Note: Custer will be in Birmingham, UK speaking on business conditions at the EIPC Summer Meeting June 1 & 2.
See: www.eipc.org/eipcevent/2017-summer-conference for details
May “Flash” PMI Leading Indicators
Markit Economics released May “flash” PMI leading indicators for select countries (Chart 1).
Manufacturing activity was expanding at a faster pace in the Eurozone (Chart 2) and Germany but slowed (but was still positive) in the USA (Chart 3), Japan (Chart 4) and France.
1Q’17 Growth of Global Electronic Supply Chain (update)
Most major companies have now reported their 1Q’17 financial results. Dell Technologies and HP Enterprise will report soon but here are the results to date:
- Growth was positive for most of the world electronic supply chain (Chart 5).
- Electronic equipment suppliers saw four successive quarters of expansion (Chart 6) based on the combined sales of 213 global OEMs spanning all electronic equipment categories (Chart 7).
We will finalize these estimates in May but the results look quite promising for the first quarter!
Source: Company financial report with analysis by Custer Consulting Group
Japan 1Q’17 Electronics Production
JEITA has now released March domestic production data for the Japanese electronics industry.
- Much of the Japanese supply chain saw growth in 1Q’17 vs. 1Q’16 (Chart 8) although revenues have declined significantly since 2000 (Chart 9).
- Semiconductor shipments to Japan are ahead of electronic equipment on a 3/12 growth basis suggesting optimism for increasing demand (Chart 10).
- IC and discrete semiconductor demand increased modestly in March – perhaps due to normal seasonality (Chart 11).
- Passive component production also rose (Chart 12).
- Printed circuit board production increased (Chart 13) pushing its 3/12 growth rate to parity (Chart 14).
The U.S. Department of Commerce just released its April “Durable Goods” report, a precursor to the more complete “Factory Orders” report which will be published. June 5, 2017.
As noted last week revised historical values of shipments, orders and inventories were released May 18 by the DOC. The changes were significant for many product groups.
- The April electronic equipment 3-month average book to bill was 1.014, up very modestly from March (Chart 15).
- Total electronic equipment orders increased but shipments declined versus the prior month (Chart 16).
- The 3/12 growth of both orders and shipments weakened but remained above 1.0 indicating expansion but at a slower rate (Chart 17).
- Aircraft & parts shipments declined slightly (Chart 18). Defense aircraft orders increased while non-defense orders weakened slightly (Chart 19).
2017 Automotive IC Market on Pace for Record Year (Charts 20 & 21)
22% forecast increase driven by system growth, rising ASPs for memory and logic devices.
Electronic systems that improve vehicle performance; that add comfort and convenience; and that warn, detect, and take corrective measures to keep drivers safe and alert are being added to new cars each year. Consumer demand and government mandates for many of these new systems, along with rising prices for many IC components within them, are expected to raise the automotive IC market 22% this year to a new record high of $28.0 billion.
Over the past several years, the global automotive IC market has experienced some extraordinary swings in growth. After increasing 11.5% in 2014, the automotive IC market declined 2.5% in 2015, but then rebounded with solid 10.8% growth in 2016. It is worth noting that the sales decline experienced in 2015 was primarily the result of falling ASPs across all the key automotive IC product categories—microcontrollers, analog ICs, DRAM, flash, and general- and special-purpose logic ICs, which offset steady unit growth for automotive ICs that year.
However, in the second half of 2016, steadily rising ASPs (along with demand for the new automotive systems) helped return the automotive IC market to double-digit growth. In 2017, exceptionally strong increases in DRAM and flash memory prices are expected to help drive the total automotive IC market to an extraordinary increase of 22.4%.
IC Insights recently revised its IC market outlook for 2017 and now shows DRAM average selling prices rising 50% in 2017, NAND flash ASPs increasing 28%, and the average selling price for automotive special-purpose logic devices increasing 34%. These strong ASPs gains, coupled with ongoing system demand, are driving the strong automotive IC market growth this year.
