U.S. Electronics Demand Improves, European Component Shipments Increase, Global Semiconductor Shipments to Grow 20% in 2010, World Server & Mobile Phone Market Update, Top DEMI Equipment Spenders, Japanese Chip Gear Shipments & 4Q'09 U.S. GDP Growth

03.01.2010 // Posted by: Walt Custer // Posted in: Articles, Industry Conditions

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U.S. Electronic Equipment Demand Improves in January

Based on last week’s U.S. Durable Goods report domestic electronics end market demand rose modestly in January. Electronic equipment order and shipment 3/12 (3-month) growth rates were in positive territory (Chart 1) as both January orders and shipments rose (Chart 2) and the ratio of electronic equipment inventories to orders eased further (Chart 3).

U.S. defense capital goods orders increased (Chart 4) as their 3-month average book/bill ratio turned upward (Chart 5). Communication (Chart 6) and computer (Chart 7) equipment demand improved as did U.S. produced semiconductor shipments (Chart 8).

European Semiconductor Distribution (DMASS) expects growth to return in 2010 (Chart 9) & (Chart 10)

EMEA semiconductor distribution sales drop “only” 10.7% in Q4/2009. Record bookings nourish hope of excellent 2010. Worrying lead-time situation remains.

With a total decline of 24%, 2009 proved to be one of the worst years of European semiconductor distribution since the1980s. Although the sales drop narrowed over the second half of the year, by a quarterly comparison the distribution market in Europe lost 40% of its value since record Q1/2007. In Q4/2009, the decline narrowed to 10.7% over Q4/2008 and the quarter ended with 960 Million Euro of combined sales, according to DMASS (Distributors’ and Manufacturers’ Association of Semiconductor Specialists).

Georg Steinberger, Chairman of DMASS, commented: “The worst effects of the crisis seem to be over, for the moment, and our industry returns to its normal cyclical behavior, from buying freeze directly to allocation. The current booking situation suggests a healthy growth for at least the first half of 2010. And it seems that the current market swing is not entirely driven by inventory correction. Combined with the fact that we are comparing against a very bad year, by all standards, 2010 is set for double-digit growth.”

From a regional comparison perspective, the growth rates in Q4 reached from +0.4% (Iberia) to -17.7% (UK and Rest of Europe) compared to Q4/2009. Germany as the biggest market declined by 9.6% to 314 Million Euro, Italy by 11.2% to 104 Million, France by 15.8% to 78 Million Euro and UK declined 17.7% to 83 Million Euro. Eastern Europe (total) ended at 111 Million Euro (-6.1%) and the Nordic region (Norway, Sweden, Finland and Denmark) at 87 Million Euro (-11.5%). Benelux, Iberia, Poland and Czech Republic even finished positively over Q4/2008.

Georg Steinberger: “A quarterly view does not really reflect the overall situation of one specific country. Over the entire year all regions and countries suffered almost likewise, regardless of the electronics industry structure there. The only country with a less than 10% decline over the year was Poland, but with its heavy dependence on contract manufacturing this could change in a heartbeat, even during a year of recovery.”

The only major product group that suffered less than 20% decline over the entire 2009 was Memories. While Analog, Opto and Programmable Logic all ended up slightly below the average decline for the entire year, Power, MOS Micro and Other Logic landed around the -28% mark. Flash memories (-1.7%), LEDs (-11.6%), DSPs (-15.8%) and RF Discrete (-18.7%) were the products with the least decline over 2009 while DRAM managed 1.5% growth. Georg Steinberger: “The past product development does not really tell us anything of an industry trend, apart from the fact that EPROMs seem to become a dying technology altogether. The current booking hype goes across all segments and technologies, from commodities to 32-Bit MCUs.”

Chinese Factory Wages Increasing

Manufacturers in China’s coastal areas are scrambling for workers, pushing up the average wage by an estimated 10-20% from last year’s level.

The personnel shortage is largely the result of government stimulus spending, which has increased employment in inland areas for would-be migrant workers.

Near Shenzen where many furniture factories are located, some employers are now offering 2,000 yuan per month, more than double the legal minimum wage of 900 yuan (about 12,000 yen).

Quanta Computer is having problems with parts procurement because of supplier labor shortages, said a company official.

Last year amid the global economic downturn, China began investing heavily in infrastructure projects in inland areas, creating many construction and other jobs in the process. The government also plans to pump money into such areas this year, which means the worker shortage on the coast may continue.

With electricity and water prices also expected to rise, there are cost pressures on all sides.

Source: Nikkei

Wafer Foundries Concerned about Double Ordering

As lead times at the foundry sector have stretched since early 2010, customers’ double ordering has raised concerns among foundry chipmakers that fear that demand may slow down in the third and fourth quarters, according to industry sources.

Foundries have seen demand from IC designers and IDMs picking up quickly following last year’s market downturn. But experience tells the foundries that an exceptional boom in demand - demonstrated by their own tight capacities and clients’ double ordering - will usually be followed by a slowdown, the sources said.

The sources noted that the market outlook is still unclear, and Taiwan-based IC designers’ current order visibility has not extended as much as expected.

Source: Digitimes

Tight passive component supply expected to ease in 2H’10

Taiwan-based passive component suppliers are expected to see their new capacity come on line by the third quarter of 2010, according to industry sources. They are gearing up for capacity expansions, with equipment move-in scheduled for the second quarter.

