3Q’16 Global Supply Chain Sector Growth
With the addition of the third quarter results of key, later reporting, large ODMs such as Applied Materials and Cisco, 3Q’16 global electronic equipment growth still is estimated to be up 1.5% versus the same quarter last year (Chart 1).
Chart 2 shows our most recent (but still preliminary) estimated third quarter 2016 growth by sector of the global electronic supply chain.
Source: Company financial reports
Eurostat just released its September European production data:
- Chart 3 summarizes third quarter growth by sector. With the exception of medical electronics and euro-denominated semiconductor shipments to Europe all sectors expanded in the third quarter.
- Motor vehicle production, although up 3.1% in 3Q’16 vs 3Q’15, slipped in September (Chart 4).
- Aerospace production continued strong, up 3.9% in the third quarter with ongoing growth in the month of September (Chart 5).
- Instrument production (Chart 6) increased 3.4% in the quarter with ongoing expansion in September.
- PCBA assembly (loaded board production) is near an all-time high (Chart 7).
- Wiring device (bare PCB production) was at its highest level since 2008 (Chart 8).
European Semiconductor Distribution Market (DMASS) Reports Lower Summer Quarter (Charts 11 & 12)
- Growth rate for semiconductor distribution slips into negative during summer.
- Technical effects. Israel, Eastern Europe and Benelux surprisingly strong. Analog remains stable stronghold.
Technical reasons caused a slight decline of sales for the European semiconductor industry in Q3/CY16. According to DMASS Ltd., the summer quarter ended with 1.81 Billion Euro in sales, a decline of 0.9%, mainly due to different quarter-end reporting by some members.
Georg Steinberger, chairman of DMASS: “Without the technical effect of different quarter-end dates for some DMASS members (last year’s fiscal Q3 had 1 week more), Q3/CY16 would have been positive, in a similar ballpark as Q2CY16. In other words, 2016 proves quite stable and resilient, compared to record 2015, which was highly influenced by currency effects, and considering the overall economy in Europe, which is not really set to spark a lot of growth fantasies.”
From a regional perspective, the good news happened outside the major Economies. While Israel and some other smaller countries grew by double digits and Eastern Europe in general continued to grow, UK, Germany, France and the Nordic countries went down. The UK suffered significant currency effects and a lackluster market, and declined by 10.5% to 135 Million Euro although the market was largely flat in local currency. Germany dropped by 4.4% to 570 Million Euro, France went down slightly by 1.4% to 124 Million Euro and Nordic declined by 4% to 154 Million Euro. Surprisingly, Italy grew by 0.1% to 154 Million Euro; not surprisingly, Eastern Europe went up 5.7% to 260 Million Euro.
Georg Steinberger: “The aforementioned technical effect may also cause some distortion here, however the trends remain stable: UK is in Brexit trouble, France and Germany experience summer season combined with little inspiration from the overall market, Nordic has its mix of production transfer and summer slowdown. What remains is an unusually strong South (Italy and Iberia) and more low-cost-production driven growth in many Eastern European countries. Overall, the market is slow but not bad and 2016 heads towards a single-digit growth of around 3%.”
In the products groups reported by DMASS, the only major ones with positive news were Analog and MOS Micro. Opto stagnated, Discrete, Power and Memories declined within the expected range. Considerably weak were Programmable Logic and Other Logic. In detail, Analog grew by 1.5% to 548 Million Euro, MOS Micro by 0.8% to 390 Million Euro, Opto by 0.2% to 184 Million Euro. Power lost 2% to 171 Million Euro, Memory 4% to 144 Million Euro, Discrete 4.4% to 91 Million Euro, Other Logic 6.1% to 90 Million Euro and Programmable Logic 7.8% to 122 Million Euro.
Georg Steinberger: “Same as last quarter, some special effects influence some distributors in certain product areas, like RF, Programmable Logic and Other Logic (business taken direct by manufacturers). However, on the positive side, there are product areas, which are really promising, like high-end Microcontrollers, some higher end Analog products and sensors, all of which are key components to the quickly developing IoT market.”
DMASS Ltd. reports to members only a new statistics on Passive Components, Electromechanical Components and Power Supplies.
PC Vendors Face High Component Cost Pressure
Global PC vendors are likely to face inventory impairment losses in the first quarter of next year, because of overbooking of key components amid a supply shortage, analysts said.
"The market demand for notebooks is flat. The strong orders for components from PC vendors last quarter and this quarter could lead to inventory correction at the beginning of next year," International Data Corp Taiwan branch research director Helen Chiang told the Taipei Times.
