Weekly Global Update for January 2, 2013

U.S. Electronics Orders Up Slightly in November

Domestic electronics demand increased sequentially in November based on last week’s U.S. "Durable Goods" report:

• The electronic equipment book-to-bill ratio rose to 1.01 on a 3-month average basis and 1.04 for November alone (Chart 2).
• 3-month (3/12) growth rates of electronic equipment orders and shipments, although still well below the "expansion" line of 1.0, appear to have passed their low points in this current business cycle. However real electronic equipment growth (3/12>1.0) does not look likely until mid-2013 (Chart 2).
• Electronic equipment orders were sequentially flat from October to November while shipments declined (Chart 3). This order/shipment unbalance caused November’s 1-month book-to-bill to reach 1.04.
• Communication equipment orders rose while computer bookings declined (Charts 4-6).
• Aircraft and parts shipments continued to increase, driven by the commercial sector (Chart 7).
• Defense capital goods orders were flat (Chart 8) but their 3-month average book-to-bill rose very slightly (Chart 9).
• Semiconductor shipments to North America were in excess of electronic equipment shipment growth suggesting over-ordering or inventory building of chips or perhaps optimism for a near-term increase in electronic equipment demand (Chart 10).

Source: www.census.gov

IPC Releases PCB Industry Results for November 2012 (Charts 11-16)

Rigid PCB shipments were down 5.4% in November 2012 from November 2011, and bookings decreased 8.7% year-over-year. Year-to-date, rigid PCB shipments declined 4.5% and bookings decreased 0.9%. Compared to the previous month, rigid PCB shipments were down 5.6% and rigid bookings fell 2.1%. The book-to-bill ratio for the North American rigid PCB industry in November 2012 fell to 0.95.

Flexible circuit shipments in November 2012 were up 18.0%, and bookings were down 21.6% compared to November 2011. Year-to-date, flexible circuit shipments decreased 2.2% and bookings decreased 11.5%. Compared to the previous month, flexible circuit shipments increased 10.2% and flex bookings were up 9.9%. The North America flexible circuit book-to-bill ratio remained at 0.74.

For rigid PCBs and flexible circuits combined, industry shipments in November 2012 were down 3.5% and bookings decreased 9.9%, compared to November 2011. Year-to-date, combined industry shipments were down 4.3% and bookings were down 1.9%. Compared to the previous month, combined industry shipments for November 2012 decreased 4.2% and bookings decreased 1.3%. The combined (rigid and flex) industry book-to-bill ratio in November 2012 declined to 0.93.

"Once again, the bright spot in North American PCB sales was in the flexible circuit segment," said Sharon Starr, IPC director of market research. "Orders were weak in both rigid and flex segments of the industry, however, putting downward pressure on the book-to-bill ratio. Lower bookings portend a slow first quarter in 2013."

Source: www.ipc.org

October Japanese Electronics Production (Charts 17-23)

JEITA just released October production data for the domestic Japanese electronics industry.

• Total electronic equipment production declined 18% in October 2012 compared to the same month in 2011 (Chart 17). Electronics production is declining more rapidly in Japan compared to the U.S., Southeast Asia and Europe (Chart 18).
• The 3/12 "growth" of semiconductor shipments to Japan lags electronic equipment production by two months but both are declining at similar rates (Chart 19).
• Japanese PCB shipments declined sequentially from September to October (Chart 20) and were dropping in October at a 9% rate (Chart 21) on a 3/12 basis. See Naka’s comments below.
• The Japan PMI leading indicator suggests that the rate of PCB shipment decline will moderate soon (Chart 22).
• Japanese domestically-made electronic device production is at just above zero growth on a 3/12 basis but electronic component production was down 17% in August-October 2012 versus August-Octoner 2011 (Chart 23).

Source: www.jeita.or.jp/

Japanese PCB Market Conditions

Our colleague Dr. Hayao Nakahara's wrote to us:

"My Japanese PCB maker clients are responsible for about 70% of the total Japanese output (domestic and offshore together). Their domestic production has declined since September by 14-15%. Although the JEITA statistics may indicate only 8%, some makers don't bother to separate domestic and offshore production when reporting. Their overseas production continues to grow in China (at a slower pace), Vietnam, Thailand and Malaysia. They continue to cut their forecast every month.

PCB imports and exports both peaked in 2007 and since then both are continuously declining. More than half of exports have been Flip-Chip substrates for INTEL, AMD, Xilinx, etc. The rest of the exports have been to Japanese OEMs that operate offshore. These OEMs are now purchasing more locally including from Japanese PCB makers that are operating nearby.

Those PCB users (OEMs) are rapidly moving their manufacturing base to other Asian countries and stopping PCB imports because they can purchase the products more cheaply locally and the locally made PCBs are not bad from a quality viewpoint. So, the Japanese PCB industry is following the U.S. and European "downtrend" trajectory. They will start oscillating at a $5-6 billion level just as the U.S. and Europe have been oscillating at the $3 billion level.