Supply of chip resistors, inductors and aluminum capacitors has been tight due to a demand pickup, and is also being affected by labor shortages in parts of China, the sources said.

Source: Digitimes

Worldwide Semiconductor Revenue to Grow 20% in 2010 (Chart 11)

Gartner says Worldwide Semiconductor Revenue to Grow 20% in 2010 Rising DRAM Prices Coupled with Strong PC Demand Will Result to Over 55% DRAM Revenue Growth This Year.

Worldwide semiconductor revenue in 2010 is forecast to reach $276 billion in 2010, a 19.9% increase from 2009 revenue of $231 billion, according to the latest outlook by Gartner, Inc.

“We have seen clear evidence that the semiconductor industry is poised for strong growth in 2010,” said Bryan Lewis, research vice president at Gartner. “While the semiconductor market declined 9.6% in 2009, sequential quarterly revenue growth was amazingly strong through the last three quarters of 2009. After the gloom early in the year, PC unit production growth actually turned out to be positive in 2009 and is expected to grow close to 20% in 2010, fueling strength in semiconductors.

Given the sales momentum and earlier cutbacks in capital spending, semiconductor foundry and packaging utilization rates are approaching constraints and most regions and most applications are seeing increased orders. The key question now is will the recovery continue at its current rate or will we see a correction?”

China Conducts Yuan Rise “stress tests”

China is conducting “stress tests” in its labor-intensive export sectors to see how much yuan appreciation firms can withstand.

The results of the test, conducted jointly by the Ministry of Commerce and the Ministry of Industry and Information Technology, would serve as a reference for the government’s future yuan policy.

According to the initial results of the tests, which focused on textile, garment, shoe and toy exporters, every percentage point of yuan appreciation would erode one percentage point of their profit margin. This would be a serious blow to profitability since their net profit margin is often only 3 to 5%.

Source: Reuters

Worldwide server shipments grew 4.5% y/y in 4Q09, while revenue fell 3.2% (Chart 12), (Chart 13), (Chart 14), & (Chart 15)

In the fourth quarter of 2009, worldwide server shipments grew 4.5% year over year, while revenue fell 3.2%, according to Gartner, Inc.

“The recovery that began in the third quarter of 2009 based on x86 servers extended into the fourth quarter,” said Jeffrey Hewitt, research vice president at Gartner. “However, it is important to put this into context. The fourth quarter of 2008 was quite weak, so the fourth quarter of 2009 did not have to produce huge x86 server numbers to result in an increase. At the same time, other segments like RISC/Itanium Unix and mainframes remained constrained and that exerted downward pressure on overall vendor revenue results.”

“Blade servers pushed ahead with growth of 11.1% in shipments and 22.1% in vendor revenue for the period. RISC/Itanium Unix servers, on the other hand, dropped 30.5% in shipments and fell 20% in revenue in the fourth quarter,” Mr. Hewitt said.

Worldwide Mobile Phone Sales to End Users Grew 8% in 4Q’09 (Chart 16) & (Chart 17)

Worldwide mobile phone sales to end users totaled 1.211 billion units in 2009, a 0.9% decline from 2008, according to Gartner, Inc. In the fourth quarter of 2009, the market registered a single-digit growth as mobile phone sales to end users surpassed 340 million units, an 8.3% increase from the fourth quarter of 2008.

“The mobile devices market finished on a very positive note, driven by growth in smartphones and low-end devices,” said Carolina Milanesi, research director at Gartner. ”Smartphone sales to end users continued their strong growth in the fourth quarter of 2009, totaling 53.8 million units, up 41.1% from the same period in 2008. In 2009, smartphone sales reached 172.4 million units, a 23.8% increase from 2008. In 2009, smartphone-focused vendors like Apple and Research In Motion (RIM) successfully captured market share from other larger device producers, controlling 14.4 and 19.9% of the worldwide smartphone market, respectively.”

Throughout 2009, intense price competition put pressure on average selling prices (ASPs). The major handset producers had to respond more aggressively in markets such as China and India to compete with white-box producers, while in mature markets they competed hard with each other for market share. Gartner expects the better economic environment and the changing mix of sales to stabilize ASPs in 2010.

Top-10 Semiconductor Equipment Spenders (Chart 18)

The top-10 semiconductor industry capital spenders are forecast to represent two-thirds of the total outlay in 2010, according to IC Insights. The 66% share for the year would be 11pp higher than the 55% share the top-10 held in 2005.

Japan Chip Gear 3-Month Average Book/Bill Ratio 1.36 in January 2010 (Chart 19)

Note: Chart 19 displays 1-month not 3-month average values

Japan-based semiconductor equipment manufacturers posted a book-to-bill ratio of 1.36 in January 2010 compared to 1.3 in the prior month and 0.55 a year earlier, according to Semiconductor Equipment Association of Japan (SEAJ). A book-to-bill ratio of 1.36 means 136 yen worth of orders was received for every 100 yen of product billed for the month.

The three-month average of worldwide bookings in January was 85.06 billion yen (US$933 million), up 9.9% from December and 237.4% higher than the 25.21 billion yen in orders posted in January 2009.

The month’s billings reached 62.485 billion yen, representing growth of 4.9% compared to the revised level of 59.56 billion yen in December 2009 and 36.4% from 45.8 billion yen posted in January 2009.

Source: SEAJ

U.S. 4Q’09 GDP Revised Higher (Chart 20)

The U.S. gross domestic product rose at a 5.9% annual rate in 4Q’09, the highest growth since the third quarter of 2003.

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