U.S. Shipments, Orders and Inventories – May Durable Goods Report
The U.S. Commerce Department released its May Durable Goods report with preliminary data on shipments, orders and inventories:
Electronic equipment book/bill rose to 1.007 (Chart 1).
- Electronic equipment order and shipment growth rose with orders up 8.7% on a 3-month basis vs. same months in 2017 (Chart 2).
- For May both electronic equipment orders and shipments remained on an upward trajectory (Chart 3)
- Defense capital goods orders rose (Chart 4).
- Defense aircraft and parts shipments recovered from April (Chart 5) as non-defense orders dropped and defense orders increased slightly (Chart 6).
- Semiconductor shipments to N. America remain well above end market demand on a 3/12 growth basis (Chart 7).
www.census.gov/indicator/www/m3/
Japan Update
Japan’s manufacturing “flash” PMI leading increased slightly in June (Chart 8).
JEITA released April domestic production by sector.
- Electronic equipment production had a normal seasonal downturn from March to April but April 2018 was up 4.3% vs. April 2017 (Charts 9 & 10).
- IC and discrete semiconductor production declined (Chart 11).
- SEMI capital equipment (Chart 12) and flat panel equipment (Chart 13) shipments rose.
- Passive component shipments declined slightly (Chart 14) as did PCB shipments (Chart 15).
- PCB shipments were up 3.5% in April on a 3/12 growth basis (Chart 16).
- Component and device growth has weakened (Chart 17).
Component Shortages to Affect End Product pricing for Next Two Years - Lite-On Tech CEO
Passive components price hikes due to shortages will sooner or later send vend product pricing up, and the consumer market will have to make adjustments in the coming two years, according to EMS provider Lite-On Technology CEO Warren Chen.
The components shortages have stemmed from strong demand from makers of automotive electronics and stricter environmental control of production in China, Chen said, adding the price hikes' impacts on end products may appear as early as third-quarter 2018, Chen noted.
Lite-On Tech mostly uses standard passive components and has seen only slight impact from the shortages, Chen indicated.
As for the US-China trade tensions, Chen said based on the US government's announced list of China-made product items for additional tariffs, only some of Lite-On Tech's LED devices and optical disc drives will be affected – 14-15% of the revenues of the former will be affected and below 10% for the latter.
Viewing that demand for SSDs used in cloud computing servers in China is growing fast, Lite-On Tech in 2017 set up a joint-venture SSD maker, Suzhou Lite-On Storage, in eastern China with Suzhou Tsinghua Storage Technology. Lite-On invested US$45 million for a 45% stake and Suzhou Tsinghua has a 55% stake.
Suzhou Lite-On Storage began construction of a factory in February 2018 and will start production at year-end at the earliest.
Lite-On Tech will close a deal to sell its business units of smartphone-, notebook- and tablet-use CCMs to Hong Kong-based LuxVisions Innovation at US$360 million plus a 20% stake in the latter by the end of June 2018. Lite-On Tech will focus automotive CCMs and has landed 5-year contact supply of automotive CCMs used in ADAS from supply chain makers for first-tier Europe-based automakers.
German Component Distribution Sales Increased 7% y/y to 978 Million Euros in 1Q’18 (Charts 18 & 19)
Despite component shortages, the German component distribution market (according to FBDi e.V.) posted further growth during the first quarter of 2018. The order situation remains stable.
Despite the poor supply situation affecting numerous electronic components, German distributors reported continued growth during the first quarter of 2018. For the period January to March 2018, the distribution companies organized under the Fachverband Bauelemente Distribution (FBDi e.V.) reported sales of 978 million euros – up seven per cent compared with Q1/2017. Orders rose eight per cent to 1.09 billion euros. The book-to-bill ratio of 1.11 (the ratio of orders received to units shipped and billed) remains in the “green” zone.
Among the larger product segments, passive components recorded the strongest growth of 10.6 per cent (to reach 136 million euros), followed by the electromechanics (7.1 per cent to 105 million euros) and semiconductors (6.5 per cent to 676 million euros). Power supplies grew 14 per cent to almost 30 million euros, while sales of displays fell 5.5 per cent to 22 million euros. The sales breakdown remained virtually unchanged with semiconductors accounting for 69.1 per cent, passive 13.9 per cent, electromechanics 10.7 per cent, power supplies three per cent, and the others amounting to 3.3 per cent.
