Europe Update

Eurostat has re-indexed its European production data to an average month of 2015=100. All of our Eurostat-based charts have been updated to this revised index.

  • As noted last week European manufacturing growth has slowed based on recent PMI data. Growth is still positive (PMI>50) but the rate of growth has slowed for most European countries (Chart 1).
  • Annualized (12/12) and 3-month (3/12) growth is given in Chart 2 for the European electronic supply chain.
  • Industrial production for most countries has been gradually increasing since early 2012 (Chart 3).
  • Electronic equipment production (based on the Eurostat series C26 – manufacturer of computer, electronic and optical products) has grown since mid-2017. Be aware that there appears to be an inconsistency in the C26 data as there is a discontinuity (sharp decline) from 2014 to 2015. We are not using the pre 2015 data for C26. The other data series appear to not have this discontinuity (Chart 4). 
  • Motor vehicle production declined in February (Chart 5) as did aerospace output (Chart 6).
  • As part of the new 2015=100 data release a communication equipment production index is now available (Chart 7).
  • Instruments and appliances for measuring, testing and navigation production dropped sharply in February (Chart 8).
  • Medical electronics production remains volatile (Chart 9).
  • Electronic assembly (PCBA) production increased (Chart 10).
  • Wiring device (printed circuit board) output continues to increase (Chart 11).

Source: Eurostat & www.markiteconomics.com

 

Taiwan/China Update

Based on monthly sales reported by Taiwan-listed companies (many of which manufacture in China):

  • Electronic equipment revenues rebounded in March following their sharp February Lunar New Year impacted decline. March 2018 OEM sales were up 4.8% compared to March 2017 and up 26.0% sequentially compared to February 2018 (Chart 12).
  • ODM sales also increased, March 2018 was up 1.1% vs. March 2017 and up 22.7% sequentially from February 2017 (Chart 13). On a quarterly basis ODM growth was up 5.3% in Q1’18 vs. Q1’17 but less than the 15.3% Q4’17 vs Q4’16 growth (Chart 14).
  • Wafer foundry sales recovered sharply (Chart 15).
  • Memory chip sales were largely unaffected by the general February downturn and continued to grow in March (Chart 16).
  • Package and test recovered half of it February drop (Chart 17).
  • Passive component sales reach a record high in March (Chart 18).
  • Rigid & flex printed circuit board grew in March vs. February but not enough to offset their prior month’s plunge (Chart 19).
  • Rigid (CCL) laminate shipments mirrored the monthly fluctuation of rigid PCB shipments (graphed on separate axes) but remained relatively higher since 2016 – perhaps due to an apparent long lasting laminate price increase (Chart 20).

Source: Monthly sales of listed companies on Taiwan Stock Exchange and analyzed by Custer Consulting Group

 

Top 50 EMS Providers Sales up 11.4% to $300 billion in 2017 (Chart 21)

Manufacturing Market Insider, a newsletter specializing in the EMS (electronics manufacturing services) industry, has released its annual MMI Top 50™ list of the world’s largest EMS providers. In 2017, Top 50 sales placement required $300 billion in revenue – an increase from $272 billion in 2016.

Top 50 sales increased from the previous year by 11.4% largely as a result of top ten EMS firms performing exceptionally well. Companies such as Foxconn, Pegatron, Wistron, USI and Venture attained growth rates ranging from 9.3% (Pegatron) to 39.3% (Venture). Foxconn alone achieved revenue growth of 14.6% from 2016 to 2017. Without Foxconn, revenue growth of the Top 50 would have averaged 8.3%.

In addition to ranking providers by 2017 sales, MMI Top 50 listings include sales growth, previous rank, number of employees, number of plants, facility space, space in low-cost regions, number of SMT lines and customer data.

This special section was published in the March 2017 edition of MMI, and in April will include market segmentation data obtained from the MMI survey.

https://mfgmkt.com

 

Chip Demand from China Handset Firms Picking Up

Chip demand from China-based handset companies is picking up and will buoy sales performance at related chip suppliers, such as application processor designer MediaTek and LCD driver IC solution provider FocalTech Systems, starting the second quarter of 2018, according to industry sources.

MediaTek saw its March revenues start to register sequential growth, with the revenues surging 58.2% sequentially to NT$20.11 billion (US$688.1 million), while FocalTech's March revenues climbed to a record high of NT$1.16 billion.

MediaTek and FocalTech are among the chip firms involved in the supply chain of first-tier China-based smartphone companies including Huawei, Oppo, Vivo and Xiaomi, which have stepped up their pace of orders prior to new product releases, the sources said.

