2018 & 2019 World Electronic Supply Chain Growth

Electronic supply chain growth is slowing (Chart 1). Although still positive, 3-month growth rates are well down from their recent peaks in early 2018.  Current 3/12 growth through August was:

  • Semiconductors +14.9%
  • SEMI Equipment  + 12.3%
  • PCBs +7.6%

Chart 2 gives estimated annual growth for 2018 and Chart 3 provides a very preliminary estimate for 2019

Source: Custer Consulting Group based on industry data and referenced sources

 

Global Semiconductor Sales Increase 14.9% Year-to-Year in August (Charts 4-8)

The Semiconductor Industry Association (SIA) announced worldwide sales of semiconductors reached $40.16 billion for the month of August 2018, an increase of 14.9% compared to the August 2017 total of $34.96 billion. Global sales in August 2018 were 1.7% higher than the July 2018 total of $39.49 billion.

“Global semiconductor sales continued to bound upward in August, easily outperforming sales from last August and narrowly surpassing last month’s total,” said John Neuffer, president and CEO, Semiconductor Industry Association. “While year-to-year growth has moderated somewhat in recent months, sales remain strong across every major semiconductor product category and regional market, with the China and Americas markets standing out with the largest year-year growth.”

Source: www.semiconductors.org

 

September Purchasing Managers Indices (Charts 9-16)

Markit Economics and the Institute for Supply Management have released their September PMI data. 

  • In general manufacturing continues to expand but at a slowing pace.
  • China (Chart 14) dropped to zero growth
  • Asia as a whole (Chart 16) continues it decline in manufacturing growth.

Source: www.markiteconomics.com

Source: www.instituteforsupplymanagement.org

 

U.S. August “Factory Orders” – Shipments, Orders & Inventories (Charts 17-22)

The U.S. Department of Commerce released it detailed report of August shipments, orders and inventories for the domestic supply chain.

  • Electronic equipment orders and shipments continued strong on both a dollar value (Chart 17) and 3/12 growth basis (Chart 18).
  • Orders for all electronic equipment types except computer gear rose in August (Chart 19).
  • Electromedical, measurement & control sector continues to dominate but military electronics’ share is increasing (Chart 20).
  • Vehicle shipments held strong (Chart 21).
  • Military orders and shipments are approaching a 2-year high (Chart 22).
  • Electromedical, measurement & control equipment orders & shipments are at record highs (Chart 23).
  • Passive component sales and orders have flattened (Charts 24 & 25).

Chart 26 summarizes the annualized (12/12) and 3-month (3/12) growth of the domestic electronic supply chain.

Source: www.census.gov/manufacturing/m3/

 

North American PCB Industry Growth Cycle Continues (Charts 27-30)

IPC announced the August 2018 findings from its North American Printed Circuit Board (PCB) Statistical Program. Year-over-year growth continued for industry sales and orders. The book-to-bill ratio for August held steady at 1.05.

Total North American PCB shipments in August 2018 were up 8.7% compared to the same month last year. This year to date, shipments are 10.3% above the same period last year. Compared to the preceding month, August shipments increased 6.5%.

PCB bookings in August increased 6.8% year-over-year. Year-to-date order growth was 11.0% above the same period last year. Bookings in August were up 9.4% from the previous month.

“North American PCB industry sales and orders continued to grow in August compared to the previous month and the same period last year,” said Sharon Starr, IPC’s director of market research. “August was the 12th consecutive month of year-over-year sales growth and the 15th month of continuous order growth. The book-to-bill ratio in August remained above parity (1.0) for the 19th consecutive month, which is a positive indicator of continued growth for the rest of this year.”

Source: www.ipc.org

 

Japan Update

JEITA has released July Japanese domestic production data.

  • Electronic equipment production rose 6.4% in July 2018 vs. July 2017 (Charts 31 & 32).
  • PCB production rose sequentially from June (Chart 33) and was up 5.8% on a 3/12 growth basis (Chart 34).
  • Electronic component growth strengthened and device production showed signs of recovery (Chart 35).
  • Passive component production continued to climb (Chart 26).

Source: www.jeita.or.jp/

 

For Semiconductor Sales Cycle; Winter is Coming

Semiconductor sales, semiconductor memory ASPs, the U.S. economy, and the stock market are highly cyclical and may be nearing the end of the current upturn.

