Japan Update

JEITA has just released August production for Japanese domestically produced electronic equipment, components and devices:

  • August electronic equipment production was up 2.2% versus August 2017 but down sequentially 3.7% from July 2018 (Charts 1 & 2).
  • Semiconductor shipments to Japan and domestic electronic equipment production are both growing but at a slowing pace (Chart 3).
  • Discrete and IC semiconductor production declined sequentially from July (Chart 4).
  • Passive component production continued to increase from its February low point (Chart 5).
  • PCB production is relatively flat recently (Chart 6) but up 3.2% on a 3/12 basis versus the same 3 months last year (Chart 7).
  • Component growth is positive (+4.4%) but device production is contracting (-7.7%) (Chart 8).

www.jeita.or.jp/english/

 

US September Electronic Supply Chain Shipments, Orders and Inventories

The September “Durable Goods” report for September was just released by the U.S. Commerce Department.

  • Electronic equipment book/bill dropped to 1.01 (Chart 9).
  • Electronic equipment orders declined slightly and shipments may be peaking from their +10% levels (Charts 10 & 11).
  • Electronic equipment inventories relative to orders are at their lowest level since 2010 (Chart 12).
  • Defense capital goods shipments continue to increase although bookings dropped from their recent August peak (Chart 13). The book/bill continued to rise on a 3-month average basis (Chart 14).
  • Aircraft shipments rose to their historic high driven by the defense sector (Chart 15).
  • Defense aircraft and parts orders spiked in September (Chart 16).

More details will be included in the September “Factory Orders” report next week.

www.census.gov/manufacturing/m3

 

October “Flash” PMI Data

IHS Markit released its October “flash” Purchasing Managers indices for select countries/regions

  • Chart 17 compares the September vs. October flash indices.
  • USA PMI remains strong (Chart 18)
  • Eurozone PMI (Chart 19) continues to plunge from its December high but still remains in growth territory (PMI >50) as both German (Chart 20) and France (Chart 21) dropped.
  • Japan PMI increased slightly (Chart 22).

www.markiteconomics.com

 

North America-based SEMI Equipment Manufacturers Billings Worldwide increased 1.8% y/y in September 2018 (Chart 23)

North America-based manufacturers of semiconductor equipment posted $2.09 billion in billings worldwide in September 2018 (3-month average basis), according to SEMI. The billings figure is 6.5% lower than August 2018 and 1.8% higher than September 2017.

“Quarterly global billings of North American equipment suppliers experienced their typical seasonal weakening in the most recent quarter,” said Ajit Manocha, president and CEO of SEMI. “Relative to the third quarter, we expect investment activity to improve for the remainder of the year.”

The SEMI Billings report uses 3-month moving averages of worldwide billings for North American-based semiconductor equipment manufacturers.

www.semi.org

 

Trade War Squeezes China’s Machinery and Electronics Exporters

The US-China trade war is already making life tough for Chinese exporters of machinery, electronics and bathroom fixtures, a vast market that makes up half of China’s annual exports to the United States, Caixin reports.

U.S. tariffs currently cover around $250 billion worth of Chinese exports and that includes two-thirds of mechanical and electronic products, according to a recent report by the China Chamber of Commerce for the Import and Export of Machinery and Electronic Products.

The tariffs will affect 10% of China’s overall machinery and electronics exports. China exported $1.06 trillion of such products during the first nine months of the year.

A senior figure at the Chinese Academy of Social Sciences told Caixin that companies may have to try to circumvent U.S. tariffs, at least in the short term, in order to remain competitive.

“In the short term, it might be a good practice for the electromechanical industry to find a cooperative company abroad or re-export through Hong Kong or Singapore,” the researcher said. “The firms could also consider finding ways to manufacture similar products which use the same technology, but that are not on the tariff lists.”

chinaeconomicreview.com

 

Intel Bucks Chip Industry Woes; Powered by PCs, iPhones (Chart 24)

Intel Corp beat analysts’ estimates for quarterly profit and revenue, driven by its high-margin data center business and strong demand for its PC chips.

