Taiwan/China Update

March sales were released for Taiwan-listed companies, many of which manufacture in China:

  • PMI leading indicators increased further for Taiwan (Chart 1) and slipped slightly (but still remained in expansion territory) for China (Chart 2)
  • March 2017 electronic equipment (OEM) sales were up 2.5% compared to March 2016 and up sequentially 21% compared to February 2017 (Chart 3).
  • ODM sales mirrored electronic equipment shipments, rising 1.8% in March 2017 vs. March 2016 and 17% sequentially from February to March 2017 (Chart 4) as 1Q’17 ODM sales growth was positive vs. 1Q’16 (Chart 5).
  • Semiconductor shipment growth to Asia/Pacific was well in excess of electronic equipment growth suggesting optimism, excess ordering and inventory building (Chart 6).
  • Wafer foundry sales rebounded from February but still suggest slowing global semiconductor shipments near term (Chart 7).
  • Package and test shipments partially recovered from their February decline (Chart 8), memory continued modest growth (Chart 9) and passive component shipments reached a 2017 high (Chart 10).
  • Solar/photovoltaic shipments improved but are still down significantly from their 2015/2016 levels (Chart 11).
  • Rigid and flex PCB sales increased from February but remain well below their recent trend line (Chart 12).
  • CCL (rigid laminate) sales increased much more than rigid PCB sales suggesting CCL price increases are occurring due to copper foil shortages.

Source: Company financial reports with Custer Consulting Group analysis

Europe Update

Eurostat released February European production data:

  • As noted last week the Eurozone PMI leading indicator reached a 6-year high in March (Chart 14). Germany, Italy and Sweden led the PMI expansion (Chart 15).
  • European electronic equipment production slipped from January to February but remained near an all-time high (Chart 16).as its 3/12 growth rate was +3.2% (Chart 17).
  • Motor vehicle production has been little changed since last year (Chart 18). The same is true for aerospace equipment output (Chart 19).
  • Production of instruments and appliances for measuring, testing and navigation has remained strong (Chart 20).
  • The historically very volatile irradiation, electromedical and electrotherapeutic equipment sector has been rebounding in the last six months (Chart 21).
  • Semiconductor shipments to Europe are above electronic equipment growth when both are denominated in euros (Chart 22).
  • Loaded board production (electronic assembly) has been slipping since late 2016 (Chart 23).
  • Wiring device (printed circuit board) output stabilized after a sharp decline in January (Chart 24).

Source: Eurostat with Custer Consulting Group analysis

World Semiconductor Revenue to Increase 12.3% in 2017 (Chart 25)

Worldwide semiconductor revenue is forecast to total $386 billion in 2017, an increase of 12.3% from 2016, according to Gartner, Inc. Favorable market conditions that gained momentum in the second half of 2016, particularly for commodity memory, have accelerated and raised the outlook for the market in 2017 and 2018. However, the memory market is fickle, and additional capacity in both DRAM and NAND flash is expected to result in a correction in 2019.

"While price increases for both DRAM and NAND flash memory are raising the outlook for the overall semiconductor market, it will also put pressure on margins for system vendors of smartphones, PCs and servers," said Jon Erensen, research director at Gartner. "Component shortages, a rising bill of materials, and the prospect of having to counter by raising average selling prices (ASPs) will create a volatile market in 2017 and 2018."

PC DRAM pricing has doubled since the middle of 2016. A 4GB module that cost $12.50 has jumped to just under $25 today. NAND flash ASPs increased sequentially in the second half of 2016 and the first quarter of 2017. Pricing for both DRAM and NAND is expected to peak in the second quarter of 2017, but relief is not expected until later in the year as content increases in key applications, such as smartphones, have vendors scrambling for supply.

"With memory vendors expanding their margins though 2017, the temptation will be to add new capacity," said Erensen. "We also expect to see China make a concerted effort to join the memory industry, setting the market up for a downturn in 2019."

Unit production estimates for premium smartphones, graphics cards, video game consoles and automotive applications have improved and contributed to the stronger outlook in 2017. In addition, electronic equipment with heavy exposure to DRAM and NAND flash saw semiconductor revenue estimates increase. This includes PCs, ultramobiles, servers and solid-state drives.

"The outlook for emerging opportunities for semiconductors in the Internet of Things (IoT) and wearable electronics remains choppy with these markets still in the early stages of development and too small to have a significant impact on overall semiconductor revenue growth in 2017," said Erensen.

Source: www.gartner.com

World PC shipments declined 2.4% y/y to 62.2 million units in 1Q’17 (Charts 26-28)

First time since 2007, quarterly PC shipments were below 63 million units

Worldwide PC shipments totaled 62.2 million units in the first quarter of 2017, a 2.4% decline from the first quarter of 2016, according to preliminary results by Gartner, Inc. The first quarter of 2017 was the first time since 2007 that the PC market experienced shipments below 63 million units in a quarter.