FBDi chairman of the board of directors, Georg Steinberger, remarked: “The low growth rate for Q1/2018 is largely the result of delays to purchase orders and existing orders caused by the long delivery times affecting numerous components. There is little prospect of any significant easing of lead times for a wide variety of passive components. Based on our assessments, the first quarter is a good indicator for 2018 as a whole.
“Although the economic indicators for the German electronics industry remain strong,” adds Steinberger, “and the capacity for innovation is high, economic policy tensions between the USA, Europe and China may very well act as a brake on growth.”
Turning to the component industry in particular, data from market researchers such as IC Insights show that investment in new production capacities in 2018 rose to more than 100 billion dollars (for semiconductors alone), with the production of passive components also set to expand drastically.
Steinberger concludes: “However, most market participants agree that demand for components in certain key products (smartphones) will continue to increase rapidly so that an easing is likely to occur in 2019 at the earliest. Consequently, price increases and long delivery times will set the tone for 2018.”
China's PCB Industry Supply Chain Capitalizing on 5G Business Opportunities
In the strong support of the government and the hot money market, the PCB industry chain has been catching up with the leading group in recent years, regardless of its production scale or technical capabilities.
The industry pointed out that the domestic PCB factory has a large capital advantage, and the capital market has more capital. In recent years, as the global PCB market conditions have improved, it is easier to collect funds for listing, and many leading manufacturers such as Shennan, Shenghong and Jing Wang and so on, the amount of capital has clearly exploded, and full of cash makes them not weak in expanding production capacity. For example, Shennan Circuit was listed in 2017, and raised RMB 1.268 billion in funds. In addition to the capacity expansion of the HDI board, it also has an ink on the IC carrier board. Jingwang recently announced that it will publicly issue RMB 978 million of convertible corporate bonds. It also officially passed the approval of the China Securities Regulatory Commission in June. It is expected that this funds will also be used for continued production.
In addition to continuing to expand production scale, the industrial technology of domestic players is also rushing to catch up, actively seeking international orders and cooperation opportunities. Shennan Circuit, which is mainly based on communication-related products, is one of Huawei's major suppliers. Under the leadership of the development of domestic communication brands, it is also following up and developing 5G related products. Yidun Electronics has been cultivating automotive electronics for many years and has gradually obtained certifications from major international companies such as Bosch and Continental. The production capacity will gradually increase this year, and it is expected to drive further growth in the company's revenue.
Domestic companies have always been good at expanding the market by acquiring overseas companies. This is also true in the PCB industry. Precision electronics manufacturer Dongshan Precision officially entered the Apple supply chain after acquiring the US soft board MFLX (Multi-Fineline Electronix) in 2016. The profitability has been greatly reversed. The net profit in 2017 reached RMB 519 million, a 16-fold increase from the 2015 RMB 0.31. Dongshan Precision announced in June that it plans to buy Multek, a PCB business group of Flextronics (FLEX), for US$29.25 million. It is expected to enable the company to achieve high-end PCB technology, and the subsequent growth of market competitiveness should not be underestimated.
The complete industrial cluster is also one of the reasons for the rapid development of domestic PCB factories, from the upstream copper foil substrate factory to the downstream assembly plant, such as the upstream copper foil substrate factory Shengyi Technology, glass fiber cloth factory Jinan Guoji, equipment Factory Dazu CNC, etc., are excellent manufacturers with a single quarter of RMB 1 billion revenue. With the introduction of new technical specifications such as 5G, the upstream technical capabilities and capacity performance are highly valued. This is a good opportunity for domestic upstream manufacturers to enter the competition.
In addition, the tightening of environmental protection policies in various parts of the country is also beneficial to the development of the entire industry.
As for the recent trade war issue, because the latest tariff list contains many electronic products, whether Huawei will become the next target for the U.S. government is still inconclusive, so the outside world is also very curious about whether the operation status of the domestic PCB factory will be affected. At present, most manufacturers are still cautious and neutral. Shennan Circuit said that at least the company's operations have not changed significantly at this stage, but the subsequent development of the situation still needs to be observed.
South Korea has Highest Proportion of Robot Workers (Chart 20)
WORRIED about a robot taking your job? Don’t move to South Korea.
According to the 2017 World Robot Statistics released earlier this year by the International Federation of Robotics (IFR), the East Asian nation has by far the highest robot density in the global manufacturing industry.
