Global Electronic Systems Market will grow 5% y/y to $1,622 billion in 2018 (Chart 1)

  • Semiconductor Market Expected to grow 14% y/y to $509 billion
  • Average Semiconductor Content in an Electronic System will reach 31.4%

Semi content to surpass 30% this year, smashing the previous record high set just last year.

IC Insights forecasts that the 2018 global electronic systems market will grow 5% to $1,622 billion while the worldwide semiconductor market is expected to surge by 14% this year to $509.1 billion, exceeding the $500.0 billion level for the first time.  If the 2018 forecasts come to fruition, the average semiconductor content in an electronic system will reach 31.4%, breaking the all-time record of 28.8% that was set in 2017.

Historically, the driving force behind the higher average annual growth rate of the semiconductor industry as compared to the electronic systems market is the increasing value or content of semiconductors used in electronic systems.  With global unit shipments of cellphones (-1%), automobiles (3%), and PCs (-1%) forecast to be weak in 2018, the disparity between the moderate growth in the electronic systems market and high growth of the semiconductor market is directly due to the increasing content of semiconductors in electronic systems.

While the trend of increasing semiconductor content has been evident for the past 30 years, the big jump in the average semiconductor content in electronic systems in 2018 is expected to be primarily due to the huge surge in DRAM and NAND flash ASPs and average electronic system sales growth this year. After slipping to 30.2% in 2020, the semiconductor content percentage is expected to climb to a new high of 31.5% in 2022.  IC Insights does not anticipate the percentage will fall below 30% any year through the forecast period.

The trend of increasingly higher semiconductor value in electronic systems has a limit.  Extrapolating an annual increase in the percent semiconductor figure indefinitely would, at some point in the future, result in the semiconductor content of an electronic system reaching 100%.  Whatever the ultimate ceiling is, once it is reached, the average annual growth for the semiconductor industry will closely track that of the electronic systems market (i.e., about 4%-5% per year).

Source: www.ICInsights.com

DRAM Supercycle Ending – Nanya Technology

U.S.-China tech cold war makes chip industry cautious on investment, Nanya chief says

Taiwan's Nanya Technology warned that the price hike of dynamic random access memory chips – used in the growing number of connected devices – could peak in the current quarter, ending a nearly two year memory chip supercycle.

"We are seeing prices of some types of DRAM chips such as those for PCs to go down... the demand for PCs and notebooks are weakening but the demand for data center server still looks healthy," President Lee Pei-ing, president told reporters.

"Overall, for the current quarter, DRAM price could either stay at the same level or correct slightly... but I think if there is any correction, it would be limited to 1-2 percentage points."

Earlier this year, Lee was a bit more optimistic about the DRAM price, saying there was still room for the price to rise until the July-September quarter.

Nanya Tech is the world's No. 4 DRAM chip provider, trailing South Korean rivals Samsung Electronics and SK Hynix and U.S.-based Micron Technology. DRAM is a crucial component in a wide range of electronics, including PCs, smartphones, connected cars, various connected devices, and data centers.

For the April-June period, Nanya Tech's revenue jumped 94.8% on the year to 24.59 billion New Taiwan dollars ($806.2 million). Gross margin reached a company record of 55%, up from 43.9% a year earlier, and higher than the 51.8% in the January-March quarter. The company's net profit climbed 74.2% to NT$11.3 billion.

All memory chipmakers worldwide have enjoyed a robust supercycle since the end of 2016 thanks to rising DRAM prices and a tight market supply.

Lee Pei-ing, president of Taiwanese chipmaker Nanya Technology, says there is still room for DRAM prices to rise in the July-September quarter. (Photo by Cheng Ting-Fang)

However, China's antitrust regulator is looking into whether top three global memory chipmakers manipulated prices, Samsung, SK Hynix and Micron all confirmed in June. Meanwhile, the escalating technology cold war and trade tensions between Washington and Beijing are creating uncertainties for the long term, Lee said.

