Global Electronic Supply Chain 1Q’17 Growth Update

We have adjusted our estimate of 1Q’17/1Q’16 global electronic equipment growth to +2.7% primarily due to weaker than expected computer sales (Charts 1 & 2).

  • HP Enterprise
  • Dell technologies
  • Overall lower server shipments

Chart 3 is an updated estimate of first quarter global electronic supply chain growth by sector.

Source: Company financial reports with Custer Consulting Group analysis

Regional Electronic Equipment Monthly Revenues

Driven by the normal seasonal weakness in China, Taiwan & Japan total electronic equipment revenues slipped in May (Chart 4 & 5)

Source: Regional data compiled and analyzed by Custer Consulting Group

China/Taiwan Update

Taiwan listed companies, many of which manufacture in China have just reported their May 2017 sales.

  • May 2017 OEM sales were up 2.7% compared to April 2016 but down sequentially 1.6% compared to April 2017 (Chart 6).
  • May 2017 ODM sales were up 5.4% vs. May 2016 and down 3.4% sequentially from April 2017 (Chart 7).
  • Wafer foundry revenues rebounded from April but remained well below their recent trend line (Chart 8)
  • Passive component sales were little changed from April (Chart 9).
  • Rigid & flexible printed circuit boards were little changed from April and remained well below their trend line (Chart 10).
  • Copper clad CCL laminate sales dropped from April suggesting that excess orders rather than a copper-foil driven price increase caused the recent sales spike (Chart 11).

Source: Company financial reports analyzed by Custer Consulting Group

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

The U.S. Department of Commerce issued its April “Factory Orders” report. Shipments and orders were generally rather flat but:

  • Military electronics orders declined while shipments rose slightly (Chart 12).
  • Electromedical, measurement & control equipment orders and shipments continued their steady increase (Chart 13).

Chart 14 shows the annualized (12/12) and 3-month (3/12) growth of the U.S. electronic supply chain. Total electronic equipment sales were up 1.8% in Feb-Apr 2017 vs. the same period in 2016.


Global Semiconductor Sales increased 20.9% y/y to $31.3 billion (Charts 15-19)

Double-Digit Annual Growth Projected for 2017

Industry forecast projects sales will increase 11.5% in 2017 and 2.7% in 2018, followed by roughly flat sales in 2019

The Semiconductor Industry Association (SIA) announced worldwide sales of semiconductors reached $31.3 billion for the month of April 2017, an increase of 20.9% from the April 2016 total of $25.9 billion and 1.3% more than last month’s total of $30.9 billion. April marked the global market’s largest year-to-year growth since September 2010. All monthly sales numbers are compiled by the World Semiconductor Trade Statistics (WSTS) organization and represent a three-month moving average. Additionally, a new WSTS industry forecast projects annual global market growth of 11.5% in 2017 and 2.7% in 2018, followed by a slight decrease of 0.2% in 2019.

“The global semiconductor market has grown at an impressive rate through the beginning of 2017, culminating with April’s year-to-year growth of 21%, the global market’s largest increase in nearly seven years,” said John Neuffer, president and CEO, Semiconductor Industry Association. “Although driven in part by tremendous growth in the memory market, sales of non-memory products also grew by double digits in April, and all major regional markets posted substantial year-to-year gains. The global market is projected to experience significant annual growth this year, with slower growth expected next year and roughly flat sales in 2019.”

Additionally, SIA endorsed the WSTS Spring 2017 global semiconductor sales forecast (below).


WSTS Forecasts Semiconductor Market's Largest Growth year in over 5 years (Charts 20 & 21)

The World Semiconductor Trade Statistics (WSTS) has released its new semiconductor market forecast generated in May 2017.

WSTS expects the world semiconductor market to grow in 2017 and 2018 to US$378 billion and US$388 billion respectively. For 2017, this represents growth of 11.5% which is the largest growth year since 2010. This reflects expected growth in all major categories, with the largest growth from Memory at 30.4%. In 2017, all geographical regions are expected to grow.

For 2018, all major product categories and regions are forecasted to grow with the overall market up 2.7%, with Sensors contributing the highest growth. Europe is expected to be the highest growth geography with a 3.2% increase in 2018.


Worldwide Server Shipments declined 4.2% to 2.6 million units in 1Q’17 (Charts 22-25) Revenues fell 4.5% to $12.5 billion.

In the first quarter of 2017, worldwide server revenue declined 4.5% year over year, while shipments fell 4.2% from the first quarter of 2016, according to Gartner, Inc.

"The first quarter of 2017 showed declines on a global level with a slight variation in results by region," said Jeffrey Hewitt, research vice president at Gartner. "Asia/Pacific bucked the trend and posted growth while all other regions fell.

"Although purchases in the hyperscale data center segment have been increasing, the enterprise and SMB segments remain constrained as end users in these segments accommodate their increased application requirements through virtualization and consider cloud alternatives," Mr. Hewitt said.

