U.S. Made Electronic Equipment Demand is Increasing – November Durable Goods Report
The U.S. November “Durable Goods” report was just released:
- Electronic equipment book/bill rose to a 19-month high (Chart 1) as both orders and shipments experience their highest 3/12 growth rates since 2011 (Chart 2).
- Electronic equipment orders & shipments on a dollar basis are at their highest levels since 2012 (Chart 3).
- Communication equipment orders are at over a 4-year high (Chart 4) but computer demand remains weak (Chart 5).
- Defense capital goods orders and shipments are rising (Chart 6).
- Aircraft shipments (Chart 7) and orders (Chart 8) have recently risen.
- Semiconductor shipments to N. America remain well in excess of end market demand on a 3/12 growth basis (Chart 9).
N American PCB Industry Growth Continues to Strengthen (Charts 10-14)
IPC — Association Connecting Electronics Industries announced the November 2017 findings from its North American Printed Circuit Board (PCB) Statistical Program. Positive year-over-year shipment and order growth continued in November. The book-to-bill ratio remained high in November at 1.09.
Total North American PCB shipments in November 2017 were up 4.0% compared to the same month last year. This year to date, shipments are 2.3% below the same period last year. Compared to the preceding month, November shipments increased 0.4%.
PCB bookings in November increased 15.8% year-on-year, raising year-to-date order growth to 5.7% above the same period last year. Bookings in November were down 3.8% compared to the previous month.
“The North American PCB industry’s recovery continued in November and is becoming more robust, with positive year-on-year sales growth for the third consecutive month and strengthening growth rates,” said Sharon Starr, IPC’s director of market research. “The outlook is also positive, based on strong order growth in recent months and on PCB book-to-bill ratios above parity (1.0) for 10 consecutive months. Although the book-to-bill ratio has been retreating from a 12-year high in August, due to growth in sales, it remains strong, indicating a likelihood of continued sales growth in the coming months,” she added.
Apple iPhone X Shipments Expected to Reach 30-35 Million Units in 4Q’17
Shipments of the iPhone X are estimated to reach between 30-35 million units in the fourth quarter of 2017 and stay flat or drop slightly in the first quarter of 2018, according to sources from the semiconductor packaging and testing service industry.
The sources pointed out that the pre-orders for the iPhone X in a number of markets such as Taiwan, the US and Singapore, are not as strong as expected, but they are seeing Apple Watch sales fare rather well. For 2018, the sources expect Apple Watch shipments are likely to reach 27 million units, higher than the previous' forecast of 23-25 million.
However, for some markets such as Japan, the iPhone X is still reported to have experienced tight supply.
Because of the iPhone X's weak performance, the upstream supply chain has been rumored that Apple is planning three new smartphones for 2018 with two using OLED displays and one LCD display, and the 3D sensing functionality may be more broadly used in these devices. Apple is also rumored to adjust its pricing for iPhone devices in early 2018 and has even started preparing a prototype iPhone with support of pre-5G features. However, Apple has not officially confirmed any of the rumors.
DRAM Quarterly Sales Forecasted to Grow 74% y/y to Record $21.1 Billion (Chart 15)
4Q DRAM Sales Put Exclamation Point on Amazing Year of Growth
Throughout 2017, DRAM manufacturers faced pressure to boost output of their devices—particularly high-performance DRAM used in data center servers and low-power high-density DRAM used in smartphones and other mobile products. Strong, ongoing demand put significant upward pressure on DRAM average selling prices. This trend continued into 4Q’17 and is expected to drive quarterly DRAM sales to an all-time high mark of $21.1 billion (Figure 1), capping an incredible year of growth in which DRAM sales set a new all-time high sales mark each quarter. The forecast $21.1 billion sales level in 4Q’17 would be an increase of 65% compared to the $12.8 billion DRAM market of 4Q’16
Annual DRAM market growth of 74% is forecast for 2017, which would be the highest growth rate since the 78% increase in 1994—23 years ago—and 61 points more than the 13% average DRAM market growth rate from 1993-2017 (Figure 2). The expected 74% DRAM market growth in 2017 will mark the fourth time since 1993 that the DRAM market has increased by more than 50%. This near-historic high market spike in 2017 was brought on by several factors, including constrained supply attributed to a lack of major fab expansion plans, yield difficulties with leading-edge (≤20nm) processes, demand for high performance (graphics) DRAM from gaming systems and data center-based server applications, and increased average content for mobile DRAM used in smartphones.