  • Since 1965, the average span between semiconductor sales growth peaks has been 4.4 years, and the longest span between peaks was 6 years. Downturns follow peaks. It has now been 8 years since the last semiconductor sales growth peak.
  • DRAM ASPs are now more than double what they were in 2016. NAND Flash ASPs are more than one-and-one-half times what they were in 2016. Indications are that these ASPs are at unsustainable crest.
  • The U.S. economy has been expanding since June 2009. If the expansion continues past June 2019, this will be the longest period of expansion in recent U.S. history.
  • The U.S. stock market has been a bull market since March 2009, already the longest bull market in history.

The present semiconductor sales cycle has been atypical. After a downturn, semiconductor sales usually make a sharp recovery. A graph of annual semiconductor sales usually looks like a classical sine wave. That has not been the case since 2010. After a high in 2010, with annual growth of 33.7%, sales turned down in 2011. Then, sales growth dithered along until 2017, with growth of less than 10% in every year. Three years even experienced negative sales growth. In 2017, annual sales growth shot up to 21.6%, and the first half of 2018 was 20.1%. But, these increases have been primarily due to increases in memory ASPs, a sugar high.

DRAM and Flash memory normally account for about 20% of total semiconductor sales; but, due to the increases in ASP, they were 29.1% of total semiconductor sales in 2017 and 33.2% of total semiconductor sales in the first half of 2018. Since 2016, nearly 2/3 of the growth in total semiconductor sales has been due to an increase in DRAM and Flash memory sales, driven by increases in ASPs. This cannot last.

OEMs budget for the memory content in the devices they manufacture. They install the amount of memory that the budget will pay for. As memory densities increase, and prices rise accordingly; OEMs simply use fewer of the higher density memories, staying within their budget. As prices for a given density decline, OEMs install more memory, still staying within their budget. This works well in normal times. But, a 1 ½ or 2 ½ times increase in ASP with no increase in densities is not normal times. The PC and smartphone markets are now mature markets. Manufacturers in those markets cannot afford memory price increases. The server market is growing. Manufacturers there can absorb price increases, for now, but they will also soon face pressure to reduce costs. They will pass that pressure along to memory suppliers.

Indications are that the increase in memory ASPs has been due to capacity limitations.

Historically, when memory ASPs increased, one or more manufacturers increased capacity, driving down ASPs, or reduced prices, hoping to capture market share. There are only a handful of semiconductor memory manufacturers remaining. So far, all of them have held fast, controlling capacity additions while maintaining or increasing prices. But, CAPEX has expanded dramatically. There will be pressure to fill the new fabs. There is also an X factor. Three companies in China are investing $56 billion in DRAM and NAND capacity. This is bound to change the competitive landscape of the memory market as these production facilities ramp. ASPs are already experiencing some softening.

Pressure from OEMs and added capacity will soon drive down memory ASPs. When that happens, total semiconductor sales will be affected. Semico’s IPI (Inflection Point Indicator) has turned down, forecasting a downturn in total semiconductor sales. Semico’s forecast for total semiconductor sales growth in 2018 is 14.4%, down from 2017.

The semiconductor sales cycle is often independent of economic cycles, but an economic downturn can exacerbate a semiconductor sales downturn. Economic expansions do not last forever. There are positive signs. Unemployment is near a 50-year low. The economy is still growing. But, there are also troubling indicators. The gap between the wealthy and the rest of the population is still high. The 2017 tax cut may generate inflationary pressure, and the U.S. Federal Reserve has already increased interest rates. Recent tariff increases are expected to have a negative effect, as they have in the past.  The U.S. Treasury yield curve has been a very accurate predictor of economic downturns. As shown in the chart, below, that curve has turned down. An economic downturn seems likely in 2019.

The U.S. stock market has enjoyed a tremendous rally over the last nine years, but analysts are noting that the stock market is ahead of the economy, that stocks may be overvalued, suggesting that a market correction is coming.

Semiconductor memory ASPs are going to fall. Semiconductor sales are going to decline. The U.S economy is facing a probable downturn. The stock market may soon take a hit.

Winter is coming!

graph-custer-10102018

Morry Marshall, Semico Research (partially abridged by Custer Consulting Group)


5G Base Station Bringing Enormous Opportunity in the PCB Market

PCBs are considered the mother of electronic products, driving a grand market of far-reaching demands. Their applications include the fields of communication, computers, consumer electronics, and automotive electronics. Of these, communication and computers are recognized as the largest sectors of application for PCB, accounting for over 25%.