Collectively, microcontrollers, analog, standard logic, and memory ICs used in automotive applications accounted for only about 8% of total IC market share by system type in 2016, but that share is forecast to increase to more than 10% in 2020, when automotive is expected to become the third-largest end-use category for ICs, trailing only the communications and computer segments. Through 2020, IC Insights anticipates that advanced driver-assistance systems (ADAS) will be the biggest user of automotive ICs. Various ADAS systems are currently helping cars and drivers remain safe on the road and they are proving to be essential building blocks to semi-autonomous and autonomous vehicles that are being proposed for the next decade.
North American Semiconductor Equipment April Billings (Chart 22)
SEMI reports that the three-month average of worldwide billings of North American equipment manufacturers in April 2017 was $2.17 billion. The billings figure is 4.6% higher than the final March 2017 level of $2.08 billion, and is 48.9% higher than the April 2016 billings level of $1.46 billion.
“Semiconductor equipment billings levels exceed two billion dollars for the second month in a row," said Ajit Manocha, president and CEO of SEMI. “Solid market fundamentals, coupled with strong demand for memory for data storage and processors for smartphones, are fueling significant investments.”
Volatility in Electronic Equipment Supply Chain (Chart 23)
Here is an article that Walt Custer coauthored with Dan Tracy, Senior Director, Industry Research & Statistics of SEMI for the SEMI website:
SEMI’s year-to-date worldwide semiconductor equipment billings year-to-date through March show a 59.6% gain to the same period last year.
Understanding volatility in the electronic equipment supply chain can be valuable in forecasting future business activity. A useful way to compare relevant electronic industry data series is by using 3/12 growth rates. The 3/12 growth is the ratio of three months of data, compared to the same three months a year earlier.
Chart 23 compares the 3/12 growth rates of four data series:
- World semiconductor equipment shipments (SEMI; www.semi.org)
- Taiwan chip foundry sales (company composite maintained by Custer Consulting Group)
- World semiconductor shipments (SIA, www.semiconductors.org and WSTS, www.wsts.org)
- World electronic equipment sales (composite of 213 global OEMS maintained by Custer Consulting Group).
- Semiconductor capital equipment sales are by far the most volatile of the four series in Chart 1, followed by foundry sales.
- Foundry sales are a good leading indicator for semiconductor equipment shipments ─ leading SEMI equipment by 3-4 months on a 3/12 growth basis.
- Foundry growth peaked in November 2016.
- SEMI equipment growth appears to have peaked in February 2017.
- Semiconductor shipments may have peaked in March 2017. March semiconductor revenues were up 18.5% in 1Q’17 vs 1Q’16 and, although still very strong, their rate of growth appears to have plateaued.
Note that 3/12 values greater than 1.0 indicate growth. Declining 3/12 values (but greater than 1.0) indicate growth but at a slower rate. Values below 1.0 indicate contraction.
Based upon Chart 23, semiconductor equipment 3/12 growth will likely reach zero in August or September of this year. Considering the unstable world geopolitical situation, uncertainty clearly exists.
Worldwide Smartphones sales grew 9.1% y/y to 380 million units in 1Q’17 (Charts 24-26)
Top Three Chinese Brands Continue to Increase Combined Market Share Year Over Year Oppo Achieved Best Performance of Top Five Smartphone Vendors
Global sales of smartphones to end users totaled 380 million units in the first quarter of 2017, a 9.1% increase over the first quarter of 2016, according to Gartner, Inc. Mobile phone buyers are spending more to get a better phone, resulting in the rise in average selling prices of types of phone.
The shift in buyer preference is positively affecting Chinese manufacturers such as Huawei, Oppo and Vivo in their strategy to build desirable features at affordable prices. Their combined market share in the first quarter of 2017 accounted for 24%, up seven percentage points year on year.
"The top three Chinese smartphone manufacturers are driving sales with their competitively priced, high quality smartphones equipped with innovative features," said Anshul Gupta, research director at Gartner. "Furthermore, aggressive marketing and sales promotion have further helped these brands to take share from other brands in markets such as India, Indonesia and Thailand."