Out of every 10,000 Korean employees in manufacturing there are 631 robots – an incredible eight times the international average. They are installed primarily in the electronics and automotive manufacturing industries, accounting for an important part of South Korea’s economy.
Last year, Seoul became the first government worldwide to impose a so-called robot tax in order to cushion the nation’s workforce.
Singapore came in second worldwide with a rate of 488 robots per 10,000 employees. Some 90% of these robots are used in the electronics industry.
In fourth place is Japan with 303 were 10,000 employees, following Germany. The IFR calls Japan the “world’s predominant industrial robot manufacturer”.
The country has famously adopted humanoid robots for a number of innovative uses including caring for the elderly and acting as priests to conduct funerals.
“Robot density is an excellent standard for comparison in order to take into account the differences in the automation degree of the manufacturing industry in various countries,” said Junji Tsuda, President of the IFR.
“As a result of the high volume of robot installations in Asia in recent years, the region has the highest growth rate. Between 2010 and 2016, the average annual growth rate of robot density in Asia was 9%, in the Americas 7% and in Europe 5%.”
China has seen significant growth in the role of robots in its workforce from 25 units in 2013 to 68 units in 2016 – ranked 23 worldwide.
It is expected by 2020 China will become one of the most automated nations on earth, with a goal of selling 100,000 domestically produced industrial robots.
Topics covered: China economy Employment japan Labor Robots Singapore South Korea technology work.
World Notebook and ODM Shipments up due to Rising Orders from North America's Education Sector and Easing Passive Component Shortages
The worldwide top-5 notebook brands (excluding Apple) and top-3 ODMs saw their shipments went up from a month ago in May due to rising procurement orders from North America's education sector and the easing in passive component shortages.
The top-5 brands together enjoyed shipment increases of 32% on month and 8% on year in May, but Digitimes Research believes the growths were not fully contributed by consumer demand. Some of the increased orders were extra inventory that vendors took in as precaution for the component shortages.
Hewlett-Packard (HP) had an on-month shipment growth of over 50% in May and was the most aggressive vendor among the top-5. Lenovo returned to the second place after shifting its focus back to the PC business. Dell, despite having slipped to the third place, achieved an on-year growth stronger than all of its competitors in the top-5, by obtaining a large volume of procurement orders from North America's education sector.
The top-3 ODMs witnessed an on-month growth of 26% in their combined shipments in May. Quanta Computer had the highest on-month growth rate of the three thanks to increased orders from HP. It also helped Quanta return as the largest ODM worldwide.
Global Semiconductor-grade Silicon Wafer Sales Forecast to Rise Over 20% in 2018
Sales in the global semiconductor-grade silicon wafer market are forecast to rise over 20% in 2018, after surging 20.8% in 2017, thanks to a continued rally in silicon wafer prices, according to Digitimes Research.
The average selling price (ASP) per square inch of silicon wafers came to US$0.86 in the first quarter of 2018 reaching the highest since 2013, said Digitimes Research. The ASP is expected to reach US$1 at the end of 2019, approaching the 2009-2011 level.
With silicon wafer ASPs looking promising, suppliers are set to enjoy profit growth over the next several years, Digitimes Research indicated.
Top silicon wafer company Shin-Etsu saw its operating margin climb to 32.2% in the first quarter of 2018, up from 31.2% in the prior quarter and 24.7% a year earlier, while second-ranked Sumco's operating margin grew 6.4pp sequentially and 11.9pp on year to 25.3%. Shih-Etsu and Sumco collectively hold a more than 50% share of the global silicon wafer market.
Taiwan-based GlobalWafers, the world's third-largest silicon wafer supplier, saw its operating margin swing to 10.1% in the first quarter of 2017 from negative 3.7% in the fourth quarter of 2016. GlobalWafers' operating margin continued its rally reaching 28.2% in the first quarter of 2018.
The supply of silicon wafers particularly that of 8- and 12-inch ones will remain tight for at least one to two years, according to Digitimes Research. Whether the tight supply will persist after 2020 will very much depend on the demand side. Industrial, IoT and automotive applications will play major drivers of demand for 8-inch wafers, while demand for 12-inch wafers will come from mainly the cloud storage and smartphone segments.
U.S. GDP Grew at 2% Rate In 1Q18 Instead of 2.2% Reported Last Month (Chart 21)
The U.S. economic growth slowed more than previously estimated in 1Q’18 due to weaker consumer spending, but it has now regained momentum thanks to a strong labor market and tax cuts.
