Weekly Global Update for July 10, 2013

Global PMI Leading Indicator Unchanged in June (Chart 1)

USA, Europe, Taiwan and Japan improve, China and S. Korea decline (Chart 2)

At 50.6 in June, unchanged from May, the JPMorgan Global Manufacturing PMI signaled an expansion of the global manufacturing sector for the sixth month running.

However, the rate of growth signaled by the headline PMI remained only moderate and weaker (on average) over the second quarter of the year than during the opening quarter.

Solid rates of expansion were signaled by the PMIs for the U.S., Japan, the UK, Russia, Switzerland and Mexico.

Meanwhile, the downturn in the Eurozone continued to ease. China, Taiwan, South Korea and Vietnam also reported contractions during the latest survey period.

June data signaled further increases in both output and new orders. Although rates of expansion in both variables were slightly quicker than in May, they remained modest overall. The trend in new export business deteriorated for the first time in four months.

The decline in new export business was centered on the U.S. and China, which both reported marked reductions in June.

The Eurozone also reported a decrease – following a negligible rise one month earlier – as did Mexico, Australia, Taiwan, South Korea, Indonesia, Vietnam and Brazil.

Job losses were reported in the global manufacturing sector for the first time in seven months during June, although the rate of reduction was only slight. Staffing levels were lowered in China (joint-fastest reduction in over four years), Brazil, Vietnam, Switzerland and Poland, and were broadly unchanged in the U.S., the UK and South Korea. One of the brighter spots was Japan, where employment rose at the quickest pace since May last year.

Price pressures remained relatively muted in June. Average input prices rose marginally, as solid cost increases in the U.S., Japan, India, Brazil, Indonesia and Russia offset marked reductions in the Eurozone, China, Taiwan and South Korea. Meanwhile, average selling prices declined for the third successive month.

Sources: www.markiteconomics.com and www.jpmorgan.com

Worldwide Semiconductors Sales Increased 4.6% m/m to $24.70 Billion in May 2013, Largest Margin Increase in over 3 Years - SIA and WSTS

• Global Semiconductor Sales Jump by Largest Margin in Over Three Years
• Sales in May up 4.6% globally, 5.6% in the Americas compared to April

The Semiconductor Industry Association (SIA) announced that worldwide sales of semiconductors reached $24.70 billion for the month of May 2013, an increase of 4.6% from the previous month when sales were $23.62 billion. This represents the largest sequential monthly increase in sales for the industry since March 2010. Global sales in May 2013 were 1.3% higher than the May 2012 total of $24.40 billion, and year-to-date sales in 2013 are 1.5% higher than they were at the same point in 2012. All monthly sales numbers are compiled by the World Semiconductor Trade Statistics (WSTS) organization and represent a three-month moving average.

“May was an unambiguously strong month for the global semiconductor industry, with growth across all regions and particularly encouraging increases in the Americas and Asia Pacific,” said Brian Toohey, president and CEO, Semiconductor Industry Association. “Sales have remained ahead of last year’s pace throughout 2013, indicating the increasing resiliency of the market.”
Regionally, sales in May increased compared to April in Asia Pacific (5.9%), the Americas (5.6%), Japan (0.8%), and Europe (0.3%), marking the first time since September 2012 that all four regions have seen sequential monthly growth. Compared to the same month in 2012, sales in May increased in Asia Pacific (5.8%), the Americas (3.0%), and Europe (0.1%), but fell steeply in Japan (-18.4%), largely because of the devaluation of the Japanese yen.

“Building on the semiconductor industry’s recent momentum will require enacting federal policies that embrace innovation and foster growth,” continued Toohey. “The Senate’s recent approval of comprehensive immigration reform legislation is a significant step forward. The House should follow suit and promptly approve legislation to fix America’s outdated high-skilled immigration system.”

Sources: www.sia-online.org and www.wsts.org

Custer comments:

• Chart 3 summarizes the 3-month average growth of semiconductor shipments by region.
• Global 3/12 growth returned to positive territory (Chart 4) however world shipments are still below the 2012 seasonal peak (Chart 5).
• On a sequential monthly basis SE Asia and North America improved while Japan and Europe declined in May versus April (Chart 6).
• SE Asia consumed 59.2% of the world’s semiconductor shipments in May suggesting that this region electronically assembles almost 60% of the world’s electronic equipment (Chart 7).
• Semiconductor shipments to North America rebounded (Chart 8) however their growth is out of phase with electronic equipment shipments (Chart 9) suggesting over ordering or inventory building of chips.

Worldwide IT Spending on Pace to Reach $3.7 Trillion in 2013 (Chart 10)

Worldwide IT spending is projected to total $3.7 trillion in 2013, a 2% increase from 2012 spending of $3.6 trillion, according to the latest forecast by Gartner, Inc. Last quarter, Gartner's forecast for 2013 IT spending growth in U.S. dollars was 4.1%. The 2.1 percentage point reduction mainly reflects the impact of recent fluctuations in U.S. dollar exchange rates; growth in constant currency is forecast at 3.5% for 2013, down slightly from last quarter. 