The current components shortages include twisted nematic (TN) LCD panels used in mid-end notebooks, NAND flash and optical disk drives, Chiang said.
Chiang said that none of the component shortages was due to market demand, but rather because of panel makers' decisions to reduce production and NAND flash suppliers allocating their capacity for smartphones use.
Taipei-based research house TrendForce Corp forecast a shortfall of 6% in global TN LCD panel supply, or 8 million units, compared with last year's 164 million units, following Samsung Electronics Co's production cuts.
Eric Chiou, a senior research director of WitsView, a division of TrendForce, said that major PC vendors have been fighting to secure supplies of flat panels and other key components to ensure smooth shipments over the holiday season, fearing that a supply disruption could affect their overall operations and market share.
"PC vendors were forced to order whatever was available in the supply chain despite flat demand," Chiang said.
However, this inventory of high-priced key components will become a financial burden next quarter, when the industry enters its slow season, Chiang said.
Five Top-20 Semiconductor Suppliers to Show Double-Digit Gains in 2016 (Chart 13)
Nvidia and MediaTek forecast to register the fastest 2016 growth rates of 35% and 29%, respectively.
IC Insights forecasted top-20 worldwide semiconductor (IC and O S D—optoelectronic, sensor, and discrete) sales ranking for 2016 is shown in Chart _. It includes eight suppliers headquartered in the U.S., three in Japan, three in Taiwan, three in Europe, two in South Korea, and one in Singapore, a relatively broad representation of geographic regions.
The top-20 ranking includes three pure-play foundries (TSMC, GlobalFoundries, and UMC) and five fabless companies. If the three pure-play foundries were excluded from the top-20 ranking, U.S.-based fabless supplier AMD ($4,238 million), China-based fabless supplier HiSilicon ($3,762 million), and Japan-based IDM Sharp ($3,706 million), would have been ranked in the 18th, 19th, and 20th positions, respectively. In August 2016, China-based contract assembler Foxconn bought a controlling interest (66%) in Sharp for $3.8 billion.
In total, the 17 non-foundry companies in the forecasted top 20-ranking are expected to represent 68% of the total $357.1 billion worldwide semiconductor market this year, up 10 points from the 58% share the top 17 companies held in 2006.
IC Insights includes foundries in the top-20 semiconductor supplier ranking since it has always viewed the ranking as a top supplier list, not a marketshare ranking, and realizes that in some cases the semiconductor sales are double counted. With many of our clients being vendors to the semiconductor industry (supplying equipment, chemicals, gases, etc.), excluding large IC manufacturers like the foundries would leave significant “holes” in the list of top semiconductor suppliers. As shown in the listing, the foundries and fabless companies are identified. In the April Update to The McClean Report, marketshare rankings of IC suppliers by product type were presented and foundries were excluded from these listings.
Global DRAM Revenue Rose 15.8% Sequentially in 3Q’16 on Back of Rising Prices (Charts 14-16)
In response to the rise in worldwide shipments and memory content per box for smartphones, DRAM suppliers since the second quarter have gradually reduce their output of PC DRAM while increasing their server and mobile DRAM production. Consequently, prices of PC DRAM started to rise in the third quarter as supply tightened. The price hike for PC DRAM also pushed up prices for DRAM in other applications at the same time. According to DRAMeXchange, a division of TrendForce, global DRAM revenue for the third quarter rose about 15.8% sequentially on account of this recent price uptrend.
“The third quarter saw a surge of stock-up demand as Apple and Samsung prepared to expand shipments of their flagship smartphones,” said Avril Wu, research director of DRAMeXchange. “Even though Samsung later had to suspend the production of Galaxy Note 7, the company contributed significantly to the increase in both consumption and prices of DRAM in the third quarter.”
The PC DRAM market has also benefitted from the better-than-expected notebook shipments in the recent period. “The shipment share of notebooks equipped with 8GB of RAM has risen as well,” Wu added. “Hence, the average contract price of PC DRAM is projected to increase by more than 30% sequentially in the fourth quarter of 2016.”
Chinese Smartphone Vendors only Vendors in Global Top 5 to Increase Sales in 3Q’16 (Charts 17-19)
- Worldwide Sales of Smartphones Grew 5.4% Year-over-Year
- Samsung Suffered Its Worst Decline in Smartphone Sales
Three Chinese vendors — Huawei, Oppo and BBK Communication Equipment — together accounted for 21% of the smartphones sold to end users worldwide in 3Q’16. They were the only smartphone vendors in the global top five to increase their sales and market share during the quarter, according to Gartner, Inc.