There is an increasing need for high-speed but inexpensive data storage in smartphone handsets for multi-tasking, which is boosting the average DRAM content in a smartphone. The Apple iPhone 8 features 2GB of DRAM and the iPhone X has 3GB of DRAM. The Samsung Galaxy S8 is sold with 4GB of DRAM (6GB in China). Huawei’s P10 Plus and HTC’s U11 come with 6GB of DRAM. The One Plus 5 model and the first smartphone from Razer, a Singapore-based company that is primarily known for its video game equipment, have 8GB of DRAM.
With virtual and augmented reality and artificial intelligence becoming prominent features on new smartphones and apps, DRAM content in high-end smartphones shows no signs of slowing. Meanwhile, DRAM growth for smartphones is also stemming from less developed countries, where much of the population is moving from feature phones to their first smartphone—literally transitioning from zero to 1GB of mobile DRAM.
Based on historical trends, the DRAM industry will likely experience a decline (possibly a big market decline) in its growth rate in the not-too-distant future as prices begin to tumble with significant capacity additions and an increase in DRAM output expected over the next year or two. Announcements by Samsung and SK Hynix in the second half of 2017 confirmed that new DRAM capacity is set to come online in 2018, which likely will ease the upward trend of DRAM ASPs next year. Samsung has stated its semiconductor capital expenditure budget for 2017 will be an enormous $26.0 billion, and SK Hynix has announced plans to build a new manufacturing line at its massive facility in Wuxi, China. Micron has gone on record as saying it doubts that it will ever need to build another new DRAM fab, but it is hard to imagine that Micron will sit still as its two fiercest rivals capture additional market share. (For the record, Micron and Intel are developing Crosspoint memory as a potential replacement for DRAM).
Worldwide Defense Spending will Increase 3.3% y/y to $1.67 Trillion in 2018 (Chart 16)
Global Defense Spending to Hit Post-Cold War High in 2018, Jane’s by IHS Markit Says Global defense expenditure is set to increase again in 2018 to reach its highest level since the end of the Cold War, according to the annual Jane’s Defense Budgets Report released by IHS Markit.
“The increase in defense spending reflects improving economic conditions around the world, coupled with a response to continuing instability in a number of key regions” According to the Jane’s report, defense spending will grow for the fifth consecutive year, reaching $1.67 trillion in 2018 and overtaking the previous post-Cold War record of $1.63 trillion seen in 2010.
Defense spending will increase by 3.3% in 2018 - the fastest rate of growth for a decade - driven by the largest year-on-year increase in US spending since 2008. Funding for the procurement of military equipment is also expected to rise from $295 billion in 2017 to $315 billion in 2018, another record high in global terms.
“The increase in defense spending reflects improving economic conditions around the world, coupled with a response to continuing instability in a number of key regions,” said Fenella McGerty, principal analyst, Jane’s by IHS Markit. “However, defense spending remains lower in relation to GDP than at any time in the last 10 years, which suggests that recent growth primarily relates to improved economic and fiscal conditions in established markets.”
Over the last decade, global defense expenditure has fallen from an average level of 2.7% of GDP to 2.2%.
Key findings from the 2017 Jane’s Defense Budgets Report
US raises defense spend under Trump
The key reason for the expected acceleration in global defense spending growth is the potential 4.7% increase to the US budget planned for 2018.
With the US Department of Defense’s (DoD) budget accounting for 40% of all global defense expenditure, changes in US spending affect trends worldwide. Since the 11 September attacks in 2001, the US has spent around $10 trillion on defense.
“President Trump and his administration sought large increases in the DoD budget in his first budget. The increased funding will go toward fixing readiness and training issues that are largely the result of sequestration cuts,” said Guy Eastman, senior analyst, Jane’s by IHS Markit. “Investment will also increase in targeted areas such as Ballistic Missile Defense (BMD), shipbuilding, missiles and munitions, space-based systems, and C4ISR systems.”
More NATO members to hit spending targets
Nine NATO members will reach the 2% of GDP benchmark for defense expenditure in 2018 – the highest number hitting this goal since the financial crisis. These countries are the US, Greece, Estonia, Turkey, Latvia, the UK, Lithuania, Poland, and Romania.