The Gartner Worldwide IT Spending Forecast is the leading indicator of major technology trends across the hardware, software, IT services and telecom markets. For more than a decade, global IT and business executives have been using these highly anticipated quarterly reports to recognize market opportunities and challenges, and base their critical business decisions on proven methodologies rather than guesswork. 

"Exchange rate movements, and a reduction in our 2013 forecast for devices, account for the bulk of the downward revision of the 2013 growth," said Richard Gordon, managing vice president at Gartner. "Regionally, 2013 constant-currency spending growth in most regions has been lowered. However, Western Europe's constant-currency growth has been inched up slightly as strategic IT initiatives in the region will continue despite a poor economic outlook." 

The forecast for spending on devices in 2013 has been revised down from 7.9% growth in Gartner's previous forecast to 2.8%... The decline in PC sales, recorded in the first quarter of 2013, continued into the second quarter with little recovery expected during the second half of 2013. While new devices are set to hit the market in the second half of 2013, they will fail to compensate for the underlying weakness of the traditional PC market. The outlook for tablet revenue for 2013 is for growth of 38.9%, while mobile phone revenue is projected to increase 9.3% this year. 

Enterprise software spending is on pace to grow 6.4% in 2013. Growth expectations for customer relationship management (CRM) have been raised to reflect expanded coverage into e-commerce, social and mobile. Expectations for digital content creation and operating systems have been reduced as software as a service (SaaS) and changing device demands impact traditional models and markets. 

Telecom services spending is forecast to grow 0.9% in 2013. Fixed broadband is showing slightly higher than anticipated growth. The impact of voice substitution is mixed as it is moving faster in the consumer sector, but slightly slower in the enterprise market. 

Source: www.gartner.com

U.S. Electronic Equipment Orders Improve in May

Based upon the U.S. “Factory Orders” report released this past week:

• Electronic equipment orders rose significantly and shipments slightly on a sequential basis from April to May (Charts 11 & 12).
• Communication equipment drove the May electronic equipment order increase (Chart 13).
• Equipment inventories remained relatively stable exccept for an ongoing increase in the instrument sector (Chart 14).
• Vehicle shipments were flat from April to May (Chart 15) while aircraft sales rebounded from their April dip (Chart 16).
• Defense capital goods (Chart 17) and military electronics (Chart 18) orders improved slightly.
• Electromedical, measurement & control equipment orders were flat (Chart 19), communication equipment bookings rose (Chart 20) and computer orders were static (Chart 21).
• The passive component book/bill remained above 1.0 (Chart 22) however both orders and shipments were relatively flat (Chart 23) and their 3/12 growth rates remained below parity (Chart 24).
• The increase in N. American semiconductor shipment growth (Chart 25) and a modestly improving U.S. PMI leading indicator (Chart 26) suggest that U.S. passive component growth will soon resume.
• Passive component inventories declined (Chart 27).
• U. S. Passive component and electronic equipment order growth are in balance (Chart 28).

Chart 29 summarizes the annualized (12/12) and 3-month (3/12) growth of the U.S. electronics supply chain. A value of 100 indicates zero growth vs. the same period a year earlier. The 3/12 “leads” the 12/12.

North American PCB Industry Results for May 2013 - IPC

IPC announced the May findings from its monthly North American Printed Circuit Board (PCB) Statistical Program. The PCB Book-to-Bill Ratio stayed strong for the sixth consecutive month, remaining at 1.10, an indication that recovery from nearly a two-year slump may be starting.

PCB Bookings Gain Strength

Total North American PCB shipments were down 4.4% in May 2013 from May 2012, but bookings increased 8.3% year over year. Year to date, PCB industry shipments were down 4.9% and bookings were down 0.3%. Compared to the previous month, PCB shipments in May increased 0.9%, and bookings grew by 6.5%. Bookings have outpaced shipments for the past six months. The PCB Book-to-Bill Ratio held steady in May at a strong 1.10.

Flexible circuit sales continued to strengthen in May, while rigid PCB sales continued to lag behind last year’s levels. Orders went in the opposite direction, with flex orders experiencing negative year-on-year growth while rigid PCB orders outpaced 2012.

“PCB sales and orders have been below last year’s levels for most months of the past year, but they have been improving in recent months,” said Sharon Starr, IPC director of market research. “Order growth rates have improved faster than sales growth rates, which accounts for the positive book-to-bill ratios of the past five months,” she explained. “PCB sales are slowly emerging from almost a two-year slump, but the recent positive order growth makes the sales outlook for the second half of this year more promising.”

Domestic Production Holds Steady

IPC’s monthly survey of the North American PCB industry tracks bookings and shipments from U.S. and Canadian facilities, which provide indicators of regional demand. These numbers do not measure U.S. and Canadian PCB production. To track regional production trends, IPC asks survey participants for the percent of their reported shipments that were produced domestically (i.e., in the USA or Canada). In May 2013, 86% of total PCB shipments reported by survey participants were domestically produced. These numbers are significantly affected by the mix of companies in IPC’s survey sample, which change slightly in January, but are kept constant through the remainder of the year.

Source: www.ipc.org

Custer comment:
The rigid PCB book/bill is rising much more than the electronic equipment book/bill (Chart 30) and the 3/12 growth of PCB orders is in excess of electronic equipment orders (Chart 31) suggesting that there is excess ordering or inventory building of PCBs in N. America.