"China led the growth in the smartphone market in the third quarter of 2016," said Anshul Gupta, research director at Gartner. "Sales of smartphones in China grew by 12.4%, and the vendors who most successfully exploited the sales opportunities there were Oppo and BBK Communication Equipment. In Oppo's case, 81% of its smartphone sales came from China, while BBK accounted for 89% of smartphones sales in China. These two vendors also grew strongly in India, Indonesia, Malaysia, Thailand and Russia," he added.
Global sales of smartphones to end users totaled 373 million units in the third quarter of 2016, a 5.4% increase over the third quarter of 2015. However, overall sales of mobile phones, fell by 1.3%, largely due to the declining popularity of feature phones.
Samsung had a good start to the quarter, but the battery problem that caused some Galaxy Note 7 smartphones to catch fire led to lower sales of the company's high-end and high-profile line of Note products. Samsung's smartphone sales in the third quarter of 2016 as a whole declined 14.2% year over year — their worst performance ever. Samsung's previous worst performance for smartphone sales was a 12.3% drop in the fourth quarter of 2014.
"The decision to withdraw the Galaxy Note 7 was correct, but the damage to Samsung's brand will make it harder for the company to increase its smartphone sales in the short term," said Mr. Gupta. "For Samsung, it's crucial that the Galaxy S8 launches successfully, so that partners and customers regain trust in its brand.
Apple's iPhone sales continued to fall in the third quarter of 2016, with a 6.6% decline. Apple accounted for 11.5% of the global smartphone market, its lowest share since the first quarter of 2009. Apple's sales fell by 8.5% in the U.S. and by 31% in China, two of its biggest markets. The iPhone 7 struggled to stimulate replacement sales.
Huawei is closing the gap with Apple. In the third quarter of 2016, there was less than a three percentage point difference in market share between them in the smartphone market. Highly competitive and feature-packed Honor devices maintained their sales momentum in markets around the world, with expansion into Europe and the U.S. likely to help Huawei record another year of promising growth.
In the smartphone operating system (OS) market, Google's Android continued to capture market share from Apple's iOS, to command nearly 88% of the total market. "The withdrawal of Samsung's Galaxy Note 7 may benefit sales of Apple's iPhone 7 Plus only slightly, as Note 7 users are likely to stay with Samsung or at least with Android," said Robert Cozza, research director at Gartner. "To some extent, other Android vendors could capitalize on this situation in the short term — for example, Huawei and other Chinese brands present in the premium Android phone segment. The Note 7's withdrawal also comes at a good time for Google in mature markets, where it’s Pixel and Pixel XL devices have started selling."
Global Smartphone Shipments Forecast to grow 4% in 2016 to 1.49 billion units after jumping by 13% to 1.43 billion in 2015
According to IC Insights Total smartphone shipments are forecast to grow by 4% in 2016 to 1,490 million units after jumping by 13% to 1,430 million in 2015. Moreover, smartphone shipments are forecast to grow by 5% in 2017, reaching 1,565 million units. Overall, smartphone unit shipments are now forecast to grow at single-digit annual rates through 2020.
Smartphones accounted for over 50% of total quarterly cellphone shipments for the first time ever in 1Q’13 (Figure 1). Smartphone shipments fell to 340 million units in 1Q’16 yet still represented 80% of total cellphones shipped that quarter, the same penetration as in 4Q’15. In 4Q’16, it is expected that smartphone shipments will surge to a new record high of 437 million and represent 84% of all cellphones shipped that quarter. On an annual basis, smartphones first surpassed the 50% penetration level in 2013 (54%) and are forecast to represent 97% of total cellphone shipments in 2020.
In contrast to smartphones, total cellphone handset shipments are forecast to decline by 2% in 2016 and are expected to drop by 1% in 2017 (Figure 2). As shown, non-smartphone cellphone sales dropped by 30% in 2015 and are forecast to fall by another 22% this year. Moreover, IC Insights expects the 2017 non-smartphone cellphone unit shipment decline to be steeper than 2016’s drop with a decline of 26%.
U.S. & Global Industrial Production Growth (Charts 20)
U.S. industrial output was little changed in October. Warm weather lowered demand for home and office heating but manufacturing and mining showed signs of stability.
Chart 21 summarizes industrial production growth by key country.