Western Europe’s turnaround to growth continues
Western Europe is still emerging from a tough six-year period where defense spending was cut by 1% annually between 2009 and 2015. The trend has steadily reversed since then and regional defense spending is expected to increase by 1.3% in 2018.
“Defense spending growth in Western Europe will largely be driven stabilizing government balance sheets, the perceived threat from Russia on NATO’s eastern border, and several key procurement programs coming online,” McGerty said. “However, this growth will hinge on political developments in the region. Not least, the outcome of German coalition discussions and the bearing this will have on European defense cooperation as well the progress of Brexit negotiations and the resulting impact on the economic outlook of the UK and its trading partners.”
Eastern Europe sees fastest defense spending growth
Eastern Europe will be the fastest growing region in the world in 2018 as several countries pursue the goal to increase defense spending to 2% of GDP. Growth has been particularly spectacular among the three Baltic States. By next year, Baltic defense spending will have more than doubled in real terms compared to 2014 levels and Estonia, Latvia and Lithuania will all be spending 2% of GDP or more on defense.
“Growth has taken off in Eastern Europe since Russia’s intervention in Ukraine in 2014 with the majority of the new defense funding being put towards military modernization,” McGerty said. “Armored vehicle procurement is on the increase - in fact, Europe is emerging as the leading spender globally in the military ground vehicle market.”
Russian defense expenditure fell for a second consecutive year in 2017 as Moscow continued to grapple with challenging economic and fiscal conditions.
“The defense budget is now around 10% lower than its 2015 peak and is expected to be reduced by a further 5% next year. Russian military modernization will continue but the cuts are impacting the pace of that process,” said Craig Caffrey, principal analyst, Jane’s by IHS Markit.
APAC spending slows but return to growth expected
Growth in Asia-Pacific – a region that has experienced robust growth over the last decade – slowed this year to its lowest rate since 2010 due to smaller increases in China and India and cuts to spending in South East Asia.
“While we saw a distinct slowdown in 2017, the foundations remain in place for robust increases to return over the next two years. We still expect Asia-Pacific to be behind the driving force behind long term growth in global defense spending,” Caffrey said.
“Economic growth is still the main factor behind rising spending in Asia-Pacific, but we’re starting to see strategic factors play a more prominent role. In recent years Chinese actions in the East and South China Sea, the North Korean ballistic missile threat and insurgencies throughout South East Asia have all caused additional funding to be diverted towards defense,” Caffrey said.
Top Notebook Vendors & ODMs had 3% y/y Growth in November
Increased volumes from HP, Lenovo and Asustek Computer
The top-5 notebook brands' combined shipments, after experiencing two consecutive months of on-year declines in September and October, witnessed an on-year growth of 3% in November mainly thanks to increased volumes from Hewlett-Packard (HP), Lenovo and Asustek Computer.
As in October, HP maintained a shipment growth in November, rising 6% from the same month a year ago and was the best performing vendor of the top-5.
Lenovo also enjoyed an on-year increase in its November shipments after placing its business focus back to the PC market, Digitimes Research figures showed.
Dell's shipments were lower than those of HP and Lenovo in November as its growth from the enterprise sector was weaker than expected. Asustek's shipments have been picking up gradually as its business re-organization has come to an end.
Among the top-3 ODMs, Compal Electronics had better shipment growth in November than Quanta Computer and Wistron due to increased orders from HP.
Fourth-place Pegatron Technology outperformed fifth-place Inventec in shipments for the second consecutive month in November.
Wearable Device shipments will grow at 18.4% CAGR to 222.3 million Units in 2021 (Charts 17-19)
Smart Watches and New Product Categories Gain Traction
The overall wearables market is expected to grow from 113.2 million shipments in 2017 to 222.3 million in 2021 with a compound annual growth rate (CAGR) of 18.4%, according to the International Data Corporation (IDC). The most popular wearables to date have been basic wristbands like the Xiaomi Mi Band or Fitbit Charge. However, such wearables are quickly becoming commodities and IDC anticipates low single-digit growth in this category throughout the forecast period. Meanwhile, watches (both smart and basic) are on track to take the lead and are expected to grow from 61.5 million in 2017 to 149.5 million in 2021 as more vendors – particularly fashion brands—and cellular connectivity built into smartwatches help to drive growth in this category.