Samsung's smartphone sales declined 3.1% in the first quarter of 2017. "Although Samsung announced that preorders for the Galaxy S8 and S8 Plus are up 30% year over year, the absence of an alternative to Note 7 and the fierce competition in the basic smartphone segment are leading Samsung to continuously lose market share," said Gupta. "Sales of iPhones were flat, which led to a drop in market share year over year. Similar to Samsung, Apple is increasingly facing fierce competition from Chinese brands Oppo and Vivo, among others, and its performance in China is under attack."
Huawei edged closer to Apple with smartphone sales amounting to 34 million units in the first quarter of 2017. Despite its P9 and P9 Plus being available for more than a year now, both smartphones continued to sell well, positioning Huawei as a dominant brand in the consumer market. "Huawei has now steadily held the third spot in the worldwide ranking of smartphone vendors," said Gupta. "However, pressure is mounting as its counterparts in China are catching up."
Oppo is continuing to catch up with Huawei. With a 94.6% increase in worldwide smartphone sales in the first quarter of 2017, Oppo achieved the best performance of the quarter and retained the number one position in China. "Oppo continued to rally sales through a large network of brick-and-mortar retailers, beating market incumbents such as Samsung and Huawei," said Gupta. Oppo's strategy — centered on the camera, fast charging and offline retail — has helped it grow smartphone sales in the international market.
Meanwhile, Vivo sold almost 26 million smartphones and achieved a market share of 6.8%, which helped it achieve growth of 84.6% in the first quarter of 2017. "Vivo saw growing demand of its smartphones from the emerging markets in Asia/Pacific, including India, where sales grew over 220% thanks to its increased brand appeal and high-quality smartphones," said Gupta.
In the smartphone operating system (OS) market, the battle is now clearly between Android and iOS. With other OSs struggling for momentum, Android grew its share by 2%. Growing acceptance of Chinese brands in the global markets, led by high-quality smartphones, is driving Android OS dominance. Moreover, with Google's announcement of Android Go — targeted at
Taiwan Market Smartphone Shipments declined 20% y/y to 540,000 units in April
Shipments of smartphones in the Taiwan market totaled 540,000 units in April, down nearly 10% from the previous month and 20% from a year earlier period.
BBK Electronics of China is now the second largest smartphone manufacturer in the world with its two brands OPPO and VIVO
BBK shipped 56.7 million smartphones in Q1 with OPPO shipping 30.9 million and VIVO shipping 25.8 million, says Gartner.
Taiwan-based IC Distributors sales expected to benefit in 3Q’17 from growth of China-based smartphone vendors, Huawei, OPPO and VIVO
Taiwan-based IC distributors including WPG, WT Microelectronics, Supreme Electronics, Coasia Microelectronics and Sunnic Technology & Merchandise, Audix and Edom Technology will see sales generated from the mobile communications sector climb as a proportion of company revenues in the third quarter driven by robust demand from China-based smartphone vendors Huawei, Oppo and Vivo, according to industry sources.
Huawei, Oppo and Vivo are expected to ship a combined 350 million smartphones in 2017, said the sources. With the three major China-based smartphone vendors ramping up their shipments, the Taiwan-based IC distributors which are shipping chips and components for the vendors' smartphone devices are set to see their revenues hike in the third quarter, the sources indicated.
Particularly Taiwan-based IC distributors specializing in the sale of CMOS image sensors including Coasia and Sunnic will enjoy robust CMOS image sensor demand thanks to a growing number of new smartphones including entry-level and mid-range models that will feature a dual-lens setup, the sources noted. Coasia distributes CMOS image sensors mainly for Samsung, while Sunnic sells Sony's CMOS image sensor components.
In fact, inventories - particularly those for entry-level and mid-range smartphones - have been high in China in the first half of 2017, but the inventory correction is accelerating, the sources identified. Chip orders from China's smartphone makers have started to rebound, the sources said.
WPG, the largest Taiwan-based IC distributor, said previously its second-quarter revenues are expected to grow only slightly on quarter due to continued excessive levels of inventory in the smartphone industry supply chain. WPG expects to see its revenues register larger sequential growth in the third and fourth quarters of 2017, when end-market demand peaks for the year.