Intel executives do not see any near-term weakness from the trade tensions or Chinese economy, despite the fact that large data center customers like Baidu Inc and consumer PC factories are located there.

Texas Instruments, STMicroelectronics and SK Hynix have all warned of slowing demand for the remainder of the year.

Intel bucked the trend thanks to strong sales of chips for PCs, the second quarter in the row the company benefited from the sector after years of stagnation in that business, and increasing sales of iPhone modem chips.

Interim Chief Executive Bob Swan told Reuters the PC chip strength came from computer purchases by business customers in developed economies as well as gamers building high-end machines. Many businesses are upgrading their PCs because Microsoft Corp has said it will end support for some older versions of Windows in early 2020.

Intel’s results also allayed concerns that a trade conflict between the U.S. and China or a slowdown in the Chinese economy could drag down the global chip business.

“We’ll be working with our domestic Chinese customers and our global [PC manufacturers] to adjust and adapt the supply chain to deal with constraints,” Swan told Reuters.

Also boosting Intel sales was its business for modems, which connect smart phones to wireless data networks which was up 131% in the quarter. The gain resulted from Intel completely replacing rival modem supplier Qualcomm Inc in the most recent models of Apple.

But Swan said the modem sales are also pressuring Intel’s margins and contributed to the firm lowering its fourth quarter operating margin outlook to 34.5%.

“That being said, what the modems and memory do for the company is allow us to play in a much larger market,” he said.

Intel forecast current-quarter revenue of $19 billion and adjusted earnings of $1.22 per share.

Intel has been increasingly catering to a booming data center market as revenue from PCs has flattened since 2011.

Revenue from its data center business rose 25.9% to $6.14 billion in the quarter,

www.reuters.com

 

Global IT Spending to Grow 3.2% in 2019 (Chart 25)

Worldwide IT spending is projected to total $3.8 trillion in 2019, an increase of 3.2% from expected spending of $3.7 trillion in 2018, according to the latest forecast by Gartner, Inc.

“While currency volatility and the potential for trade wars are still playing a part in the outlook for IT spending, it is the shift from ownership to service that is sending ripples through every segment of the forecast,” said John-David Lovelock, research vice president at Gartner. “What this signals, for example, is more enterprise use of cloud services — instead of buying their own servers, they are turning to the cloud. As enterprises continue their digital transformation efforts, shifting to ‘pay for use’ will continue. This sets enterprises up to deal with the sustained and rapid change that underscores digital business.”

Enterprise software spending is forecast to experience the highest growth with an 8.3% increase in 2019. Software as a service (SaaS) is driving growth in almost all software segments, particularly customer relationship management (CRM), due to increased focus on providing better customer experiences. Cloud software will grow at more than 22% this year compared with 6% growth for all other forms of software. While core applications such as ERP, CRM and supply chain continue to get the lion share of dollars, security and privacy are of particular interest right now. Eighty-eight% of recently surveyed global CIOs have deployed or plan to deploy cybersecurity software and other technology in the next 12 months.

In 2018, data center systems are expected to grow 6%, buoyed by a strong server market that saw spending growth of more than 10% over the last year, and in 2018 will come in at 5.7% growth. However, by 2019 servers will shift back to a declining market and drop 1% to 3% every year for the next five years. This, in turn, will impact overall data center systems spending as growth slows to 1.6% in 2019.

IT services will be a key driver for IT spending in 2019 as the market is forecast to reach $1 trillion in 2019, an increase of 4.7% from 2018. An expected global slowdown in economic prosperity, paired with internal pressures to cut spending, is driving organizations to optimize enterprise external spend for business services such as consulting. In a recent Gartner study, 46% of organizations indicated that IT services and supplier consolidation was in their top three most-effective cost-optimization approaches.

Worldwide spending for devices — PCs, tablets and mobile phones — is forecast to grow 2.4% in 2019, reaching $706 billion, up from $689 billion in 2018. Demand for PCs in the corporate sector has been strong, driven by Windows 10 PC hardware upgrades that should continue until 2020. However, the PC market may see some impact from the Intel CPU shortage. While this shortage will have some short-term impacts, Gartner does not expect any lasting impact on overall PC demand. The current expectation is that the shortage will continue into 2019, but Intel will prioritize the high-end CPU as well as the CPUs for business PCs. In the meantime, AMD will pick up the part of the market where Intel cannot supply CPUs.

