ECWC14, Seoul

Walt had the honor of speaking at ECWC14, the 14th triannual world printed circuit board conference held this year in Seoul, S. Korea. For a copy of Walt’s keynote presentation “Global Electronic Industry Supply Chain: Present & Future Market Dynamics” email

First Quarter Growth by Sector of Global Electronic Supply Chain – first estimate

Based financial reports from a still very limited number of companies here is a VERY PRELIMINARY estimate of 1Q’17 versus 1Q’16 global supply chain growth.

  • First quarter 2017 electronic equipment revenues increased an estimated 3.2% versus the same quarter last year (Chart 1). This is based on financial reports of a 213 global OEMs using a combination of actual an estimated 1Q’17 results.
  • Sales have now grown for four successive quarters (Chart 2).
  • Growth by sector of the electronic supply chain is given in Chart 3.

This is an early estimate that will updated continually through May as more companies report. These comments are as of April 30. Many large OEMs including Apple, Lenovo, Dell, HP, Cisco, Applied Materials and Medtronic have not yet reported.

Source: Company financial reports with Custer Consulting Group analysis.

U.S. March Electronics Shipments, Orders and Inventories

The U.S. Department of Commerce just released its March “Durable Goods” report. A more detailed “Factory Orders” report will be issued May 4.

  • The book/bill ratio for U.S. electronic equipment dropped slightly to 1.03 on a 3-month average basis (Chart 4).
  • On a 3/12 growth basis both electronic equipment bookings and shipments are expanding - rising to their highest levels in a year (Chart 5).
  • Actual $ denominated equipment orders and shipments dipped in March but still remained on a generally upward trajectory (Chart 6).
  • Defense capital goods orders rebounded slightly from their recent 3-month decline (Chart 7) but their 3 month average book/bill ratio remained well below 1.0 (Chart 8).
  • Aircraft shipments improved in March lifted by the commercial sector (Chart 9) as non-defense aircraft and parts orders have strengthened (Chart 10).
  • Communication (Chart 11) and computer (Chart 12) equipment orders and shipments are little changed.
  • Semiconductor shipments to North America continue to exceed domestic electronic equipment shipments on a 3/12 growth basis suggesting that the current high (+19%) domestic chip growth rate is unsustainable (Chart 13).


EMS Sales Growth Finally Resumes – 1Q’17 Sales Results

Most large EMS companies have now reported their calendar first quarter financial results.

  • Nine EMS companies (with Foxconn included) reported a 6.6% sales increase in 1Q’17 versus 1Q’16 (Chart 14).
  • Excluding Foxconn the large domestic flagship EMS companies reported a 2.2% first quarter revenue increase (Chart 15).

World Military Expenditure Increased 0.4% y/y to $1686 billion in 2016

Total world military expenditure rose to $1686 billion in 2016, an increase of 0.4% in real terms from 2015, according to new figures from the Stockholm International Peace Research Institute (SIPRI). Military spending in North America saw its first annual increase since 2010, while spending in Western Europe grew for the second consecutive year. The comprehensive annual update of the SIPRI Military Expenditure Database is accessible at

World military expenditure rose for a second consecutive year to a total of $1686 billion in 2016-the first consecutive annual increase since 2011 when spending reached its peak of $1699 billion.* Trends and patterns in military expenditure vary considerably between regions.

Spending continued to grow in Asia and Oceania, Central and Eastern Europe and North Africa. By contrast, spending fell in Central America and the Caribbean, the Middle East (based hon countries for which data is available), South America and sub-Saharan Africa.

The USA's spending returns to growth; Saudi Arabia's spending falls significantly

The United States remains the country with the highest annual military expenditure in the world. U.S. military spending grew by 1.7% between 2015 and 2016 to $611 billion. Military expenditure by China, which was the second largest spender in 2016, increased by 5.4% to $215 billion, a much lower rate of growth than in previous years. Russia increased its spending by 5.9% in 2016 to $69.2 billion, making it the third largest spender. Saudi Arabia was the third largest spender in 2015 but dropped to fourth position in 2016. Spending by Saudi Arabia fell by 30% in 2016 to $63.7 billion, despite its continued involvement in regional wars. India's military expenditure grew by 8.5% in 2016 to $55.9 billion, making it the fifth largest spender.