"Caution is needed. We are closely monitoring the current trade tensions as well as China's probe on price manipulation," said Lee. "As DRAM chips go into almost every electronic device, we are concerned whether the trade conflicts could eventually hit global electronics demand and has a negative impact on economic condition."

Lee added that all the big memory chipmakers are "paying close attention" to trade disputes, while such uncertainties make his peers more careful when it comes to big capacity expansions that could cause major oversupply in the market.

Nanya Tech does not supply chips to Apple but it does supply HP, Dell, Kingston, Huawei, Lenovo, Xiaomi, and many other global consumer electronics makers.

Sean Yang, an analyst at Shanghai-based research company CINNO, echoed Lee's comments and said there is no upside for DRAM price to go up currently.

"We don't see growth catalysts for the DRAM price to continue to be up for now," Yang said.

"And for 2019, the price will go down for sure. While new artificial intelligence features and electric cars are all boosting DRAM demand, these new applications could not yet offset headwinds in the slowing smartphone and PC market."

Source: asia.nikkei.com

Currency Exchange Rates Shaken by Trade Spats

China’s yuan weakened recently hitting its lowest level versus the dollar in over a year (Chart 2). It has now fallen by more than 8% over the past three months amid a global trade spat and concerns over an economic slowdown in China. China's central bank indicated that it is willing to accept a weaker currency.

Other key Asian currencies including the South Korean won (Chart 3), Taiwan NT$ (Chart 4), Japanese yen (Chart 5) and the euro (Chart 6) have all weakened recently vs. the U.S. dollar.

In addition to its trade impact, weaker non-dollar currencies will deflate dollar denominated consolidated global growth rates such as those for world electronic equipment.

Source: http://research.stlouisfed.org/fred2/series/TWEXBMTH

IMF still Expects Global Economy to Grow 3.9% this Year and in 2019 (Chart 7)

Less Even Expansion, Rising Trade Tensions

  • Global growth is projected to reach 3.9% in 2018 and 2019, in line with the forecast of the April 2018 World Economic Outlook (WEO), but the expansion is becoming less even, and risks to the outlook are mounting. The rate of expansion appears to have peaked in some major economies and growth has become less synchronized. In the United States, near-term momentum is strengthening in line with the April WEO forecast, and the US dollar has appreciated by around 5percent in recent weeks. Growth projections have been revised down for the euro area, Japan, and the United Kingdom, reflecting negative surprises to activity in early 2018. Among emerging market and developing economies, growth prospects are also becoming more uneven, amid rising oil prices, higher yields in the United States, escalating trade tensions, and market pressures on the currencies of some economies with weaker fundamentals. Growth projections have been revised down for Argentina, Brazil, and India, while the outlook for some oil exporters has strengthened.
  • The balance of risks has shifted further to the downside, including in the short term. The recently announced and anticipated tariff increases by the United States and retaliatory measures by trading partners have increased the likelihood of escalating and sustained trade actions. These could derail the recovery and depress medium-term growth prospects, both through their direct impact on resource allocation and productivity and by raising uncertainty and taking a toll on investment. Financial market conditions remain accommodative for advanced economies—with compressed spreads, stretched valuations in some markets, and low volatility—but this could change rapidly. Possible triggers include rising trade tensions and conflicts, geopolitical concerns, and mounting political uncertainty. Higher inflation readings in the United States, where unemployment is below 4% but markets are pricing in a much shallower path of interest rate increases than the one in the projections of the Federal Open Market Committee, could also lead to a sudden reassessment of fundamentals and risks by investors. Tighter financial conditions could potentially cause disruptive portfolio adjustments, sharp exchange rate movements, and further reductions in capital inflows to emerging markets, particularly those with weaker fundamentals or higher political risks.
  • Avoiding protectionist measures and finding a cooperative solution that promotes continued growth in goods and services trade remain essential to preserve the global expansion. Policies and reforms should aim at sustaining activity, raising medium-term growth, and enhancing its inclusiveness. But with reduced slack and downside risks mounting, many countries need to rebuild fiscal buffers to create policy space for the next downturn and strengthen financial resilience to an environment of possibly higher market volatility.

