3Q’16 Global Electronic Equipment Growth (preliminary estimate)

Here is our very preliminary estimate of 3Q’16 versus 3Q’15 global growth by type of electronic equipment. It is based on a mix of calendar third quarter company financial reports and estimates based on the growth of companies producing similar goods.

These estimates will be updated throughout September as more companies report their 3Q’16 financials.

  • A group of 213 global OEM’s revenues grew an estimated 0.9% in 3Q’16 versus 3Q’15 (Chart 1). This is the second positive growth quarter following five successive declines in 1Q’15 through Q’116 (Chart 2).
  • OEM revenue growth by quarter from 2000 to the present is given in Chart 3.
  • Chart 4 provides a very preliminary estimate of electronic equipment growth by product type. Semiconductor capital equipment sales are rebounding from their last business cycle downturn and the automotive and medical equipment markets are strong.

Be cautioned that these are very preliminary estimates that will likely change to some extent as more companies in our survey report their calendar third quarter financials.

Source: Company financial reports with Custer Consulting Group analysis

Flash October PMI Leading Indicators

Chart 5 compares the October “flash” PMI (purchasing managers indices) to September actuals for those countries/regions where Markit Economics reports flash results.

  • All the PMIs improved in October pointing to accelerating manufacturing activity ahead.
  • The U.S. PMI rose to its highest level since October 2015 (Chart 6). This is consistent with the report of much stronger (2.9%) 3Q’16 GDP growth (Chart 7).
  • The Eurozone PMI reached its highest level since April 2014 (Chart 8) and Japan’s PMI moved into solid growth territory (Chart 9).

Source: www.markiteconomics.com
www.bea.gov/national/

U.S. September Electronic Supply Chain Shipments, Orders and Inventories

The U.S. Department of Commerce released its September Durable Goods report with preliminary shipments, orders and inventories for portions of the domestic electronic supply chain:

  • The 3-month average electronic equipment book/bill dropped to 1.013 (Chart 10).
  • Electronic equipment orders and shipments declined slightly from August (Chart 11) as their 3-month growth rates hovered very in low single digit territory (Chart 12).
  • Electronic equipment inventory levels rose slightly relative to orders (Chart 13).
  • Defense capital goods orders declined slightly from August but still remained above shipments (Chart 14) as their 3-month average book/bill rose to 1.06 (Chart 15).
  • Aircraft and parts shipments increased (Chart 16). Orders rose for commercial aircraft but weakened for the defense market (Chart 17).
  • Communication equipment (Chart 18) and computer gear (Chart 19) demand remained flat.

Source: www.ipc.org
www.census.gov/manufacturing/m3/

Component Shortages Putting Pressure on Smartphone Players

With component quotes rising rapidly due to shortages, sources from the upstream supply chain expect second-tier or lower smartphone players to face increasing pressure from competition in 2017 as most of the component shortages are unlikely to be resolved in the short term.

To ensure stable shipments, many smartphone players have been aggressively securing component supplies by accepting increased quotes from suppliers, and this is expected to impact players with smaller scales.

Since competition in the smartphone market is rather fierce, first-tier players are also expected to see their profits impacted.

With AMOLED becoming popular among smartphone players, supply will remain tight in the fourth quarter of 2016 and is likely to last into 2017.

Source: www.digitimes.com

Worldwide Smartphone Shipments increased 1.0% y/y to 362.9 million in 3Q’16 (Charts 20-22)

According to preliminary results from International Data Corporation (IDC), vendors shipped a total of 362.9 million smartphones worldwide in the third quarter of 2016 (3Q’16). Despite the recall of Samsung's Galaxy Note 7, volumes were up 1.0% compared to 3Q’15 when vendors shipped 359.3 million units. Sequentially, shipments grew 5.3% from 344.7 million in the second quarter of 2016. (Note: IDC's totals for Samsung exclude Galaxy Note 7 shipments for both recalled and unsold devices in 3Q’16.)

“Samsung's market dominance in the third quarter was unchallenged in the short term even with this high-profile Galaxy Note 7 recall, but the longer term impact on the Samsung brand remains to be seen. If the first recall was a stumble for Samsung, the second recall of replacement devices face-planted the Note series,” said Melissa Chau, associate research director, Mobile Devices. “In a market that is otherwise maturing, Christmas has come early for vendors looking to capitalize with large-screened flagship alternatives like the Apple iPhone 7 Plus and Google Pixel.”

