Taiwan-listed electronics companies, many of which manufacture in China, reported a strong, albeit seasonal, pickup in sales in September:
- OEM revenues rose 11.8% in September 2014 versus September 2013 and 27.1% sequentially from August 2014 (Chart 1).
- ODM companies (Charts 2 & 3) and motherboard manufacturers (Chart 4) also reported sharp September increases.
- Wafer foundries (Chart 5), Package & Test (Chart 6) and passive component (Chart 7) suppliers’ revenues increased significantly.
- Display (Chart 8), Memory (Chart 9) and solar/photovoltaic (Chart 10) firms also increased sales in September but at a more sequential modest pace.
- Printed circuit board sales were seasonally strong (Chart 11) and CCL (laminate) shipments mirrored PCB sales (Chart 12).
Custer Comments: Historically September has been the peak month for Asian electronic component sales. OEM shipments normally peak in October. Sales then begin to slide beginning in November with continued weakness through the winter months.
August Eurostat electronic supply chain data have just been released:
- Electronic equipment sales declined sequentially from July (Chart 13) but are up relative to 2013 based upon both 3-month (3/12) and annualized (12/12) growth (Chart 14).
- Auto sales plummeted (Chart 15) reportedly due to weaker consumer demand in a deteriorating economy.
- Aerospace revenues continue to slide (Chart 16).
- Test & measurement equipment revenues weakened slightly but remained on a relatively positive trajectory (Chart 17).
- Medical electronics shipments remained highly volatile (Chart 18).
- Electronic assembly activity improved (Chart 19) but wiring (PCB) sales declined (Chart 20).
- The European PMI leading indicator points to continued deterioration in PCB sales (Chart 21).
Chart 22 summarizes the growth of the European electronics supply chain on both an annualized (12/12) and 3-month vs same months in 2013 (3/12) basis. A value of 100=no growth.
Worldwide Semiconductor Capital Spending up 11.4% y/y to $64.5 billion in 2014 (Chart 23)
Memory Manufacturers Enjoy Strong Pricing Environment, Setting Stage for Renewed Spending Growth
Worldwide semiconductor capital spending is projected to total $64.5 billion in 2014, up 11.4% from 2013’s spending of $57.8 billion, according to Gartner, Inc. Capital equipment spending will increase 17.1% in 2014, driven by strong memory average selling prices and increased demand for consumer products.
For 2014, Gartner's forecast for semiconductor equipment has been increased slightly from the previous forecast. Longer term, Gartner expects modest growth through the semiconductor cycle, with just a modest pause in the equipment market expected in 2016.
"While capital spending outperformed equipment spending in 2013, the reverse will hold true for 2014," said David Christensen, senior research analyst at Gartner. "Total capital spending will grow 11.4% in 2014, compared with 7.1% in our prior forecast — a result of Samsung increasing its announced spending plans to $14 billion. Equipment spending will increase 17.1%, as manufacturers pull back on new fab construction and concentrate on ramping up new capacity instead."
In recent years, the equipment industry has realized significant consolidation, as major vendors have acquired complementary and competitive companies. As equipment advancements will lead to higher development costs, the trend of industry consolidation should be expected to continue.
Top Defense Electronics Companies in Next Decade (Chart 24)
Eleven U.S. prime defense contractors will dominate the defense electronics market over the next decade, with the top three – Lockheed Martin, Raytheon and Northrop Grumman expected to take the majority share of military electronics contracts through 2023. The total value of defense electronics contracts through 2023 is expected to be $373 billion.
Teal Group, Fairfax, Va. said the top U.S. defense electronics prime contractors over the next 10 years, in order of the anticipated value of their contracts over the period, are:
- Lockheed Martin Corp. in Bethesda, MD
- Raytheon Co. in Waltham, MA
- Northrop Grumman Corp. in Falls Church, VA
- BAE Systems in London
- General Dynamics Corp. in Falls Church, VA
- L-3 Communications in New York, NY
- Exelis Inc. in McLean, VA
- Boeing Co. in Chicago, IL
- DRS Technologies Inc. in Arlington, VA
- Telephonics Corp. in Farmingdale, NY
- FLIR Systems Inc. in Wilsonville, OR
Worldwide PC Shipments declined 0.5% to 79.4 million units in 3Q’14 (Charts 25-27)
PC Growth in Mature Markets Was Offset by a Decline in Emerging Markets
Worldwide PC shipments reached 79.4 million units in the third quarter of 2014, a 0.5% decline from the third quarter of last year, according to preliminary results by Gartner, Inc. “Growth in the mature markets was offset by a decline in shipments in emerging markets, similar to what was seen in the second quarter of 2014,” said Mikako Kitagawa, principal analyst at Gartner. “Positive results in Western Europe and North America can be a sign of gradual recovery for the PC industry.”