“PCs, laptops and tablets have reached a new equilibrium state. These markets currently have stable demand from consumers and enterprises. Vendors have only subtle technology differentiation, which is pushing them to offer PC as a Service (PCaaS) in order to lock clients into multiyear recurring revenue streams and offer new bundles service options.” said Lovelock.

www.gartner.com

 

Taiwan IC Chip Output Growth to Slow in 2019

RISKS TO GROWTH:

US-China trade war and intensifying pricing competition from China in mid-to-low end products pose a threat to Taiwanese makers’ growth next year

Growth in the production value of semiconductors is forecast to slow next year, as downside risks from the trade dispute between the US and China escalate and pricing competition from China intensifies, the Industry, Science and Technology International Strategy Center said on Wednesday.

The nation’s semiconductor industry is expected to expand between 4.5 and 5.3% annually to between NT$2.73 trillion and NT$2.75 trillion (US$88.1 billion and US$88.7 billion) next year, from an estimated 5.9% to NT$2.61 trillion this year, according to the state-funded research house, formerly known as the Industrial Economics and Knowledge Center.

“This is mild a growth, indicating that the latest upcycle has not yet peaked,” Jerry Peng, a semiconductor analyst at the Hsinchu-based center, told a media briefing.

However, for the first time in two years, the local semiconductor industry would expand at a faster rate than the global chip industry, which is forecast to grow 4.4%, Peng said.

Citing challenges ahead, Peng said that Chinese semiconductor firms, which offer more completive prices, have become an increasing threat to Taiwanese companies focusing on mid-to-low-range products.

“Chinese companies have seen a rapid expansion of capacity and good progress in securing technologies and talent, backed by government funds and all sorts of incentives,” Peng said.

The escalating US-China trade war could harm the global economy, weighing on US consumer confidence as prices of daily necessities and consumer electronics rise due to higher import tariffs, he said.

Decelerating smartphone shipments and falling PC demand could also curb the growth of Taiwan’s semiconductor industry next year, he said.

The trade war has also cast a shadow on the outlook for Taiwan’s manufacturing sector next year, the center said.

The production value of the manufacturing sector is forecast to grow 3.21% next year to NT$20.07 trillion, compared with an estimated growth of 4.75% to NT$19.45 trillion this year, the center said.

“It is very likely that we will cut this forecast if the trade war escalates,” Peter Cheng, an analyst tracking the manufacturing sector for the center, said on the sidelines of the media briefing.

“One thing that matters most to us is whether local manufacturers can smoothly relocate their production lines from China to other places next year” to avoid US tariffs, Cheng said.

“It is uncertain whether there will be more tax lists from President Donald Trump,” Cheng added.

www.taipeitimes.com

 

North American PCB Shipments Rose 9.6% y/y in September while PCB Bookings fell 3.9% (Charts 26-29)

North American PCB Sales Growth Continues While Orders Falter

IPC announced the September 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 September retreated slightly to 1.04.

Total North American PCB shipments in September 2018 were up 9.6% compared to the same month last year. This year to date, shipments are 10.2% above the same period last year. Compared to the preceding month, September shipments increased by 11.1%.

PCB bookings in September were down 3.9% year-over-year. Year-to-date order growth was 9.2% above the same period last year. Bookings in September were down 4.4% from the previous month.

“The North American PCB industry sales growth trend continued for the 13th consecutive month, and the book-to-bill ratio remained above parity for the 20th straight month” said Sharon Starr, IPC’s director of market research. “A negative year-over-year growth rate for PCB orders in September after 15 months of continuous order growth, however, might be the first sign of a slow-down. The book-to-bill ratio is still in positive territory, indicating continued sales growth for the rest of this year, but it has decreased steadily since hitting a 12-year high early in 2018.”

www.ipc.org

 


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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