SE Asia: Very Strong First Half 2010 But What's Next

07.13.2010 // Posted by: Walt Custer // Posted in: Articles, Industry Conditions

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Despite the many recent warnings of softening demand in the second half of 2010, the most recent electronics data still show industry strength.

Taiwan/China had a strong June for electronic equipment production (Chart 1), driving our estimate of 2Q’10 world electronic equipment growth to over 30% compared to 2Q’09 (Chart 2).

Although news items (see below) about weaker demand and inventory buildups in SE Asia are common, data through June doesn’t show it.

Foxconn/Hon Hai's June sales of NT$197.4 billion (US$6.16 billion) were 54.2% higher than a year earlier and far surpassed the previous high of NT$169.3 billion set in late 2008. On a quarterly basis, Foxconn’s revenues grew 63% in 2Q’10 vs. 2Q’09 (Chart 3).

Strong Taiwan-listed Companies’ June Results

Taiwan-listed OEMs (most with manufacturing in China) reported robust June sales (Chart 4) as their composite quarterly revenues climbed 43.5% in 2Q’10/2Q’09 (Chart 5).

Motherboards were weak (Chart 6) but the other sectors did well.

Recently the SIA reported +50.9% growth in semiconductor shipments to SE Asia (April to May 2010 compared to the same months on 2009). This massive growth seems to be in excess of end market demand – but not by a huge amount. Based upon (Chart 7) SE Asian purchase growth of semiconductors is coming into balance with electronic equipment demand.

Taiwan wafer foundries (Chart 8) had a strong June. Since they act as a leading indicator for global semiconductor shipments (Chart 9), this suggests that world chip shipments will remain stable. Package & test (Chart 10) and memory (Chart 11) were strong while passive component sales slipped slightly (Chart 12).

Taiwan-listed solar/photovoltaic businesses continued their robust rebound (Chart 13). ODM companies (Chart 14) enjoyed a very good second quarter with their composite revenues up 59% in 2Q’10 vs. 2Q’09 (Chart 15).

Quarterly PCB growth was also decent although it softened in June vs. May (Chart 16). Copper-clad laminate producers however saw sales increases in June (Chart 17).

Global PCB Model

Although regional printed circuit growth has or will soon peak, it is still at very high levels (Chart 18). SE Asia drives total world printed circuit shipments (Chart 19) with Custer Consulting Group’s global PCB model now pointing to 29% world printed circuit growth in 2010 vs. 2009 (Chart 20).

Two Different Scenarios

Compare this robust 1H’10 industry data with the next two news items below suggesting caution for the second half of this year.

Chinese Manufacturers See Inventory Grow as Sentiment Weakens

Confidence among Chinese manufacturers declined for the second straight month in June, with stockpiles of unsold goods building up to exceed the key threshold, reported the China Federation of Logistics and Purchasing.

"The growth in both domestic and overseas demand is starting to lose steam," said an economist at China's Industrial Bank Co., explaining the reason for rising inventories.

Sluggish demand is attributed to a peaking of public works projects and concerns over Europe.

Source: The Nikkei

Component suppliers conservative about 3Q10 LCD panel market; expect flat to 2-3% growth

TFT-LCD panel component suppliers expect the global panel market to remain flat sequentially or increase just 2-3% in 3Q’10, compared to the 10% growth in past years, despite the optimistic outlook from most of the panel makers.

Some component suppliers are being conservative due to the higher-than-expected inventory levels in the end market in the wake of Europe's debt crisis.

Panel prices increased in 1Q’10 due to stronger-than-expected demand driven by low inventory in the channel. But inventories have piled up in the end market following the debt crisis in Europe, which weakened demand in the second quarter.

Source: DIGITIMES

Global PC Shipments to Enjoy 2-Digit Growth This Year

Global shipments of personal computers in 2010 are expected to recover to two-digit growth, according to Taiwan`s Market Intelligence & Consulting Institute (MIC).

