accurate historical comparison cannot be made. The UK declined by 24.6% to 86 Million €, Germany 27.2% to 329 Million €. The biggest hit was dealt to the Italian market with a decline of 34.3% to 116 Million €. The Eastern European economies ran into over-proportional trouble with a decline of 29% to 93 Million €, falling in total size behind Nordic (94 Million €), which only declined by 23.4%.

Georg Steinberger: “It does not look as if any market really will be spared in 2009. Even Eastern Europe, for many years one of the constant growth drivers within DMASS, lost its edge, with Russia and Czech Republic being the downturn leaders beyond the minus 40-percent-mark. Just as a somewhat positive side-note, Norway only declined by 4.9% and Poland by 13.1%.”Product-wise, all major product groups went down in Q1/2009 compared to Q1/2008. Only Memories, Other Logic and Programmable Logic came in with less than 20% decline while Analog and MOS Micro Logic, by far the biggest product groups, declined by 25.2% and 29.4% respectively to 275 Million € and 221 Million € respectively. Among the biggest losers were Standard Logic (-34.8%) and Discretes (-31.8%). The only products that declined “only” single digit were LEDs, Flash Memories and DSP, none of which represents any specific positive trend.

Georg Steinberger: “Looking at the products there is not a single area without negative news. Even with the above mentioned ‘winners’ LEDs, Flash and DSPs you can’t be sure if the next quarter won’t show the opposite. I still believe that the fundamentals of the European electronics industry, which is highly specialized and export-oriented, are still right and that Europe will be back on track soon.”

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