Weekly Global Update for July 23, 2014

Europe Update

Eurostat just released the May European industrial production, vehicle and electronic equipment data. Business conditions weakened in late spring:

• Industrial production declined sequentially from April for key European countries (Chart 1).
• Electronic equipment production declined (Chart 2) as its 3/12 growth (Chart 3) barely slipped into negative territory (3/12 <1).
• Automotive (Chart 4) and aerospace (Chart 5) production improved modestly.
• Instrument and control (Chart 6) and electromedical (Chart 7) production dropped significantly.
• Electronic assembly (Chart 8), component and board (Chart 9) and wiring device (Chart 10) production weakened.
• Recent PCB book/bill ratios weakened in the German speaking countries (Chart 11) and France (Chart 12) but improved slightly in the UK (Chart 13).
• Growth of the European electronic supply chain is now near zero for electronic equipment, semiconductors and PCBs but still positive for SEMI equipment (Chart 14).
• Europe’s PCB leading indicator points to slower PCB growth short term (Chart 15).

Chart 16 summarizes the 3-month (3/12) and annualized (12/12) growth of the European electronic supply chain. The 3/12 “leads” the 12/12.

Source: Eurostat and www.data4pcb.com for book/bill data

U.S. Industrial Production Increased 0.2% in June (Chart 17)

U.S. industrial production rose in June as production at mines increased 0.8% and manufacturing rose 0.1%

Source: www.federalreserve.gov/releases/g17/table1_2.htm

Worldwide Business Confidence Wanes (Chart 18)

Worldwide business optimism has waned compared to the two-year high seen earlier in 2014, according to Markit Economics’ latest Markit Global Business Outlook Survey.

Expectations about future business activity growth fell slightly, with future hiring and investment intentions deteriorating especially markedly. The cooling of sentiment is in part reflecting the growing reality of policy being tightened in the U.S. and UK, a still weak Eurozone recovery and sluggish growth in emerging markets.

Indicators of expected selling price trends meanwhile also fell sharply, hitting their lowest for over four years, in part because input costs are set to show the smallest rise yet recorded by the survey.

Key survey findings for major countries:

Eurozone

• Business confidence falls back from three-year high recorded in February
• Manufacturers and service providers both signal weaker optimism regarding activity
• Employment intentions remain positive, but expected rate of jobs growth eases
• Input and output price expectations hit one-year low
• Optimism regarding profits slips from three-year high

U.S.

• Optimism among US companies holds steady in the summer
• Improvement in service providers’ expectations offset fall in manufacturing confidence
• Sentiment regarding future activity remains above global average but expected rate of job creation is lowest since start of survey in October 2009, as service providers scale back hiring intentions
• Input and output price expectations drop to series-lows

UK

• Sentiment regarding future business activity eases from February’s record high but remains strongest among major developed economies
• Manufacturers and service providers both signal upbeat outlook
• Staff hiring intentions remain close to record high
• Solid rise in capex planned, supported by robust profits growth
• Output price expectations ease slightly from survey-peak but remain in excess of global average

Japan

• Outlook for business activity brightest since February 2013
• Improvement in confidence broad-based across manufacturing and services
• Employment expectations close to series-high seen in previous outlook period
• Price pressures set to remain subdued
• Moderate profits growth anticipated

Source: www.markiteconomics.com

Asia-Pacific ASIC Market Share to Increase 17% from 2004 to 2014 (Chart 19)

Gains based on ongoing shift of electronic system production to low-cost Asia-Pacific regions. The Asia-Pacific region is forecast to increase its share of the ASIC market 17-percentage points from 2004 to 2014 and be the only region to significantly increase in ASIC marketshare, according to data compiled and soon to be released in IC Insights’ Mid-Year Update to the 2014 McClean Report. The European region is expected to increase its share, but only by 0.9 points, from 2004 to 2014. In contrast, America’s share of the ASIC market is forecast to drop about five percentage points.

Japan was the largest ASIC market from 2004 through 2009, but the continued movement of electronic system production from Japan to other low-cost Asia-Pacific regions enabled the Asia-Pacific region to surpass Japan and become the largest ASIC market in 2010. Asia-Pacific ceded its lead position back to Japan in 2011—quite a feat considering the earthquake that struck Japan in March 2011—but then regained its top spot the following year and has remained the largest regional market for ASIC devices since. In 2013, the Asia-Pacific ASIC market gained almost four percentage points of marketshare as Japan’s ASIC market plunged 21%, a decline driven primarily by the very weak Japanese yen versus U.S. dollar exchange rate. Another 2.5 percentage point gain is forecast for the Asia-Pacific region in 2014, driving its share of the total ASIC market to over 40%.

Even with an expected 6% increase in 2014, the Japanese ASIC market is forecast to be 42% less than it was in 2004. Similarly, the 2014 Americas ASIC market is forecast to be 28% smaller than it was 10 years earlier in 2004. In contrast to the Americas and Japan ASIC markets, the 2014 Asia-Pacific ASIC market is expected to be 51% larger than what it was in 2004. While the European ASIC market is the smallest of the four major regions, its ASIC market is forecast to be only about 5% less in 2014 than it was in 2004.