As the four smartphone vendors' combined share of China's smartphone market has exceeded 70%, their Taiwan-based chip providers are expected to outperform those which fail to obtain orders from the four major China-based smartphone companies during 2018, the sources indicated.

The first-tier China-based smartphone firms' expanded presence overseas will also buoy further their chip suppliers' sales performance during 2018, the sources noted.

In addition, market observers are generally less optimistic about China's smartphone market outlook for 2018. China was once the engine of the global smartphone market growth. According to Canalys, China's smartphone market suffered its first annual decline in unit shipments during 2017.

According to the China Academy of Information and Communications Technology, smartphone shipments in China fell 27% from a year earlier to 81.87 million units in the first quarter of 2018.

www.digitimes.com

 

Worldwide PC Shipments Declined 1.4% y/y to 61.7 million units in 1Q’18 (Charts 22-24)

Lower Shipments in Asia/Pacific and the U.S. Drag Down Global Results

Worldwide PC shipments totaled 61.7 million units in the first quarter of 2018, a 1.4% decline from the first quarter of 2017, according to preliminary results by Gartner, Inc. The PC market experienced a 14th consecutive quarter of decline, dating back to the second quarter of 2012.

Asia/Pacific and the U.S. experienced declining shipments, while other regions saw some minimal growth, but it was not enough to drive overall growth for the PC industry. In the first quarter of 2018, PC shipments in Asia/Pacific declined 3.9% compared with the same period last year, while shipments in the U.S. decreased 2.9%.

"The major contributor to the decline came from China, where unit shipments declined 5.7% year over year," said Mikako Kitagawa, principal analyst at Gartner. "This was driven by China's business market, where some state-owned and large enterprises postponed new purchases or upgrades, awaiting new policies and officials' reassignments after the session of the National People's Congress in early March.

"In the first quarter of 2018, there was some inventory carryover from the fourth quarter of 2017," Kitagawa said. "At the same time, vendors were cautious in overstocking due to the upcoming release of new models in the second quarter of 2018 with Intel's new eighth-generation core processors."

The top three vendors — HP, Lenovo and Dell — accounted for 56.9% of global PC shipments in the first quarter of 2018, compared with 54.5% of shipments in the first quarter of 2017. Dell experienced the strongest growth rate among the top six vendors worldwide, as its shipments increased 6.5%.

HP Inc.'s worldwide PC shipments increased 2.8% in the first quarter of 2018 versus the same period last year. In EMEA, HP Inc. recorded double-digit growth in both desktop and mobile PCs. This was contrasted with a small decline in other regions. HP Inc. was adversely impacted by declining demand in the U.S., which generally accounts for one-third of its total shipments.

Lenovo's global PC shipments remained flat in the first quarter of 2018. Lenovo achieved 6% growth in EMEA and double-digit shipment growth in Latin America. However, in Asia/Pacific (its largest market), PC shipments declined 4%.

After record holiday sales for consumer and gaming products in the fourth quarter of 2017, Dell continued to perform well in the first quarter of 2018. With double-digit shipment increases in EMEA, North America and Latin America, Dell grew in all regions except Asia/Pacific. Desktop and mobile PCs grew in equal measures, showing Dell's strength in the business segment.

The average selling prices (ASPs) of PCs continue to rise. Acknowledging deceleration in the smartphone market, and uncertainty in PC replacement demand, component companies remain cautious about expanding their production capabilities. Therefore, persistent component shortages and a rising bill of materials continue to create an environment conductive to higher prices.

"In contrast to other DRAM-related price spikes, PC vendors are not reacting by reducing DRAM content. Rather they have passed the cost increase to consumers," Kitagawa said. "With fewer people buying new machines, manufacturers need to get the highest profit margin from each sale. To do that, they are raising the selling points and focusing on customer experience or perception of value."

www.gartner.com

 

Smartphone ODM and EMS Assembly Shipments decreased 13.8% y/y in 4Q’17 due to Weakening Market Demand (Chart 26)

According to the International Data Corporation (IDC) smartphone ODM and EMS assembly shipments decreased 13.8% year-on-year in 4Q17 due to weakening market demand. This was a slight quarter-on-quarter growth of 2.1%.

"The fourth quarter is traditionally a strong season for smartphone production, but this year's weakness was the result of both conservative supply and weakening demand," said Sean Kao, research manager with IDC's Worldwide Hardware Assembly Research Group. "Driven by a migration to full screen smartphones, Chinese OEMs accelerated their inventory cleanup of old models while staying conservative on orders for new models. Component suppliers were also cautious given the fast-changing specs. All these contributed to the unusual shipment trend across the supply chain prior to the Chinese New Year."