Hewlett Packard Enterprise (HPE) continued to lead in the worldwide server market based on revenue. The company posted just more than $3 billion in revenue for a total share of 24.1% for the first quarter of 201. Dell EMC maintained the No. 2 position with 19% market share. Dell EMC was the only vendor in the top five to experience growth in the first quarter of 2017.

In server shipments, Dell EMC secured the No. 1 position in the first quarter of 2017 with 17.9% market share. The company had a slight increase of 0.5% growth over the first quarter of 2016. Despite a decline of 16.7%, HPE secured the second spot with 16.8% of the market. Inspur Electronics experienced the highest growth in shipments with 27.3%.


LED Lighting Vendors & Makers procured LED devices in excess of actual demand in 1H’17, resulting in high inventory levels

LED lighting players have increased LED device inventory levels, and so global demand for LED chips and devices used in LED lighting is likely to decrease in the third quarter of 2017, according to industry sources.

In view of growing demand for LED lighting and continual hikes in LED chip and device prices, LED lighting vendors and makers have procured LED devices in excess of actual demand in the first half of 2017, resulting in high inventory levels, the sources said.

LED epitaxial wafer and chip maker Epistar has fully utilized production capacity for blue-light LED chips used in LED lighting since March-April 2017, but foresees demand may significantly drop in the third quarter, the company indicated.


SoftBank to acquire Robotics Businesses from Alphabet (Google)

Masayoshi Son, Chairman &CEO of SoftBank Group, said, “Today, there are many issues we still cannot solve by ourselves with human capabilities. Smart robotics are going to be a key driver of the next stage of the Information Revolution, and Marc and his team at Boston Dynamics are the clear technology leaders in advanced dynamic robots. I am thrilled to welcome them to the SoftBank family and look forward to supporting them as they continue to advance the field of robotics and explore applications that can help make life easier, safer and more fulfilling.”

Marc Raibert, CEO and founder of Boston Dynamics, said, “We at Boston Dynamics are excited to be part of SoftBank's bold vision and its position creating the next technology revolution, and we share SoftBank's belief that advances in technology should be for the benefit of humanity. We look forward to working with SoftBank in our mission to push the boundaries of what advanced robots can do and to create useful applications in a smarter and more connected world.”

As part of the transaction with Alphabet, SoftBank has also agreed to acquire Japanese bipedal robotics company Schaft. Founded in 2012 in the JSK Robotics Laboratory at the University of Tokyo, the company has continued its pioneering work under the leadership of co-founders Yuto Nakanishi, Junichi Urata, Narito Suzuki and Koichi Nishiwaki.

Softbank subsidiaries include s Sprint, Yahoo Japan, ARM Holdings and Brightstar Entertainment


IoT Semiconductors Sales Projection lowered to 16.2% y/y increase of $21.3 billion in 2017 as a result of lower revenue projections for connected cities applications (Chart 26)

IC Insights scaled back its total semiconductor sales forecast for system functions related to the Internet of Things in 2020 by about $920 million, mostly because of lower revenue projections for connected cities applications (such as smart electric meters and infrastructure supported by government budgets)

IC Insights recently released its Update to its 2017 IC Market Drivers Report. The Update includes IC Insights’ latest outlooks on the smartphone, automotive, PC/tablet and Internet of Things markets.

In the Update, IC Insights scaled back its total semiconductor sales forecast for system functions related to the Internet of Things in 2020 by about $920 million, mostly because of lower revenue projections for connected cities applications (such as smart electric meters and infrastructure supported by government budgets). The updated forecast still shows total 2017 sales of IoT semiconductors rising about 16.2% to $21.3 billion (with final revenues in 2016 being slightly lowered to $18.3 billion from the previous estimate of $18.4 billion), but the expected compound annual growth rate between 2015 and 2020 has been reduced to 14.9% versus the CAGR of 15.6% in IC Insights’ original projection from December 2016. Total semiconductor sales for IoT system functions are now expected to reach $31.1 billion in 2020 versus the previous projection of $32.0 billion in the final year of the forecast.

IC Insights’ revised outlook for IoT semiconductor sales by end-use market categories shows that semiconductor revenues for connected cities applications are projected to grow by a CAGR of 8.9% between 2015 and 2020 (down from 9.7% in IC Insights’ original forecast). Meanwhile, the IoT semiconductor market for wearable systems is expected to show a CAGR of 17.1% (versus 18.8% in the previous projection). The lower growth projection in chip sales for connected cities systems is a result of anticipated belt tightening in government spending around the world and the slowing of smart meter installations now that the initial wave of deployments has ended in many countries. Slower growth in semiconductor sales for wearable systems is primarily related to IC Insights’ reduced forecast for smartwatch shipments through 2020.

The updated outlook nudges up semiconductor growth in the industrial Internet category to a CAGR of 24.1% (compared to 24.0% in the December 2016 forecast) and slightly lowers the annual rate of increase in connected homes and connected vehicles to CAGRs of 21.3% and 32.9%, respectively (from 22.7% and 33.1% in the original 2017 report).


