World Electronic Supply Chain 4Q’15 Growth by Sector
We have completed our preliminary estimate of 4Q’15 growth by sector of the global electronic supply chain. Chart 1 summarizes our findings (which are quite depressing)!
- These growth rates are calculated at fluctuating exchange rates. Multinational company financial reports are reported at fluctuating (not fixed exchange).
- Global electronic equipment sales are estimated to have declined 7% in 4Q'15 versus 4Q'14 when calculated at fluctuating exchange (due to the conversion of weaker currencies to stronger US dollars). 4-5% of this 7% decline is due to exchange rates fluctuations. Chart 2 details this exchange rate effect based on regional data.
- Chart 3 shows the aggregate financials of the 175 OEM companies in our survey. The 4Q’15 decline (converted to US dollars) is obvious.
- Quarterly world electronic equipment fluctuating exchange revenue growth rates are given from 2001 to 2015 in Chart 4 and Chart 5 provides annualized (12/12) and 3-month (3/12) growth over this period. The trajectory is still downward.
- Chart 5 details quarterly electronic equipment revenues by sector from 2000 to 2015.
- The ratio of inventories/sales for four groups (OEMs, semiconductor makers, EMS companies and component distributors) are given in Chart 6.
- Custer Consulting Group aggregates each sector of the supply chain including electronic equipment by type, components, EMS and ODM companies, materials and process equipment to generate Chart 1 and produce charts similar to Chart 3 for each sector.
These charts are still a very preliminary as not all companies in our global sector composites have reported their CY 4Q'15 financial results. To create these preliminary sector composites “unreported” companies’ 4Q’15 results were estimated based on the performance of their peers. We will update these growth estimates on an ongoing basis through February. It should be noted that our past early estimates have been within 1% of the final values for total electronic equipment growth but have fluctuated more by sector.
Source: Company financial reports with Custer Consulting Group analysis
December U.S. Electronic Supply Chain Shipments, Orders and Inventories
The U.S. Department of Commerce just released its December “Factory Orders” report detailing monthly shipments, orders and inventories of key sectors of the domestic electronic supply chain. The Factory Orders report is a more detailed version of the Durable Goods report released about a week earlier.
- Electronic equipment orders declined sequentially from November to December and have been generally flat though 2015 (Chart 8).
- Vehicle shipments declined in December (Chart 9) and non-defense aircraft sales plunged (Chart 10).
- Military electronics orders rebounded (Chart 11).
- Electromedical, measurement and control equipment orders and shipments declined sequentially from November but have been on a long term upturn since the “financial crisis” of 2008 (Chart 12).
- Passive component orders continue to rise (Chart 13). Their 3/12 growth rate was +33.9% in December while semiconductor shipments to North America were down 14.6%. Very strange!
- Chart 15 shows the annualized (12/12) and 3-month (3/12) growth of the domestic supply chain in December and Chart 16 gives 4Q’15 versus 4Q’14 growth by sector.
Global Semiconductor Sales Top $335 Billion in 2015 (Charts 17-19)
Worldwide sales roughly flat compared to 2014; December sales decrease 4.4% compared to previous month
The Semiconductor Industry Association (SIA) announced the global semiconductor industry posted sales totaling $335.2 billion in 2015, a slight decrease of 0.2% compared to the 2014 total, which was the industry’s highest-ever sales total. Global sales for the month of December 2015 reached $27.6 billion, down 4.4% compared to the previous month and 5.2% lower than sales from December 2014. Fourth quarter sales of $82.9 billion were 5.2% lower than the total of $87.4 billion from the fourth quarter of 2014. All monthly sales numbers are compiled by the World Semiconductor Trade Statistics (WSTS) organization and represent a three-month moving average.
“Despite formidable headwinds, the global semiconductor industry posted solid sales in 2015, although falling just short of the record total from 2014,” said John Neuffer, president and CEO, Semiconductor Industry Association. “Factors that limited more robust sales in 2015 include softening demand, the strength of the dollar, and normal market trends and cyclicality. In spite of these challenges, modest market growth is projected for 2016.”