“With Samsung’s Note 7 finally laid to rest, both Samsung and other vendors will need to invest both time and money into properly testing devices to avoid a future incident of this proportion,” said Anthony Scarsella, research manager, Mobile Phones. “The recall of the Note 7 represents an industry-wide wake-up call that will undoubtedly lead to a more vigorous testing and certification process moving forward.”

The top five vendors remain unchanged from last quarter despite double- and triple-digit growth from the leading Chinese vendors Huawei, OPPO, and Vivo. While Samsung and Apple continue to challenge each other at the top, these upcoming players have delivered value-packed devices that offer consumers top-shelf features at a fraction of the cost compared to the market leaders. Phones like the OPPO R9 and the Vivo X7 have become serious competitors in China and are also witnessing mild success in Western Europe thanks to new athletic sponsorships across various countries. Whether or not these brands can make an impact in the U.S. market remains to be seen, but success will be crucial if aspirations of growth are a top priority.

Smartphone Vendor Highlights
Samsung: The continued success of the Galaxy S7 and S7 edge helped maintain volumes in 3Q’16 despite the recall and negative publicity of the Note 7 fiasco. Outside of Samsung's flagship S7, the more affordable J-series of devices continued to steadily drive volume in both developed and emerging markets with flagship-styled devices across various price points and display sizes. Samsung will need to put the Note series to rest as quickly as possible and look to their S7/S7e to captain the ship and keep Samsung users on board for the long haul.

Apple: The new iPhone 7 and 7 Plus drove third quarter shipments of 45.5 million units, down 5.3% from the 48 million units last year. Higher than expected iPhone 7 Plus demand outstripped supply, which should be alleviated through the fourth quarter, helped by new features such as water resistance, faster processing, improved optics, and larger storage capacities. A new “jet black” color option has also proven popular with many carriers and retail partners are still showing the device on back order. IDC believes that the iPhone could witness greater success come next quarter as it stands to likely benefit from the Note 7 recall that took place earlier this month.

Huawei: The Chinese giant shipped 33.6 million units, up a notable 23% from last year. The current dual-camera P9 flagship continued to help with its momentum in China despite the higher price tag compared to some of its rivals. Huawei's Honor brand also found success with the new V8, as the mid-tier device sold well both in and outside of its home country. Outside of China, shipments have grown drastically as China now represents 53% of shipments compared to 60% last year. Huawei continues to maintain a strong brand in Europe and is finding success with the P8 and P9 family, where it is taking away share from Samsung and Apple with competitive specs at lower price points with the Lite versions. Huawei may now have it sights set on the U.S., as we have the New York unveiling of its next Mate series flagship (Mate 9) in early November.

OPPO: In China, OPPO continued to do well largely due to its R9 device that saw continued success in the market and its domestic popularity helped it further close the gap to global number #3, Huawei. OPPO has also pursued an aggressive expansion strategy outside of China, with shipments to the rest of Asia/Pacific tripling since the same quarter a year ago. It particularly experienced good growth in India as it employed more staff to be positioned at storefronts to promote smartphones to consumers.

vivo: On its home turf, vivo plowed more investment into marketing in order to expand its reach via TV advertising, targeting high-tier all the way down to lower-tier cities in China. vivo also held a number of promotional activities and saw growth in China largely due to its X7 series. Its strong coverage in the Tier 3 to Tier 5 cities continued to help it to excel. Outside of China, its presence is still relatively small, but it managed to double its shipments quarter year over year in 3Q’16. In India, it grew by increasing its marketing investments to expand its reach via television advertisements.

Vendor shipments are branded device shipments and exclude OEM sales for all vendors. The “Vendor” represents the current parent company (or holding company) for all brands owned and operated as subsidiary.

Source: www.idc.com

Smartwatch Shipments declined 51.6% y/y to 2.7 million units in 3Q’16 (Charts 23 & 24)

The worldwide smartwatch market experienced a round of growing pains in the third quarter of 2016, resulting in a year-over-year decline in shipment volumes. According to International Data Corporation (IDC) total smartwatch volumes reached 2.7 million units shipped in 3Q’16, a decrease of 51.6% from the 5.6 million units shipped in 3Q’15. Although the decline is significant, it is worth noting that 3Q’15 was the first time Apple's Watch had widespread retail availability after a limited online launch. Meanwhile, the second generation Apple Watch was only available in the last two weeks of 3Q’16.