The growth in U.S. military expenditure in 2016 may signal the end of a trend of decreases in spending, which resulted from the economic crisis and the withdrawal of U.S. troops from Afghanistan and Iraq. U.S. spending in 2016 remained 20% lower than its peak in 2010.

'Despite continuing legal restraints on the overall US budget, increases in military spending were agreed upon by Congress,' said Dr Aude Fleurant, Director of the SIPRI Arms and Military Expenditure (AMEX) program. 'Future spending patterns remain uncertain due to the changing political situation in the USA.'

Increases in Europe linked to growing threat perceptions

Military expenditure in Western Europe rose for the second consecutive year and was up by 2.6% in 2016. There were spending increases in all but three countries in Western Europe. Italy recorded the most notable increase, with spending rising by 11% between 2015 and 2016.

The countries with the largest relative increases in military spending between 2015 and 2016 are in Central Europe. Overall spending in Central Europe grew by 2.4% in 2016. 'The growth in spending by many countries in Central Europe can be partly attributed to the perception of Russia posing a greater threat,' said Siemon Wezeman, Senior Researcher with the SIPRI AMEX program. 'This is despite the fact that Russia's spending in 2016 was only 27% of the combined total of European NATO members.'

Large falls in military expenditure in many oil-exporting countries

'Falling oil revenue and associated economic problems attached to the oil-price shock has forced many oil-exporting countries to reduce military spending,' said Dr Nan Tian, Researcher with the SIPRI AMEX program. 'For example, between 2015 and 2016 Saudi Arabia had the biggest absolute decrease in spending of $25.8 billion.'

The largest cuts in military expenditure in 2016 related to falling national oil revenues were in Venezuela (-56%), South Sudan (-54%), Azerbaijan (-36%), Iraq (-36%) and Saudi Arabia (-30%). Other notable decreases were seen in Angola, Ecuador, Kazakhstan, Mexico, Oman and Peru. Only 2 of the 15 countries with the largest falls in spending in 2016 are not oil exporters. However, a minority of oil-exporting countries, such as Algeria, Iran, Kuwait and Norway, are better equipped economically to deal with oil-price shocks and could continue with their existing spending plans in 2016.

Other notable developments

  • World military spending in 2016 accounted for 2.2% of global GDP. Military spending as a share of GDP, was highest in the Middle East (for countries where data is available), with an average of 6.0% of GDP in 2016, while the lowest was in the Americas, with an average of 1.3% of GDP.
  • Spending in Africa fell by 1.3% in 2016, a second year of decrease after 11 consecutive years of increases. This was mostly due to spending cuts in oil-exporting countries in sub-Saharan Africa (e.g. Angola and South Sudan).
  • In Asia and Oceania, military expenditure rose by 4.6% in 2016. Spending levels are related to the many tensions in the region such as over territorial rights in the South China Sea.
  • Military expenditure in Central America and the Caribbean and South America combined decreased by 7.8% to a level not seen since 2007. The fall is largely explained by spending reductions by oil-exporting countries such as Ecuador, Mexico, Peru and Venezuela. Brazil's spending continued to decline as a result of a worsening economic crisis.
  • There is no estimate for the Middle East as data is unavailable for several key spenders such as the United Arab Emirates. For countries where data is available, substantial increases were seen in Iran and Kuwait, while sizable decreases were noted in Iraq and Saudi Arabia.

* All percentage changes are expressed in real terms (constant 2015 prices).