"The move from wristbands to watches introduces additional revenue opportunities for vendors and distributors as average selling prices are expected to rise," said Jitesh Ubrani senior research analyst for IDC Mobile Device Trackers. "However, the struggle to move beyond health and fitness persists and convincing consumers to spend more for utility that may not be immediately obvious will be a challenge. This is where fashion-forward brands have a chance to shine as their customer base doesn't tend to prioritize features."
"What will merit continued observation is how the market evolves beyond its current status and how users will either replace or append to their current devices," said Ramon T. Llamas, research manager for IDC's Wearables team. "Tomorrow's wearables will become more fully featured and multi-functional, spanning health and fitness to communication and productivity. Effectively, that will make today's wearables seem quaint, and spur upgrades and replacements.
"What's more, users can expect a wider array of devices going forward," added Llamas. "These won't necessarily replace the wearables we have today, but other products that we use on a regular basis. Traditional earphones will give way to smart earwear that feature fitness tracking, audio augmentation, or personal assistants. Clothing – the original wearable – will become smarter with health and fitness tracking, particularly for professional athletes."
The simplicity and low cost of Basic Wristbands (fitness bands) make them highly accessible, particularly in emerging markets around the world. Although they will account for the majority of device shipments in 2017 (39.8%), this category is expected to decline in share to 21.5% by 2021 as watches gain traction.
In many ways, Basic Watches (Hybrid Watches) are the evolution of fitness bands but they include significantly better design and fashion appeal. The entry of additional fashion brands along with their unique customer base and distribution network will help to drive growth although consumer education around their utility will continue to be a challenge.
Smart Watches, led primarily by the Apple Watch, are expected to ship 71.5 million units by 2021, up from 31.6 million in 2017. Contributing factors include the adoption of cellular connectivity, additional SKUs from fashion brands, and the transition of kids watches (a phenomenon largely relegated to China) from basic location tracking watches to more sophisticated watches that allow kids to play games, run apps, and communicate with friends/family.
The emerging category of sensor-laden Clothing, led mainly by step-counting shoes, will be a distant fourth as many of the features will be copies of wristbands and watches. Though newer products like the Levi's Commuter Jacket (made in partnership with Google) show promise, their high price points and limited use cases make them a tough sell for the broader market.
Following closely behind Clothing, Earwear wearables are expected to ship 10.6 million units by the end of 2021 with a 58.5% CAGR from 2017–2021. It's important to note that this category excludes traditional Bluetooth headsets. Instead, it is comprised of wireless headphones that offer additional features such as fitness tracking or audio augmentation. The elimination of the 3.5mm headphone jack from smartphones will certainly be a catalyst for this category. However, new entrants like Bragi and Nuheara, combined with established headphone brands like Bose and Jabra, are expected to drive growth in the coming years.
Others: This category includes wearables that can be worn on multiple parts of the body, the small category of smart wristbands (those that do run third party apps), as well as other wearables that do not fall into the categories mentioned above (e.g. Snap Spectacles). Such wearables will experience very minor growth, growing from 2.7 million shipments in 2017 to 3 million by 2021, and will continue to lose share over the course of the forecast.
China's IC design industry revenue will grow 22% y/y to RMB200.6 billion (about $30.33 billion) in 2017 (Chart 20)
China's IC design industry revenue will reach RMB200.6 billion (about $30.33 billion) in 2017, an annual growth of 22%.
The growth rate is expected to remain at around 20% and take the market to RMB240 billion (about $36.3 billion) in 2018. According to TrendForce's forecast of 2017 IC design industry revenue ranking, the state-owned Datang Semiconductor will drop out of top 10, while WillSemi and GigaDevice enter the list. Spreadtrum's drop in revenue is ascribed to price pressures on the mid- to low-end of the mobile phone market. In contrast HiSilicon's success is due to the success of its Kirin application processors in displacing Qualcomm silicon in high-end phones.
U.S. GDP expanded 3.2% in 3Q’17 (Chart 21)
Gross domestic product expanded at a 3.2% annualized rate 3Q’17, the Commerce Department said. An alternate measure of growth, gross domestic income, rose at a 2.0% rate in 3Q’17.