The PC industry experienced modest growth in the business PC market, but this was offset by declining consumer demand. Consumers continued to refrain from replacing older PCs, and some consumers have abandoned the PC market altogether. The business segment still sees the PC as an important device, and it's the main work device for businesses.

“While the consumer market will continue to shrink, maintaining a strong position in the business market will be critical to keep sustainable growth in the PC market. Winners in the business segment will ultimately be the survivors in this shrinking market,” said Mikako Kitagawa, principal analyst at Gartner. “Vendors who do not have a strong presence in the business market will encounter major problems, and they will be forced to exit the PC market in the next five years. However, there will also be specialized niche players with purpose-built PCs, such as gaming PCs and ruggedized laptops.”

“The top three vendors - Lenovo, HP and Dell - will battle for the large-enterprise segment. The market has extremely limited opportunities for vendors below the top three, with the exception of Apple, which has a solid customer base in specific verticals.'

The PC industry is also experiencing a price increase. Over two years ago, the price hike was attributed to the local currency deterioration against the U.S. dollar. This time around, the price hike is due to a component shortage.

“DRAM prices have doubled since the middle of 2016, and SSD has been in short supply as well,” Kitagawa said. 'The price hike will suppress PC demand even further in the consumer market, discouraging buyers away from PC purchases unless it is absolutely necessary. The price hike started affecting the market in 1Q’17. This issue will grow into a much bigger problem in 2Q’17, and we expect it to continue throughout 2017.”

Notes: Data includes desk-based PCs, notebook PCs and ultramobile premiums (such as Microsoft Surface), but not Chromebooks or iPads. All data is estimated based on a preliminary study. Final estimates will be subject to change. The statistics are based on shipments selling into channels. Numbers may not add up to totals shown due to rounding.

PC shipments in EMEA totaled 17.9 million units in the first quarter of 2017, a 6.9% decline year over year. All major regions in EMEA experienced a decline in the first quarter. However, Russia saw single-digit PC growth, which was attributed to stabilization of the local economy.

The Asia/Pacific PC market showed some stabilization, as PC shipments totaled 22.8 million units in the first quarter of 2017, a 0.8% decline from the first quarter of 2016. PC spending in China began to show a modest recovery. Steady economic conditions were an influencing factor driving a PC refresh.

Source: www.gartner.com

1Q’17 Global Smartphone Production Volume Fell 23% from 4Q’16 due to seasonality; Demand to remain weak in 2Q’17 (Charts 29-31)

Global smartphone production volume for the first quarter of 2017 totaled 307 million units, a drop of 23% from the previous quarter, according to market intelligence firm TrendForce. Smartphone brands, especially those based in China, lowered their production volume forecasts through the first quarter as demand slowed down significantly due to the conventional seasonal effect.

Major brands such as Samsung, LG and Huawei have begun to ship their flagship devices for the year, but the market demand going into the second quarter is expected to remain relatively weak as consumers are holding off their purchases in anticipation of the 10th anniversary iPhone devices that will arrive in the third quarter. Smartphone sales will be fairly lackluster until the second half of this year. TrendForce estimates that the global smartphone production volume for this second quarter will register a modest single-digit growth versus the preceding three-month period.

Strong sales of the Galaxy J series made Samsung the only brand posting production volume growth for the first quarter

Samsung’s sales results for its high-end smartphones fell short of expectations in the first quarter as consumers’ confidence in the brand had yet to fully recover from the recall of Galaxy Note 7. Nevertheless, Samsung continued to do very well in the mid-range and low-end segments of the market. The economically priced, high-performing Galaxy J series sustained Samsung’s shipments and contributed significantly to the expansion of the brand’s overall smartphone production volume. Samsung was the only brand that saw positive growth in production volume during the off season of the first quarter.

Samsung has also released its flagship device for the year Galaxy S8 this second quarter. However, the high-end model is expected to make limited sales contribution because the buzz surrounding the next-generation iPhone devices is dampening demand for products from non-Apple vendors. Samsung is expected to post flat growth for its second-quarter smartphone production volume. The S8 devices and the J series, which are contending for market shares respectively in the high-end and the mid-range to low-end segments, will keep Samsung’s shipments relatively stable in the second quarter. For the entire 2017, Samsung is estimated to increase its production volume by as much as 5% compared with the volume figure of 2016. TrendForce estimates that the total production volume of all iPhone devices for the second quarter will reach around 43 million units, a decline of 17% from the preceding quarter. Apple will likely to lower the production of existing iPhone models as the company prepares for the launch of the next-generation devices in the third quarter.

Chinese brands will be busily reducing their component inventories in the second quarter as their total production volume for first quarter fell 26% versus prior quarter

China’s smartphone market in the first quarter was affected by weak demand and uncertainties surrounding the subsidy plans offered by domestic telecom companies. Major Chinese brands lowered their production volume targets and reduced component purchasing during the period as there were additional one to two weeks of inventories for their smartphone products (the whole device).