Domestic consumption in China was also sluggish due to longer replacement cycles and the absence of operator subsidies, while local vendors in emerging markets shortened their purchase cycles and reduced order sizes in response to market changes. Seasonal increases for Apple, Huawei and Xiaomi also led to ranking changes in the smartphone ODMs.

Factors to watch out for in the upcoming quarters include the shift to full screen smartphones and improving facial recognition technologies. But total shipments will not likely to grow significantly until low-end smartphone specifications stabilize in 2Q18. Midrange and low-end products are likely to be the target segment for brand vendors as emerging-market demand becomes a key driver for growth.

www.idc.com

 

Samsung Electronics, Toshiba, Micron Technology and SK Hynix to expand NAND Flash Production Capacities in 2019

Samsung Electronics, Toshiba, Micron Technology and SK Hynix all plan to expand their NAND flash production capacities which will boost the overall output worldwide in 2019, according to industry sources.

DRAMeXchange in its January 2018 report already warned of a potential oversupply of NAND flash memory in 2019, as major chip vendors carry out their expansion projects.

Samsung in August 2017 disclosed plans to expand production capacity at its NAND flash memory wafer fab in Xian, northwest China for a total of US$7 billion over the next three years. The additional new capacity at the plant, dedicated to producing the company's 3D V-NAND memory products, is expected to come online in 2019.

Toshiba is constructing Fab 6 at its Yokkaichi operations in Mie (Japan), where the company will be making 3D flash memory chips. The company expects to start operating the new Fab 6 in 2019.

Toshiba has also proposed a new site for Fab 7. The company announced in September 2017 it had selected Kitakami in Japan's Iwate prefecture as the next location to expand its flash memory operations.

DRAMeXchange believes Fab 7 will be ready for mass production in the second half of 2019, with 96-layer and more than 96-layer 3D NAND chips being its main products. Nevertheless, the new fab will not have significant impact on the overall NAND flash output until 2020, DRAMeXchange said.

Meanwhile, Micron Technology is adding a new facility to its existing 12-inch wafer plant for the manufacture of NAND flash memory in Singapore. The new facility is expected to come online by the end of 2019.

SK Hynix is reportedly building a new fab dubbed M15 for the manufacture of 3D NAND flash chips in Cheongju, South Korea. Operations of the new fab is expected to kick off also in 2019.

In addition, China's Yangtze Memory Technologies (YMTC) is looking to enter volume production of 3D NAND flash chips in the second half of 2018. The memory startup will initially provide 32-layer 3D NAND chips and then move forward supplying 64-layer products.

www.digitimes.com & www.DRAMeXchange.com

 

World Semiconductor Photomask Market surged 13% record $3.75 billion in 2017 & Forecast to exceed $4.0 billion in 2019 (Chart 27)

SEMI announced that after several years of incremental increases the worldwide semiconductor photomask market surged 13% to a record high $3.75 billion in 2017 and is forecast to exceed $4.0 billion in 2019. The mask market is expected to grow 5% and 4% in 2018 and 2019, respectively, according to the SEMI report. Key photomask market drivers remain advanced technology feature sizes (less than 45nm) and Asia-Pacific manufacturing growth. Taiwan is again the largest photomask regional market for the seventh year in a row and is expected to retain the top spot for the duration of the forecast. Korea rose in the rankings to claim the second spot.

With the $3.75 billion in revenues, photomasks accounted for 13% of the total wafer fabrication materials market, behind silicon and semiconductor gases, in 2017. By comparison, SEMI reports that photomasks represented 18% of the total wafer fabrication materials market in 2003. Reflecting their growing importance, captive mask shops, aided by intense capital expenditures in 2011 and 2012, continue to gain market share at merchant suppliers' expense. Captive mask suppliers accounted for 65% of the total photomask market last year, up from 63% in 2016. In 2013, captive mask shops represented 31% of the photomask market.

www.semi.org

 

IT Infrastructure Spending for Cloud Deployment to Grow 10.9% to $52.3 billion in 2018

Total spending on IT infrastructure products (server, enterprise storage, and Ethernet switches) in cloud environments expected to total $52.3 billion next year up 11% Y/Y.

According to a forecast from the IDC's Worldwide Quarterly Cloud IT Infrastructure Tracker, total spending on IT infrastructure products (server, enterprise storage, and Ethernet switches) for deployment in cloud environments is expected to total $52.3 billion in 2018 with Y/Y growth of 10.9%.