Source: www.imf.org

Recent Industrial Production Growth by Country (Chart 8)

Most key countries continued to report positive industrial production through late spring/early summer.

Source: www.economist.com

Component Inventories for iPhone X Remain at High Levels

Affected by Apple's overly-optimistic expectations for sales of the iPhone X, inventory of finished chassis, and other parts and components at the iPhone X's supply chain makers are still hovering at persistent high levels at the end of June 2018, almost equaling to three times of what they had shipped previously, according to sources from Taiwan's handset supply chain.

Since some chassis and other components for older-generation iPhone devices can also be used for the production of next-generation iPhone products, these component suppliers are eyeing the planned launch of the new iPhones this fall to bring a sales boom that will effectively clear out their inventory, said the sources.

Nevertheless, Apple's performance has not been affected by the inventory pile-ups at component suppliers, the sources noted.

Based on Apple's financial report for the second quarter of 2018, the company shipped a total of 52.217 million iPhone devices in the quarter, up 3% from a year earlier, while iPhone revenues were up 14% on year to US$38.032billion during the same period thanks to the high ASP of iPhone X products.

The supply chain makers pointed out that they have been willing to cope with Apple's demand to build up inventory due to the company's proven records for cooperation previously, but they were caught by surprise this time.

But some suppliers, instead of lodging complaints against Apple, attributed the inventory issue to the dwindling global smartphone market, which is expected to grow a mild 4.9% in 2018 compared to a 10% growth recorded in 2015.

Source: www.digitimes.com

Taiwan-listed PCB Makers Expect Significant Revenue Increases in 2H’18

Taiwan PCB makers are poised to embrace brisk orders expected in the second half of 2018, traditional high season for consumer devices, and most of them have readied sufficient materials and adjusted capacity allocations seeking to score better revenue increases than a year earlier.

Industry sources said that some PCB makers already advanced small-volume shipments set for the third quarter to June, making their June revenues not lower than May despite fewer work days.

The sources continued that Apple is expected to release three new iPhone models, and new MacBook and Apple Watch in the second half of 2018, prompting such Taiwan PCB makers as Zhen Ding Tech, Flexium Interconnect, Unitech and Career Technology, all Apple's supply chain partners, to ready full capacities to meet explosive demand for flexible PCBs.

On another front, the makers also see strong demand for server PCBs in the second half, as replacement demand for Intel Purely server platform is beginning to gain steam amid the waning market wait-and-see sentiment about the platform.

Meanwhile, PCB makers share the view that the escalating US-China trade rifts will not impact them in the short term, as key electronics parts and components remain excluded from the expanded tariff sanction list by the U.S.

Samsung to Launch Foldable-Screen Phone Early Next Year

The phone will feature a roughly 7-inch display that folds in half

Samsung Electronics Co. is planning to introduce a foldable-screen smartphone early next year, according to people familiar with the matter, as the world’s largest phone maker eyes a splashy device that can help boost longer-term demand for its slumping handset business.

The Samsung prototype, which bears the internal code name “Winner,” features a screen that measures about 7 inches diagonally, roughly the size of a smaller tablet, these people said.

The screen can be folded in half, like a wallet, these people said. When folded, the exterior of the phone boasts a small display bar on the front and cameras in the back, they added.

The foldable-screen device has long been one of the industry’s most hotly-rumored pursuits, with several phone makers said to be developing their own versions. Unlike a traditional flip phone, the device when opened would be almost all screen, giving consumers a large display akin to a tablet with the portability of a phone that could fit in a consumer’s hand, pocket or purse.

Source: www.wsj.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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