World Automotive Audio, Infotainment and Navigation Systems Vendor Share Ranking for 2016 (Charts 16 & 17)

Harman and Panasonic lead 2016 worldwide OE automotive audio, infotainment & navigation systems vendor share ranking

According to Semicast Research Harman and Panasonic led the worldwide OE automotive audio, infotainment and navigation systems vendor share ranking in 2016, ahead of Alpine, Clarion, Bosch and Continental. Collectively these six suppliers are estimated to have accounted for about two-thirds of shipments to this market last year.

Semicast includes audio-only systems, front seat infotainment, rear seat entertainment and embedded navigation systems in the analysis; OE (factory-fitted) systems only are included, with dealer-fit and aftermarket systems excluded. Audio-only systems continued to dominate in 2016, with 42 million units shipped, or just over half of the total.

Semicast includes audio-only systems, front seat infotainment, rear seat entertainment and embedded navigation systems in the analysis; OE (factory-fitted) systems only are included, with dealer-fit and aftermarket systems excluded. Audio-only systems continued to dominate in 2016, with 42 million units shipped, or just over half of the total.

In March Samsung completed the acquisition of Harman, in a cash deal worth $8 billion. Samsung is a major manufacturer of smartphones, but with no presence in the automotive entertainment systems market, was set to fall behind arch rivals Apple and Alphabet, just as smartphone technology was becoming adopted in the automotive environment.

Barnden summarized, “For three years Apple and Alphabet have set the agenda for integrating smartphones with vehicle entertainment systems, in the form of Apple’s CarPlay and Alphabet’s Android Auto. In buying Harman, Samsung instantly becomes the market leader and Semicast sees this acquisition as a very smart move indeed.”


Foxconn to Expand Capacity in central China mainly for Amazon

Foxconn Electronics, mainly to meet growing demand for Amazon smart devices including Amazon Echo, Fire Tablet and Fire Phone, plans to expand production capacity at its factory in Hengyang City, central China, adding 30 assembly lines and 15 production lines for smartphone and tablet components, according to industry sources.


Global Wafer Supply likely to fall short of demand by 10-20% at the end of 2018; shortage could persist through 2020

Demand for semiconductor-grade silicon wafers has been robust, according to GlobalWafers, which expects the market to see tight supply through the end of 2018.

The market shortage will continue to drive up wafer prices. Prices for mainstream 12-inch wafers, for example, will continue to rise 5-10% quarterly.

GlobalWafers also anticipated that wafer prices will see larger growth in the second half of 2017 than in the first half, as the ongoing shortage will become more acute in the second half of the year.

Nevertheless, the overall rise in wafer prices for the second half of 2017 will be only 10%, far below the 30% market observers predict generally.

Chipmakers intend to secure 2- to 4-year contracts for the supply of wafers. GlobalWafers has promised its semiconductor clients to provide sufficient wafer supply through the end of 2017, but the offered wafer prices will not be fixed, the company indicated.

The global wafer supply will likely fall short of demand by 10-20% at the end of 2018, and the shortage could persist through 2020.


Worldwide motherboard shipments below 50 million units in 2016 and expected to decline more than 10% in 2017

Despite some research firms believing that worldwide PC shipments' decline has already started slowing down, many motherboard players still see weak demand from the PC DIY channel, especially in China. As a result, the players believe their motherboard and graphics card shipments in 2017 are unlikely to recover and the overall volume may drop over 10% on year.

In 2016, worldwide motherboard shipments only reached less than 50 million units.

Sources from motherboard players pointed out that notebooks have been gradually taking demand away from traditional PCs as a result of their better specifications, smaller form factors and cheaper prices. Thanks to rising demand from China especially from its rural areas, the motherboard market had still been able to maintain stable shipments in the couple of years prior to 2015, but such support has been weakening since 2015.

In addition to weakening demand from traditional PC market segment, exchange rate fluctuations, rising component prices and component shortages are also creating difficulties for motherboard players' operations, hurting their shipments and profitability.

As Intel's new Kaby Lake processors have not stimulated as much demand as expected since their launch in January, the sources are concerned that Intel's new top-end platform for June and new Coffee Lake processors for August may also face weak demand.


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. View other posts from Walt D. Custer.
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