Public cloud datacenters will account for a majority of this spending, 65.9%, growing at the fastest annual rate of 11.3%. Off-premises private cloud environments will represent 13.0% of cloud IT infrastructure spending, growing at 12.0% year over year. On-premises private clouds will account for 61.7% of spending on private cloud IT infrastructure and will grow 9.1% Y/Y in 2018.

WW spending on traditional, non-cloud, IT infrastructure is expected to decline by 2.0% in 2018 but nevertheless will account for the majority, 54.7%, of total end user spending on IT infrastructure products across the three product segments, down from 57.8% in 2017. This represents a faster share loss than in the previous three years. The growing share of cloud environments in overall spending on IT infrastructure is common across all regions.

In cloud IT environments, spending in all technology segments, except for storage platforms, is forecast to grow at double digit rates in 2018. Ethernet switches and compute platforms will be the fastest growing at 20.9% and 12.4%, respectively, while spending on storage platforms will grow 6.0%. Investments in all three technologies will increase across all cloud deployment models – public cloud, private cloud off-premises, and private cloud on-premises.

Long-term, IDC expects spending on off-premises cloud IT infrastructure will grow at a five-year CAGR of 10.8%, reaching $55.7 billion in 2022. Public cloud datacenters will account for 83.6% of this amount growing at a 10.6% CAGR while spending on off-premises private cloud infrastructure will increase at a CAGR of 11.4%. Combined with on-premises private cloud, overall spending on cloud IT infrastructure will grow at a 10.9% CAGR and by 2022 will surpass spending on non-cloud IT infrastructure. Spending on on-premises private cloud IT infrastructure will grow at an 11.5% CAGR, while spending on non-cloud IT (on-premises and off-premises combined) will decline at a 2.7% CAGR during the same period.

"Growing expansion of digital transformation initiatives enables further adoption of cloud-based solutions around the globe. This will result in a continuous shift in the profile of IT infrastructure buyers. SaaS, PaaS, and IaaS offerings address a broad range of business and IT needs of enterprises from 'lift-and-shift' to emerging workloads. As a result, service providers' demand for IT Infrastructure for delivering these offerings is growing steadily making them as a group a major buyer of compute, storage, and networking products," said Natalya Yezhkova, research director, enterprise storage, IDC.

www.idc.com

 

Global IT Spending to grow 6.2% y/y to $3.7 trillion in 2018 (Chart 28)

Worldwide IT spending is projected to total $3.7 trillion in 2018, an increase of 6.2% from 2017, according to the latest forecast by Gartner, Inc.

"Although global IT spending is forecast to grow 6.2% this year, the declining U.S. dollar has caused currency tailwinds, which are the main reason for this strong growth," said John-David Lovelock, research vice president at Gartner. "This is the highest annual growth rate that Gartner has forecast since 2007 and would be a sign of a new cycle of IT growth. However, spending on IT around the world is growing at expected levels and is in line with expected global economic growth. Through 2018 and 2019, the U.S. dollar is expected to trend stronger while enduring tremendous volatility due to the uncertain political environment, the North American Free Trade Agreement renegotiation and the potential for trade wars."

Enterprise software spending is forecast to experience the highest growth in 2018 with an 11.1% increase. Barring unexpected disruption, the software industry is expected to continue capitalizing on the evolution of digital business. Application software spending is expected to continue to rise through 2019, and infrastructure software will also continue to grow, bolstered by modernization initiatives.

Even with a strong end to 2017, worldwide spending on data center systems is forecast to grow 3.7% in 2018, down from 6.3% growth in 2017. The longer-term outlook continues to have challenges, particularly for the storage segment. The strength at the end of 2017 was primarily driven by the component shortage for memory components, and prices have increased at a greater rate than previously expected. Whereas previously, component shortages were expected to ease into 2018, the shortages are now expected to continue throughout the year with the supply not expected to ease until the end of the year.

Worldwide spending for devices — PCs, tablets and mobile phones — is forecast to grow in 2018, reaching $706 billion, an increase of 6.6% from 2017. "The device market continues to see dual dynamics. Some users are holding back from buying, and those that are buying are doing so, on average, at higher price points," said Lovelock. "As a result, end-user spending will increase faster than units through 2022. However, total end-user spending and unit shipments are expected to be lower compared with previous forecasts, as demand for ultramobile premium devices, ultramobile utility devices and basic phones is expected to be slow."

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. View other posts from Walt D. Custer.

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