Chris Wei, research manager at MIC, pointed out that the recovering global economy is upgrading the purchase willingness of both consumers and enterprises of PCs. Stable demand from North America, China and emerging markets is the major growth momentum to push the global PC market to see two-digit growth this year. The netbook segment, though expected to be affected by the Apple iPad and other-brand tablet PCs, is expected to still report an over-30% annual growth.

Source: MIC

Global handset shipments to grow to 1.327 billion units in 2010; Taiwan`s Shipment of Smartphones to Surge 65% to 76 million units in 2010

Taiwan`s overall shipment of smartphones is expected to grow 65% from last year to 76 million units, including iPhone made by Hon Hai, this year, according to MIC (Market Intelligence & Consulting Institute).

MIC projects global shipment of handsets at 1.327 billion units this year, up nearly 60% from last year, with smartphones to account for 219 million units, or 19.8%, of the total. In other words, Taiwan is expected to command a 34% share of the smartphone market in the year.

Source: MIC

Worldwide Semiconductor Revenues will increase at an 8.8% CAGR

International Data Corporation (IDC) expects global semiconductor revenue to reach $274 billion, $295 billion, and $344 billion in 2010, 2011, and 2014, respectively, with a compound annual growth rate (CAGR) of 8.8% over the 2009-2014 forecast period.

Strong double-digit PC semiconductor revenue growth in 2010 (greater than 35% year over year), primarily driven by mobile PC applications followed by strong growth in enterprise spending in 2011 and 2012, will help achieve a healthy CAGR of 12.2% (2009-2014) for the Computing Industry segment.

Double-digit semiconductor revenue growth in converged mobile devices (smartphones) is helping the Wireless Industry segment to achieve a record $59.3 billion this year. However, with average memory content in handsets stabilizing and continued pressure on pricing, high-single digit growth is expected to return in 2011 and 2012.

In the Industrial, Military and Aero, and Automotive Industry segments semiconductor revenues are expected to achieve year-over-year growth of more than 20% in 2010 and a strong five-year CAGR of 13.2%, driven by new markets such as alternative energy, LED lighting, and increased semiconductor content in automobiles.

Semiconductor revenue for the Consumer Industry segment is expected to have muted growth of 5.8% year over year in 2010 and even less in the coming five years. While revenues for the DTV and media tablet markets are expected to show strong growth, those for the other device application markets, such as PMP flash, are expected to post sharp declines.

Among semiconductor devices, revenues for the Memory sector (DRAM and Flash) will reach $66.7 billion in 2010 (greater than 52% year-over-year growth), propelled by increased demand for memory in mobile PCs, mini-notebooks (netbooks), media tablets, and smartphones. But, with technology transitions, increased price pressures, and more supply coming online, revenues for the memory market are expected to be flat or slightly decrease in 2011 and 2012.

Regionally, Asia/Pacific continues to grow its share of semiconductor revenues, reaching over 45% in 2014.

Worldwide semiconductor revenues decreased 9% year over year in 2009. Order rates are now normalizing after very exuberant rates in the fourth quarter of 2009 and the first quarter of 2010. The industry has underestimated the amount of restructuring that occurred during the start of the recession and the impact to the supply chain, which is the key reason why supply was being outstripped by demand and inventory levels up to now. Moving forward demand will have to be the catalyst that sustains this current cycle. IDC expects a seasonal solid period of demand for the second half of 2010.

"Overall, we believe that the semiconductor market recovery seen this is year is similar to the one in 2004. The 2010 growth rate based on the bottoms-up model used in the Semiconductor Application Forecaster is consistent with our top-down linear-regression model that factors in seasonality in semiconductor orders and with our scenario analysis model," said Mali Venkatesan, research manager, Semiconductors at IDC, who led the study and compiled the SAF data.

"However, global economic recovery that started in the second half of 2009 is in danger of slowing down due to macroeconomic problems such as the Euro crisis, continued high unemployment in the U.S., with the associated low consumer sentiment, and the fear of an asset bubble in the BRIC countries. In such a scenario, the expected growth in the second half of 2010 may be pushed into early 2011. Nevertheless, we believe device applications such as smartphones, mobile PCs, media tablets, and automotive will show strong secular growth both in 2010 and 2011," added Venkatesan.

Source: IDC

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