Nothing is very encouraging. The newly elected prime minister is considered to be an extreme right wing politician and the relationship between Japan and China will not improve at least for the time being. Some government owned PCB shops in China are forbidden to import equipment and materials from Japan as a result of the dispute over the Senkaku Island."

Naka
N.T. Information Ltd

North America Semiconductor Equipment Industry November Book/Bill = 0.79 (Charts 24 & 25)

North America-based manufacturers of semiconductor equipment posted $720.4 million in orders worldwide in November 2012 (3-month average basis) and a book-to-bill ratio of 0.79, according to the November Book-to-Bill Report published today by SEMI.

The 3-month average of worldwide bookings in November 2012 was $720.4 million. The bookings figure is 3.0% lower than the revised October 2012 level of $742.8 million, and is 26.3% lower than the November 2011 order level of $977.2 million.

The 3-month average of worldwide billings in November 2012 was $911.9 million. The billings figure is 7.5% lower than the revised October 2012 level of $985.5 million, and is 22.5% less than the November 2011 billings level of $1.18 billion.

"Economic headwinds, higher chip inventory levels, and soft PC demand are among the factors tempering chip makers’ investment in additional manufacturing capacity," said Denny McGuirk, president and CEO of SEMI. "Softening in the market for new semiconductor manufacturing equipment has persisted through the second half of 2012 and the November equipment billings are at a three-year low."

Source: www.semi.org

Worldwide Wafer Fab Equipment Spending Forecast to Total $27 Billion in 2013, a 9.7% decline from 2012 – Gartner (Chart 26)

Investment Growth is not Expected to Return Until 2014

Worldwide wafer fab equipment (WFE) spending is forecast to total $27 billion in 2013, a 9.7% decline from 2012, according to Gartner, Inc. In 2012, WFE spending is on pace to reach $29.9 billion, a decrease of 17.4% from 2011 spending. The market is projected to return to growth in 2014.

Gartner said that the outlook for semiconductor equipment markets has softened due to macroeconomic weakness and that capital investment is expected to remain flat over the forecast period as memory and logic segments invest countercyclically to each other.

"In 2012, wafer fab equipment started off the year strong, as foundries and other logic manufacturers ramped up sub-30-nanometer production. The need for new equipment was stronger than originally anticipated, because strengthening demand for leading-edge devices required higher production volumes as yields had yet to reach mature levels," said Bob Johnson, research vice president at Gartner. "However, demand for new equipment for logic production will soften as yields improve, leading to declining shipment volumes as the industry heads into 2013."

Gartner predicts that wafer fab manufacturing capacity utilization will decline below 80% by the end of 2012 before slowly increasing to about 85% by the end of 2013. Leading-edge utilization declined to the mid-80% range by the second half of 2012 and will move into the low-90-percent range by the end of 2013, providing for a somewhat positive capital investment environment. Memory will continue to be weak through 2013, with maintenance-level investments for DRAM and a slightly down NAND market until supply and demand are in balance. 2014 begins a WFE growth cycle that is expected to last through 2016.

"Although a period of inventory correction that led to lowered production levels in the first half of 2012 appears to be over, inventories remain at critical levels. High inventories, combined with overall market weakness, will continue to depress utilization rates into the first half of 2013," said Mr. Johnson.

"While demand from smartphones and media tablets is producing leading-edge demand for logic production, it is not enough to bring total utilization levels up to desired levels," Mr. Johnson said. "Utilization rates will begin to climb upward again in the second quarter of 2013, as demand for chip production returns and capital spending restraints in the second half of 2012 and first half of 2013 slow new capacity additions. Overall utilization rates will return to normal levels by the end of 2013, providing continued impetus for capital investment."

The capital spending outlook has softened significantly since earlier forecasts as the rapidly decelerating macroeconomy has taken its toll on consumer spending and the resulting trickle-down effect has impacted capital spending. Gartner now expects 2012 capital spending to decline 10.7%, compared with a 9.3% drop forecast in the third quarter of 2012. Capital spending is expected to drop an additional 14.7% in 2013 as semiconductor manufacturers deal with excess capacity and a slow macroeconomy.

The foundry segment will see an increase in spending of about 7.4% next year, as both integrated device manufacturers (IDMs) and semiconductor assembly and test services (SATS) providers realize significant spending declines. Beyond 2013, memory and logic spending are expected to align, with substantial increases in 2014 followed by a flat to slightly positive 2015.

Driven by the increase in mobile devices, logic spending is the only positive driver for capital investment in 2012, increasing about 3% over 2011. This is driven by aggressive investment of the few top players, which are ramping up production at the sub-30-nanometer nodes.

Source: www.gartner.com

Global PCB Shipments

Chart 27 provides monthly printed circuit board 3/12 shipment growth rates for North America, Europe, Japan and Taiwan/China.

Using a base year of 2011 (IPC study) and the growth rates above, Chart 28 shows monthly PCB shipments by region in billions of U.S. dollars and Chart 29 provides total world monthly PCB shipments.

Source: Custer Consulting Group