“The sharp decline in smartwatch shipment volumes reflects the way platforms and vendors are realigning,” noted Ramon Llamas, research manager for IDC’s Wearables team. “Apple revealed a new look and feel to watchOS that did not arrive until the launch of the second generation watch at the end of September. Google’s decision to hold back Android Wear 2.0 has repercussions for its OEM partners as to whether to launch devices before or after the holidays. Samsung’s Gear S3, announced at IFA in September, has yet to be released. Collectively, this left vendors relying on older, aging devices to satisfy customers.”

“It has also become evident that at present smartwatches are not for everyone,” said Jitesh Ubrani senior research analyst for IDC Mobile Device Trackers. “Having a clear purpose and use case is paramount; hence many vendors are focusing on fitness due to its simplicity. However, moving forward, differentiating the experience of a smartwatch from the smartphone will be key and we're starting to see early signs of this as cellular integration is rising and as the commercial audience begins to pilot these devices.”

Top Five Smartwatch Vendors
Apple maintained its position as the overall leader of the worldwide smartwatch market, yet it posted the second largest year-over-year decline among the leading vendors. Its first-generation Watches accounted for the majority of volumes during the quarter, leading to the significant downturn for the quarter. Its Series One and Series Two did little to stem that decline, although with lower price points and improved experiences, Apple could be heading for a sequential rebound in 4Q’16.

Garmin posted the largest year-over-year increase among the leading vendors, thanks to its growing list of ConnectIQ-enabled smartwatches and the addition of the fenix Chronos. Whereas other smartwatches attempt to be multi-purpose devices, Garmin’s smartwatches focus on health and fitness, and the applications reflect that strategy. Its total volumes helped close the gap further against a declining Apple and extended its lead ahead over Samsung.

Samsung finished 3Q’16 slightly higher from a year ago on the strength of its aging Gear S2 smartwatches. These still remain one of the few smartwatches on the market that feature full-time cellular connectivity. The company introduced its follow-up, the Gear S3, with a Bluetooth-only version as well as a cellular version, but it has yet to be released to the market.

Lenovo (Motorola) suffered the largest year-over-year decline among the leading vendors, with multiple channels selling out of Moto 360 devices (both first and second generation) and a scarcity of its recently released Moto 360 Sport smartwatch. In addition, 3Q’16 marks the first time in which Motorola did not introduce a new smartwatch in time for the holiday quarter, adding to its decline in the market.

Pebble arguably kicked off the smartwatch category with its original Kickstarter campaign in 2012. Since then the company has launched multiple variants of the Pebble watch and also introduced a new timeline-based user interface, though none of them achieved mass success. After another successful Kickstarter campaign in early 2016, Pebble released the Pebble 2 (oddly enough, the third generation) late in the third quarter. The new Pebble 2 is the first watch by the company to include a heart-rate sensor and has an overall focus on fitness.

Vendor shipments are branded device shipments and exclude OEM sales for all vendors. 
Data only includes smartwatches capable of running third party applications on the device itself. Examples include Apple Watch, Moto 360, Gear S2. Devices like the Fitbit Blaze and Withings Activité are excluded since IDC considers these as “Basic Wearables” that do not run third party applications.

Source: www.idc.com

Walt D. Custer


Walt Custer

Walt Custer is an industry analyst focused on the global electronics industry. Prior to forming Custer Consulting Group he was Vice President of Marketing and Sales for Morton Electronic Materials, a global supplier of specialty chemicals and process equipment for the PCB industry.

Custer has been a member of the IPC trade organization since 1975 where he received both the President's and the Raymond E. Pritchard Hall of Fame Awards. He is currently a member of the IPC Executive Market & Technology Steering Committee. Custer is also a Director of the EIPC European PCB trade organization.

He authors regular “Market Outlook” columns for Global SMT & Packaging magazine, the Journal of the HKPCA and the TTI MarketEYE website. View other posts from Walt D. Custer.

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