Several semiconductor product segments stood out in 2015. Logic was the largest semiconductor category by sales with $90.8 billion in 2015, or 27% of the total semiconductor market. Memory ($77.2 billion) and micro-ICs ($61.3 billion) – a category that includes microprocessors – rounded out the top three segments in terms of total sales. Optoelectronics was the fastest growing segment, increasing 11.3% in 2015. Other product segments that posted increased sales in 2015 include sensors and actuators, which reached $8.8 billion in sales for a 3.7% annual increase, NAND flash memory ($28.8 billion/2.2% increase), and analog ($45.2 billion/1.9% increase).
“The semiconductor industry is critically important to the U.S. economy and our global competitiveness,” continued Neuffer. “We urge Congress to enact polices in 2016 that promote innovation and growth. One such initiative is the Trans-Pacific Partnership (TPP), a landmark agreement that would tear down myriad barriers to trade with countries in the Asia-Pacific. The TPP is good for the semiconductor industry, the tech sector, the American economy, and the global economy. Congress should approve it.”
Taiwan Semiconductor Firms Expected to Start Restocking Inventories
Companies in Taiwan's semiconductor industry supply chain are expected to start restocking their inventories at the end of the first quarter or in early second-quarter 2016, leading to a rebound for the industry, according to industry sources.
IC backend service company Siliconware Precision Industries (SPIL) is expected to receive the first batch of short lead-time orders at the end of the first quarter at the earliest, according to company chairman Bough Lin.
Wafer foundry house Vanguard International Semiconductor (VIS) has said that it expects revenues to expand 12% sequentially in the first quarter of 2016, resulting from replenishment of inventories by clients.
Meanwhile, Taiwan Semiconductor Manufacturing Company (TSMC) has also forecast that it expects revenues to grow 5-10% in 2016, with the global smartphone sector to continue to provide growth momentum.
Other sources indicated that the current wave of inventory adjustment started at the end of the second quarter of 2015, and most companies should have already clear out their inventories.
Eurozone 2016 Growth Forecast cut to 1.7% by European Commission
The European Commission cut its growth prediction for the 19-country bloc in 2016 to 1.7% from the 1.8% that it had forecast in November. That figure would still mark a moderate increase from the figure of 1.6% in 2015.
The Commission said government spending had been unexpectedly high because of the number of migrants arriving in Europe, which had boosted GDP.
But it warned that the crisis posed "major political challenges" that could undercut growth if not properly handled.
And Vice President Valdis Dombrovskis said: "Europe's moderate growth is facing increasing headwinds, from slower growth in emerging markets such as China, to weak global trade and geopolitical tensions in Europe's neighborhood."
"It is important to continue structural reforms that can help our economies grow, withstand shocks in the future and improve job opportunities for our population."
Worldwide Wearable Devices Sales to Grow 18.4% in 2016 (Chart 20)
Sales of Smartwatches to Total 50.4 Million Units in 2016
Gartner forecasts that 274.6 million wearable electronic devices will be sold worldwide in 2016, an increase of 18.4% from 232.0 million units in 2015. Sales of wearable electronic devices will generate revenue of $28.7 billion in 2016. Of that, $11.5 billion will be from smartwatches.
"From 2015 through 2017, smartwatch adoption will have 48% growth largely due to Apple popularizing wearables as a lifestyle trend. Smartwatches have the greatest revenue potential among all wearables through 2019, reaching $17.5 billion," said Angela McIntyre, research director at Gartner. "Though the sales of smartwatches are the one of the strongest types of wearables, their adoption will remain much below sales of smartphones. For example, in 2016 more than 374 million smartphones will sell in mature market countries and in large urban areas of emerging market countries, for example, in Hong Kong and Singapore."
Fitness wearables — which include wristbands, smart garments, chest straps, sports watches and other fitness monitors — continue to increase in popularity, driven in some part by U.S. wellness programs.
"Of all the fitness wearables, sports watches will be the one product category to maintain its average retail price over the next several years," said McIntyre. "Race runners, cyclists and divers will choose sports watches over smartwatches because the user interface, capabilities and durability are tailored to the needs of an athlete in their sport. Continued advances in sensors and analytics for sports watches will bring new capabilities that bolster average retail prices."