Global analog ICs and power transistors for power management average value will increase of 11% from US$188 in 2016 to US$209 per vehicle in 2017 (Chart 27)

Automotive Has Become the Second Largest Application Market for Power Transistors

TrendForce’s latest research on the automotive electronics market finds that government policies worldwide to reduce carbon emissions have facilitated faster adoption of ICT-based solutions within the automotive industry. According to TrendForce’s analysis, the global average value of analog ICs and power transistors for power management will come to US$209 per vehicle in 2017, an increase of 11% from US$188 in 2016. Furthermore, the automotive industry is projected to account for 23% of the total worldwide demand for power transistors this year. Automotive has become the second largest application for power transistors, while the industrial application is the leading source of market demand for the product.

“Countries have adopted stricter standards for carbon emissions and air pollutants generated by vehicles,” said TrendForce research manager Jian-Hong Lin. “To comply with regulations, auto makers are making energy efficiency a priority in their vehicle designs.”

Lin also pointed out that automotive semiconductors have become especially critical for companies developing xEVs, which include battery electric vehicles (BEVs) and plug-in hybrid electric vehicles (PHEVs). A plug-in vehicle has an electric charging system to provide power, a power conversion system to convert DC to AC and DC to DC of another voltage, plus a power supply system to distribute AC and DC to secondary systems within the vehicle. “Efficiency in AC/DC conversion and safety in power management are two key elements in the regulatory standards that xEV must meet before they are released to the market,” said Lin. “Therefore, specifications and performances of semiconductor components used in xEVs are very important.”

Demand for analog ICs and power transistors is expanding as xEV batteries grow in capacity and deliver electricity in higher voltages

Lin pointed out unlike a smartphone, which needs only one power management IC (PMIC), a xEV due to safety requirements have numerous PMICs spread across its subsystems to maintain voltage levels as well as neutralizing static charges and signal interferences.

Lin added: “Power management occurs just as electricity is transmitted from the charging station and stored into the vehicle’s battery. Further conversions of currents and reduction of voltages take place in the vehicle’s primary inverter, secondary inverter and DC/DC converter. Therefore, PMICs have a major role in every subsystem of a xEV.”

Semiconductor components for power management include application-specific MCUs, MOSFETs, IGBTs, driver ICs and ICs for the battery management system (BMS). Currently, the main suppliers of these components are globally recognized automotive electronics companies such as Infineon, Renesas, STMicroelectronics and Texas Instruments. As xEV batteries grow in capacity and deliver electricity in higher voltages, the demand for analog ICs and power transistors – whether for conversion or circuit protection – is expected to rise.

Looking at the global power transistor market by applications, the automotive segment will account for 23% of the market for 2017, up from 22% in 2016. TrendForce further forecasts that the automotive’ s share of the market will reach 26% in 2021. This year, automotive is set to become the second largest application market for power transistors.

IDMs from Europe, Japan and the U.S. may pass on a portion of their automotive electronics orders to Taiwanese foundries

Taiwan’s semiconductor industry currently is working to expand its role in the automotive ICs and power transistor markets. IDMs in Europe and Japan and the U.S. may contract out the manufacturing of some of their automotive products due to cost considerations. Taiwanese foundries such as TSMC and UMC are likely to be the leading candidate suppliers because they already have experience in producing automotive chips.

At present, Taiwan-based Vanguard International Semiconductor Corporation (VIS) is making IGBT products for Infineon. While IGBT orders going to VIS are still in limited amount, the situation may change as the market penetration of xEVs rises. Also, IGBT products are the mainstream in the power semiconductor category, so the demand for them is expected to go up, thus providing additional orders for VIS or other Taiwanese foundries.

China’s IC companies are laying the groundwork for a vertically integrated supply chain that can provide automotive products

While most other digital ICs are able to continue to shrink in size following Moore’s Law, power transistors are encountering physical limits to further down-scaling. There are also limited options of materials that power transistors can use to work under high voltages and to raise conversion efficiency. At the same time, traditional silicon-based PMICs do not fit the specifications standards for the latest generation of driver safety and assistance systems. Overcoming these bottlenecks requires further advances in semiconductor materials. Hence, silicon carbide (SiC) and gallium nitride (GaN) are two semiconducting compounds that have been the focus of development in the field of power semiconductors.

China now accounts for over 30% of the new vehicle sales worldwide, and its government actively supports the development of the domestic xEV industry. With xEVs, Chinese car brands may have a chance to establish a greater presence on the international market. Likewise, China has placed great importance on the domestic research of SiC and GaN components for power semiconductors and is also supporting the construction of fabs that supply these products. Currently, there are several 6-inch wafer fabs in the country that is being upgraded to produce SiC and GaN components. Also, major Chinese cities such as Xiamen and Quanzhou are also investing to build their local and vertically integrated supply chains for power electronics devices. These planned industry clusters would contain manufacturers of wafer substrates, epi-wafers and chips. It remains to be seen if Chinese semiconductor companies can change the competitive landscape of the automotive electronics market that is dominated by European, U.S. and Japanese enterprises.


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.

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