Going into the second quarter, Chinese brands will be releasing their latest flagship smartphones and replacing older products with this year’s lineups. Chinese brands also recognize that the market is being influenced by the arrival of the next iPhones, so they are going to continue to reduce their component inventories as to prepare for further uncertainties in shipments and sales.

TrendForce points out that Chinese smartphone makers in general will be able to raise their production volumes again in the second quarter as they put their latest flagship devices on the market. However, their home market China has reached a growth plateau. In addition to this, the 10th anniversary iPhone devices are generating a lot of interests and influencing consumer demand. Therefore, Chinese brands will have limited room for growth in the future. Those among them that have not establish footholds in overseas markets will be in an especially difficult position.

Source: www.trendforce.com

Worldwide 3D NAND flash capacity expected to grow significantly by 118% on year in 2017 and 64% in 2018

Worldwide 3D NAND flash capacity is expected to grow significantly by 118% on year in 2017 and 64% in 2018. Although many NAND flash makers have begun expanding their related production, Samsung Electronics is expected to remain the largest supplier through 2018, according to Digitimes Research.

Source: www.digitimes.com

OLED penetration of smartphones to surpass that of LCD in 2018

OLED panels and TFT-LCD panels took up 27% and 73% respectively of display panels used in smartphones in 2014, but the proportion for OLED panels will exceed 40% in 2017 due to Apple's adoption for new iPhone and further rise to 58% in comparison with 42% for TFT-LCD panels in 2018, according to LG Display senior vice president and CTO Kang In-byeong at a keynote speech at Finetech Japan 2017 taking place in Tokyo during April 5-7.

In addition to Samsung Electronics, LG Electronics and China-based vendors Vivo, Oppo, Lenovo, and Huawei Technologies have adopted or will adopt OLED panels for flagship smartphones. The fast growing demand has motivated LG Display to extend production of OLED panels from TV-use large sizes to smartphone- and tablet-use small to medium sizes.

In addition to Samsung Electronics, LG Electronics and China-based vendors Vivo, Oppo, Lenovo, and Huawei Technologies have adopted or will adopt OLED panels for flagship smartphones. The fast growing demand has motivated LG Display to extend production of OLED panels from TV-use large sizes to smartphone- and tablet-use small to medium sizes.

Consequently, global annual production capacity for OLED panels increased from 3.6 million square meters in 2014 to 5.3 million square meters in 2016 and will further increase to 14.7 million square meters in 2018.

LG Display had 90% of consolidated revenues coming from TFT-LCD panels and 10% from OLED units in 2016 and expects the ratio to change to 50:50 in 2020.

Source: www.digitimes.com

World IT Spending to Grow 1.4% in 2017 (Chart 32)

Worldwide IT spending is projected to total $3.5 trillion in 2017, a 1.4% increase from 2016, according to Gartner, Inc. This growth rate is down from the previous quarter's forecast of 2.7%, due in part to the rising U.S. dollar.

"The strong U.S. dollar has cut $67 billion out of our 2017 IT spending forecast," said John-David Lovelock, research vice president at Gartner. "We expect these currency headwinds to be a drag on earnings of U.S.-based multinational IT vendors through 2017."

The Gartner Worldwide IT Spending Forecast is the leading indicator of major technology trends across the hardware, software, IT services and telecom markets. For more than a decade, global IT and business executives have been using these highly anticipated quarterly reports to recognize market opportunities and challenges, and base their critical business decisions on proven methodologies rather than guesswork.

The data center system segment is expected to grow 0.3% in 2017. While this is up from negative growth in 2016, the segment is experiencing a slowdown in the server market. "We are seeing a shift in who is buying servers and who they are buying them from," said Lovelock. "Enterprises are moving away from buying servers from the traditional vendors and instead renting server power in the cloud from companies such as Amazon, Google and Microsoft. This has created a reduction in spending on servers which is impacting the overall data center system segment."

Driven by strength in mobile phone sales and smaller improvements in sales of printers, PCs and tablets, worldwide spending on devices (PCs, tablets, ultramobiles and mobile phones) is projected to grow 1.7% in 2017, to reach $645 billion. This is up from negative 2.6% growth in 2016. Mobile phone growth in 2017 will be driven by increased average selling prices (ASPs) for phones in emerging Asia/Pacific and China, together with iPhone replacements and the 10th anniversary of the iPhone. The tablet market continues to decline significantly, as replacement cycles remain extended and both sales and ownership of desktop PCs and laptops are negative throughout the forecast. Through 2017, business Windows 10 upgrades should provide underlying growth, although increased component costs will see PC prices increase. The 2017 worldwide IT services market is forecast to grow 2.3% in 2017, down from 3.6% growth in 2016. The modest changes to the IT services forecast this quarter can be characterized as adjustments to particular geographies as a result of potential changes of direction anticipated regarding U.S. policy — both foreign and domestic. The business-friendly policies of the new U.S. administration are expected to have a slightly positive impact on the U.S. implementation service market as the U.S. government is expected to significantly increase its infrastructure spending during the next few years.

Source: www.gartner.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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