Right now, the era of 5G is gradually approaching, and it will march into commercialization in 2019 and be officially commercialized in 2020. It is reported that various 5G application scenarios will require higher connection speeds, delay, and connection density. Besides, 5G radio frequency will introduce Massive MIMO (large-scale antenna array) technology, which will require the use of wider spectrum and bandwidth of millimeter wave-bands to carry out communication.

Compared to the scale and number of million-level base stations required during the 4G era, the development of the millimeter wave will push the scale of base stations in the 5G era to exceed that of ten-million. It can, therefore, be foreseen that the mass construction and upgrading of communication base stations will create a huge demand for high-frequency and high-speed boards such as PCBs, along with the approaching full-scale commercialization of 5G, and a brand-new wave of needs to upgrade and replace PCB.

Having considered the number of base stations required and the value of one single base station, it is estimated that the value brought to the PCB market by the 5G base station is 4-5 times that of 4G. (Source of information: Communication Information News)

Source: www.tpca.org.tw

 

Global Smartphone Shipments Likely to be Capped below 1.5 billion units in 2019

As the emerging 5G-enabled phones have yet to spur replacement demand and the building of a 4G smart feature phone ecosystem has yet to complete, according to Digitimes Research.

Global smartphone shipments are likely to be capped below 1.5 billion units in 2019 as the emerging 5G-enabled phones have yet to spur replacement demand and the building of a 4G smart feature phone ecosystem has yet to complete, according to Digitimes Research.

Nevertheless, the replacement demand for 5G smartphones will start emerging in 2020 as telecom operators begin to kick off commercial operations of their 5G networks, ramping up global smartphone shipments to over 1.5 billion units in the year and to 1.7 billion units in 2023, Digitimes Research estimates.

Looking into 2019, Samsung Electronics, Apple, Huawei and Xiaomi will remain the top-four smartphone vendors in 2019. Although Oppo and Vivo are likely to see their shipments decline in the year, they will still manage to take the 5th and 6th positions, respectively.

The top-four vendors each will be able to maintain a shipment volume of over 100 million units in 2019, but Oppo is likely to see its shipments drop to below 90 million units and Vivo's shipments to sink below 70 million units in the year. Meanwhile, China-based Transsion Holdings and India-based Reliance (brand name LYF) will rank 9th and 10th, respectively, in 2019, with their shipments each exceeding 35 million units.

HMD Global (Nokia) will manage to outrace China-based Meizu to take the 11th position in 2019, and TCL, Asustek Computer and ZTE will trail behind Meizu to rank from 13th to 15th.

Source: www.digitimes.com/

 

Worldwide Smart Home Device Shipments to grow 31% y/y in 2018 (Chart 37)

The worldwide smart home devices market is expected to grow 31% year over year in 2018 to 643.9 million shipments, according to the International Data Corporation (IDC). The entire smart home market, comprising smart speakers, video entertainment products, connected lighting, smart thermostats, and home monitoring/security products, is forecast to be nearly 1.3 billion devices by 2022 with a five-year compound annual growth rate (CAGR) of 20.8%. The fastest growing category with a five-year CAGR of 39.1%, accounting for almost 100 million units in 2018 and 230.5 million by 2022, will be smart speakers such as the Amazon Echo and Google Home.

"While dedicated smart speakers with built-in voice assistants will be prevalent throughout the forecast, we're already seeing a notable shift in this market," said Jitesh Ubrani senior research analyst for IDC Mobile Device Trackers. "Many new types of devices, both inside and outside the home, now include built-in voice assistants. Not only do these help to increase the number of touch points available to end users, but it also helps each assistant to grow by expanding reach and gaining a deeper understanding of what, when, and how users approach various tasks."

Privacy and security for smart home devices remains one of the key inhibitors to adoption, as evidenced in IDC's recent Consumer IoT S urvey. However, IDC maintains a positive outlook for the market as the convenience of smart home devices frequently outweighs concerns.

"Security and privacy are top of mind for most consumers when considering deployments of smart home devices," said Adam Wright, senior research analyst for IDC's Consumer IoT Program. "In addition to having adequate security solutions in place when bringing devices to market, vendors must also respond to consumers' concerns by properly educating them about these safeguards and raising awareness about the benefits of sharing data that can ultimately provide better devices, services, and experiences over time."

Source: www.idc.com

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