Worldwide Personal Computing Device Shipments forecasted to fall at -1.4% CAGR in 2016 to 405 million units in 2021 (Charts 27 & 28)
Notebooks and Detachable Tablets Will Drive a Return to Growth in the Personal Computing Device Market in 2019.
Worldwide shipments of personal computing devices (PCDs), comprising traditional PCs (a combination of desktop, notebook, and workstations) and tablets (slates and detachables), are forecast to decline from a total of 435.0 million units in 2016 to 405.2 million units at the end of the forecast period in 2021, according to International Data Corporation (IDC). This represents a five-year compound annual growth rate (CAGR) of -1.4%. IDC reduced its overall PCD forecast from the previous version by up to 3% depending on the year, with the largest reductions coming from the tablet product categories.
As a collective group of device categories, the PCD market is expected to return to growth in 2019, albeit marginally small. Led by a modest recovery in Europe, Middle East and Africa (EMEA) and Asia/Pacific in the first quarter of 2017, the traditional PC market registered its first quarter of positive year-on-year growth since Q1 2012. Despite the improvement, growth was less than 1% and headwinds remain. IDC expects traditional PC shipments to return to a slow decline until positive growth resumes in 2019. Desktop volume will continue to decline as consumers move to other platforms, while notebook volume will grow modestly, boosted by the commercial market and a steady move toward ultraslim and convertible notebooks.
"The steady refinement of slim and convertible designs, as well as rising commercial spending are helping stabilize overall traditional PC shipments," said Loren Loverde, vice president with IDC's Worldwide Personal Computing Device Tracker and Tracker Forecasting. "Although traditional PC shipments will decline slightly by the end of the forecast, rising replacements and steadier growth in emerging regions will keep commercial growth in positive territory and sustain total annual shipments above 252 million throughout the forecast."
Within the tablet category, the high-level story hasn't changed all that much. The expectation remains that slate tablets will continue to decline at double-digit rates in 2017, with contraction slowing in the later years of the forecast while detachable tablets are expected to continue strong growth. However, coming off a weaker than expected 2016 for detachable tablets, IDC reduced its overall detachable tablet forecast with the largest reductions coming from the United States and Asia/Pacific (excluding Japan).
"Sales of detachable tablets haven't quite met our expectations and as a result we've reduced volume projections throughout the forecast period," said Ryan Reith, program vice president with IDC’s Worldwide Quarterly Mobile Device Trackers. "New detachable tablet products continue to hit the market but the reality of this relatively new product category is that Microsoft and Apple control close to 50% of the volume and both companies have very cyclical product releases and relatively high price points. One piece of industry movement that we continue to watch closely is OEMs that have traditionally focused on the smartphone space moving further into the Windows device market. This is happening with both detachable tablets and notebook PCs, and as recently as this week Huawei announced very attractive products in both categories."
1Q’17 Global Mobile DRAM Revenue down 1.7% from 4Q’17 as Average Contract Price Remains Stable (Charts 29-31)
DRAMeXchange, a division of TrendForce, reported that the global mobile DRAM revenue for the first quarter of 2017 dropped slightly by 1.7% compared with the prior quarter. The smartphone market in the first quarter went through the conventional off season in the first quarter with the global device production volume declined by 23% from last year’s fourth quarter. On other hand, contract prices of mobile DRAM have kept climbing. These counteracting factors resulted in a small dip in the total mobile DRAM revenue.
Looking at the top three suppliers, Samsung and SK Hynix saw their revenues dropped slightly in the first quarter whereas Micron’s revenue grew significantly against the seasonal headwinds by 22.3% versus last year’s fourth quarter. Nonetheless, Samsung and SK Hynix’s combined revenue market share was more than 80% in the first quarter. Altogether, the top three suppliers accounted for around 97.7% of the global market in the same period.
Going forward, smartphone market will experience some demand recovery in the second quarter. At the same time, contract prices of mobile DRAM will continue rise though at a more moderate pace. Memory suppliers therefore will see increases in their mobile DRAM revenue. Furthermore, mobile products are expected to represent an even greater portion of their respective revenue streams.