Although the size of the worldwide wristband market was on par with the unit sales of smartwatches in 2015, looking forward smartwatches will have stronger appeal with consumers as they typically have more multifunctional devices that can track exercise. Wristband providers are experimenting with how to compete with smartwatches and take market share from the market leader, Fitbit. Examples of emerging value propositions for wristbands beyond fitness include mobile payments, access, safety, wellness and health.
Head-mounted displays (HMDs) are an emerging market with origins as expensive military projects, and in 2016 the HMD market will progress toward mainstream adoption for consumers and enterprise use. "New virtual reality HMDs for consumers, such as the HTC Vive, Oculus Rift, Sony PlayStation VR, and Microsoft HoloLens are expected to be available along with video games and entertainment content as well as business applications critical for their success," said Brian Blau, research director at Gartner. "Film producers and sports leagues will augment their traditional content through HMDs to enhance their customer experiences by creating interactive attractions, movies, and sporting events that make the content more personal and meaningful."
Enterprise use of HMDs will also grow in the coming years with 26% of HMDs designed for business use in 2018. HMDs will be purchased by businesses for use by employees for tasks such as equipment repair, inspections and maintenance. Workers also will use HMDs for viewing instructions and directions hands free while they are performing a task.
Notebook Vendors Facing High Channel Inventory in 1Q’16
Notebook brand vendors are facing high channel inventories for the first quarter of 2016 as they placed increased orders to restock in the fourth quarter of 2015, but demand from the year-end holidays was not strong enough to digest volumes to a safe level.
With competition remaining fierce, many brand vendors are expected to see decreasing shipments in the first quarter and Acer may even see shipments below three million units in the quarter. However, Acer declined to comment.
Lenovo has been competing with price cuts in the notebook market since the beginning of the second half of 2015, especially in Europe, where the vendor is offering buy-two-get-one-free promotions to attract demand. The strategy has forced some competitors to follow suit.
With high inventories, most brand vendors have dramatically reduced their notebook orders for January and expect shipments in the first half to remain weak. As for shipments in the first quarter, most expect volumes to drop by double-digit percentages.
Acer has been tightly managing its inventory to avoid losses, but is still being seriously impacted by competitors using its old strategy of dumping inventory to channels to create strong numbers.
Worldwide Shipments of Slate Tablets Continue to Decline While Detachable Tablets Climb to New High (Charts 21-23)
Despite the holiday season, the worldwide tablet market declined yet again in 4Q’15 with 65.9 million units shipped, down 13.7% year-over-year, according to preliminary data from the International Data Corporation. Total shipments for 2015 were 206.8 million, down 10.1% from 230.1 million in the prior year. Despite the market's negative trajectory overall, shipments for detachable tablets reached an all-time high of 8.1 million devices.
The transition toward detachable devices appears to be in full swing as pure slate tablets experienced their greatest annual decline to date of -21.1%. On the other hand, detachable tablets more than doubled their shipments since the fourth quarter of last year.
"This quarter was unique as we had new detachables in the market from all three of the major platform players," said Jitesh Ubrani, Senior Research Analyst with IDC's Worldwide Quarterly Mobile Device Trackers. "Despite lukewarm reviews, the iPad Pro was the clear winner this season as it was the top selling detachable, surpassing notable entries from Microsoft and other PC vendors. It's also important to note that the transition towards detachable tablets has presented positive opportunities for both Apple and Microsoft. However, Google's recent foray into this space has been rather lackluster as the Android platform will require a lot more refinement to achieve any measurable success."
Perhaps the most interesting trend to note is that prices on slate tablets have not yet hit rock bottom. Amazon’s $50 (or $42 for bulk shoppers) tablet was the holiday season's surprise hit, garnering the number three rank among the worldwide top five. Rival vendors like Huawei and Lenovo also continued to focus on the low end while also expanding outside their home country China.
"One of the biggest reasons why detachables are growing so fast is because end users are seeing those devices as PC replacements," said Jean Philippe Bouchard, Research Director, Tablets at IDC. "We believe Apple sold just over two million iPad Pros while Microsoft sold around 1.6 million Surface devices, a majority of which were Surface Pro and not the more affordable Surface 3. With these results, it's clear that price is not the most important feature considered when acquiring a detachable – performance is."