“Consumers’ attention is slowly going back to PC purchases as tablet adoption peaked with mainstream consumers. The transition from PCs to tablets has faded as tablet penetration has reached the 40-50% range. In contrast, weakness in the emerging market reflects the saturation in selected consumer segments where they can afford PCs. In the meantime, consumers who don’t have PCs will likely buy low priced tablets. This is a one of the major reasons for the slow growth in PC shipments in the emerging market.”
Global notebook shipments increased 6.4% q/q and 2.6% y/y to 45.198 million units in 3Q’14 (Chart 28)
3Q’14 global notebook shipments are estimated at 45.2 million units (not including 2-in-1 models), increasing 6.4% sequentially and 2.6% on year, according to Digitimes Research.
HP accounted for 21% of the global shipments, followed by Lenovo (20.9%), Dell (12.5%), Acer (9.7%), Apple (8.5%), Asustek Computer (8.3%) and Toshiba (6.2%), Digitimes Research indicated.
Taiwan-based ODMs shipped 36.958 notebooks in the quarter, accounting for 81.77% of global shipments with their shipments growing 6.1% sequentially but slipping 2.9% on year.
Quanta Computer was the largest ODM accounting for 34.6% of the shipments, Compal Electronics 32.2%, Wistron 15.7%, Inventec 6.7% and Pegatron 5.7%.
Worldwide Tablet to Increase 11% y/y to 229 million units in 2014, representing 9.5% of Global Device Sales in 2014 (Charts 29 & 30)
- Sales of Tablets will Represent Less than 10% of all Devices in 2014
- Smartphones to Represent 71% of the Global Mobile Phone Market in 2014
- Android Device Shipments to Reach One Billion in Emerging Markets in 2015
Tablet sales growth is slowing in 2014 as new hardware buyers turn to alternative devices and existing users extend the lifetime of their tablets. Gartner, Inc. estimates that tablet sales worldwide will reach 229 million units in 2014, an 11% increase from 2013, representing 9.5% of total worldwide sales of devices in 2014. In 2013, tablet sales grew 55%.
Worldwide combined shipments of devices (PCs, tablets, ultramobiles and mobile phones) for 2014 are estimated to reach 2.4 billion units in 2014, a 3.2% increase from 2013. "The device market continues to evolve, with the relationship between traditional PCs, different form factor ultramobiles (clamshells, hybrids and tablets) and mobile phones becoming increasingly complex," said Ranjit Atwal, research director at Gartner.
In the tablets segment, the downward trend stems from the slowdown in basic ultramobiles — new sales of iPads and Android tablets — and the lifetime extension of current tablets to three years by 2018. Gartner projects over 90 million fewer new tablet purchasers and 155 million fewer tablet replacements through 2018.
"Some tablet users are not replacing a tablet with a tablet, they are favoring hybrid or two-in-one devices, increasing its share of the ultramobile premium market to 22% in 2014, and 32% by 2018," said Atwal.
The mobile phone segment will continue to grow in 2014 due to strong sales of lower-end smartphones. Sales of basic smartphones (including midrange Android devices) are projected to grow 52% in 2014, while utility smartphone units (including low-end Chinese white box devices) will double.
"The market is clearly favoring those vendors offering value in lower-priced smartphones. This trend has become more apparent, especially in the second quarter of 2014 when most of the top Chinese smartphone vendors grew volume and market share," said Roberta Cozza, research director at Gartner.
“As smartphones reach lower prices, Gartner expects nine out of 10 phones to be smartphones by 2018.” The expansion of affordable mobile phones that are attracting replacements in many emerging countries has contributed to the increase in the global market share of smartphones, which is set to reach 71% in 2014, up 17 percentage points from 2013. Android and iOS have further entrenched their market positions in the global phone market, making it difficult for alternative ecosystems to become more than niche players. In the operating system (OS) market, the emerging markets represent an attractive sector for Android which is set to grow 47% in 2014. In 2015, Gartner estimates that shipments of Android devices will reach over one billion in emerging markets, driven by sales of lower-cost products.
Apple's new devices, which target the premium market, will continue to help drive iOS volumes. These devices will benefit from a controlled and integrated ecosystem, a focus on the user experience and a leading enterprise tablet position.
U.S. Industrial Production up 1% in September after 0.2% decline in August (Charts 31 & 32)
The Federal Reserve reported that industrial production rebounded in September.