In 2014, Japan is forecast to be the market leader for sales of Gate Arrays ($82 billion) and Full-Custom ASICs ($1.5 billion). The Asia-Pacific region is forecast to be the largest market for Standard Cells ($3.3 billion) and PLDs ($2.3 billion). Asia-Pacific surpassed the Americas market in 2008 to become the largest consumer of MOS PLDs. Only ten years earlier, the Asia-Pacific region was the smallest consuming region for PLDs. The Asia-Pacific PLD market is expected to jump by 24% in 2014 and remain by far the largest PLD market through at least 2018.

By 2018, IC Insights forecasts the Asia-Pacific region will represent 45.5% of the total ASIC market, more than the combined shares of the Americas and Japan ASIC markets. Europe is forecast to hold only a 12.4% share of ASIC consumption in 2018, down 0.5 points from its expected share in 2014.

Source: www.ICInsights.com

Global PC DRAM Module Market Revenues Increased 32% y/y to US$ 7.3 Billion in 2013 (Chart 20)

• Top ten module manufacturers accounted for nearly 88% of the entire market's revenue
• Kingston Technology Leads the DRAM Module Industry in 2013; Micron Group Treading Near ADATA and Ramaxel

PC DRAM global module market revenues arrived at US$ 7.3 billion, a 32% YoY increase from 2012’s $US 5.5 billion, according to DRAMeXchange, the memory and storage research division of TrendForce. The main factors leading to the revenue growth included price increases for PC DRAM, increased spot market demand, and the rising proportion of contract market transactions.

The top ten module manufacturers accounted for nearly 88% of the entire market's revenue in 2013, with Kingston Technology maintaining its usual leading position within the industry. ADATA Technology and Ramaxel, which ended up in second and third place, respectively, showed respective revenue growth of 116% and 37%. As the module manufacturers’ operations are becoming increasingly diverse, the ranking for 2013 is based solely on their annual DRAM revenue.

2013 was definitely a strong year for the entire DRAM industry as far as price growth is concerned, pointed out DRAMeXchange. The DRAM market’s transformation into an oligopoly has enabled the market’s supply and demand to be more tightly regulated, while the top tier DRAM manufacturers’ decision to transition to Mobile DRAM following the increased sales of smartphones and tablets caused PC DRAM supply to tighten. The DDR3 4Gb contract prices, as a result of the restricted PC DRAM supplies, rose from a low of US$ 1.84 to US$ 3.94, a 114% increase. The spot market price for DDR3 4Gb, on the other hand, rose approximately 88% to US$ 4.27 thanks to the DRAM manufacturers’ decision to prioritize supplies for PC-OEM clients in 2013. At present, the difference between the contract and spot prices is still around 20%. Though uncommon in the industry, the simultaneous contract and spot price growth has provided a notable boost to the module manufacturers’ annual revenues.

As before, Kingston Technology is able to secure the top position in the 2013 module industry thanks to its success in the contract and spot markets. In recent periods, the eMCP product lines developed by the company’s subsidiary, KSI, has enabled it to increase its revenues in the China market, and in turn encouraged it to set its target on the first tier manufacturers’ supply chains. ADATA, which finished in the second place, managed to increase its revenues by a hefty 116% in 2013 and was able to retain a leading position in Taiwan's module memory market due to its low cost inventory and flexible business strategies. Benefiting from the product orders from domestic clients such as Lenovo and the strong sales momentum in foreign markets, Ramaxel ended in third place in 2013, and saw its revenues grow by 37%. Thanks to the consistently stable supplies from its parent company, Micron, Crucial Technology (whose official name is set to be changed to Micron Consumer Products Group in the future), ended up in the fourth place. Transcend rose from the eighth to fifth spot this year due to the major growth in the sales of its industry memory products.

Source: www.trendforce.com

Global EDA Sales Grew 4.6% to $1.746 Billion in 1Q’14 (Charts 21 & 22)

• Europe, North America and Pac Rim show healthy growth, but Japan sales plunge 19%;
• PCB & MCM EDA revenue grew 1.6% to $159.7 million - EDAC

Ed Sperling, Semiconductor Engineering

EDA sales grew 4.6% in the first quarter, down slightly year-over-year as sales in Japan dragged down the rest of the market. Sales in Japan dropped 19% year over year as the country’s electronics industry struggles for footing against rivals in China and South Korea.

North America and Europe grew 7% and 7.5% respectively, according to statistics provided by the EDA Consortium. Within those overall numbers, package design is up 20%, as companies prepare for stacked die and fan-outs. In addition, the move to advanced nodes and the need to improve reliability at established nodes drove logic verification sales up 27%.

“RTL simulation was flat, but a bigger and bigger part is that there is no limit to how much verification companies want to do,” said Wally Rhines, board sponsor for EDAC’s market statistics service and chairman and CEO of Mentor Graphics. “Another highlight was IP, which grew 10.2% (including non-reporting companies such as ARM).”

Total revenue for the EDA industry in Q1 was $1.746 billion, up from $1.669 billion in the same period in 2014. Historically, EDA has tracked the overall semiconductor industry at 2% of total revenue. It currently is running at about 2.1%.

The largest category reported was computer aided engineering, at $638.6 million, up 6.6% over Q1 2013. IC physical design and verification accounted for $331.9 million, up 2.4%.

Source: www.semiengineering.com