Weekly Global Update for July 15, 2015

Worldwide Semiconductors Sales increased 5.1% y/y to $28.2 billion in May 2015

Global industry posts 25th consecutive month of year-to-year sales increases in May; sales in Americas increase 11.4% year-to-year to lead all regions (Charts 1-3)

The Semiconductor Industry Association (SIA) announced worldwide sales of semiconductors reached $28.2 billion for the month of May 2015, an increase of 5.1% from May 2014 when sales were $26.8 billion. Global sales from May 2015 were 2.1% higher than the April 2015 total of $27.6 billion. Regionally, sales in the Americas increased 11.4% compared to last May to lead all regional markets. All monthly sales numbers are compiled by the World Semiconductor Trade Statistics (WSTS) organization and represent a three-month moving average.

"The global semiconductor industry overcame lingering macroeconomic uncertainty to post solid year-to-year growth in May," said John Neuffer, president and CEO, Semiconductor Industry Association. "Year-to-year sales have now increased for 25 straight months, month-to-month sales increased for the first time in six months, and we expect modest growth to continue for the remainder of 2015 and beyond."

In addition to the Americas market, year-to-year sales also increased in China (9.5%) and Asia Pacific/All Other (8.0%), but decreased in Europe (-7.8%) and Japan (-11.8%). Compared to last month, sales were up in China (4.0%), Asia Pacific/All Other (3.3%), and the Americas (0.2%), but decreased slightly in Europe (-0.6%) and held flat in Japan.

"Congress and the President recently gave the U.S. semiconductor industry and other trade-dependent sectors a major boost by enacting Trade Promotion Authority (TPA), which makes it easier for the United States to strike deals on free trade agreements," said Neuffer. "With TPA, the United States is more likely to get the Trans-Pacific Partnership (TPP) and other critical trade agreements across the finish line, leading to continued growth and innovation in our industry and across the U.S. economy."

Source: www.sia-online.org

Custer comments:

1. Custer Consulting Group’s semiconductor leading indicator points to modest slowing in global semiconductor shipment growth near term (Chart 4).
2. May 2015 3-month growth rates denominated in US$ were positive for the total world and also for the Americas, China and Asia/Pacific excluding China (Chart 5). The declines in Europe and Japan are a bit misleading as they are heavily impacted by exchange rates. Europe (Chart 6) has seen recent double digit semiconductor growth in euros but a decline when converted to US$. Japan (Chart 7) experienced a similar local currency value growth but a decline when these semiconductor shipments are expressed in US$ rather than yen.

Worldwide Semiconductor Sales Expected to Reach $348 Billion in 2015, a 2.2% Increase From 2014 (Chart 8)

Softness in Key Electronic Equipment Segments, Including PCs and Smartphones, Slowing Growth

Worldwide semiconductor revenue is forecast to reach $348 billion in 2015, a 2.2% increase from 2014, but down from the previous quarter's forecast of 4.0% growth, according to Gartner, Inc.

"The outlook for the major applications that drive the semiconductor market, including PCs, smartphones, and tablets, have all been revised downward. This, combined with the impact of the strong dollar on demand in key markets, has resulted in a lower semiconductor forecast for 2015," said Jon Erensen, research director at Gartner. "The typical second-quarter bounce did not materialize this year, and as a result, the semiconductor industry is more back-end loaded and dependent on a strong third-quarter rebound, driven by Windows 10 and the ramp-up to the holiday season."

From an application point of view, smartphones and solid-state drives (SSDs) will continue to drive semiconductor market growth, while the traditional PC segment will experience the greatest decline, with production units down 8.7% in 2015, slightly weaker than the previous quarter's forecast. "Inventory in the PC market remains high despite vendors looking to clear the supply chain in anticipation of Windows 10 and Intel's Skylake products. Any issues with the launches of Windows 10 or Skylake in the third quarter of 2015, which are expected to reinvigorate PC sales, could lead to further decline," said Erensen.

In the smartphone market, Apple's iPhone is the bright spot for the market with strong unit growth and increasing average selling prices (ASPs), driven by the strong performance of the iPhone 6 and iPhone 6 Plus. However, lackluster performance in high-end Android smartphones and general softness in the smartphone market in China will continue to impact growth.

Although the wearables market, including smartwatches, head-mounted displays (HMDs), smart glasses and Bluetooth headsets, is a growing industry, revenue for wearables semiconductors — processing, sensing and communications chips — will represent only 1% of total semiconductor revenue by 2019. Smartwatches are the top semiconductor growth in the near term.

From a device point of view, DRAM continues to be one of the primary growth drivers of the overall industry. DRAM revenue is expected to increase 3.8% in 2015, following a 32% increase in 2014. However, Gartner expects an oversupply (or "underdemand") to develop in 2016 as limited new capacity comes online and technology migration continues. DRAM industry revenue is expected to decline 17.4% in 2016 and 7% in 2017.

"The typical second-quarter bounce did not materialize this year, and as a result, the semiconductor industry is more back-end loaded and dependent on a strong third-quarter rebound, driven by Windows 10 and the ramp-up to the holiday season," said Erensen.

Strong: www.gartner.com

DRAM Module 2014 Revenues by Major Vendor (Chart 9)

The latest DRAM module maker ranking by DRAMeXchange, a division of TrendForce, reports that the gross sales of the global DRAM module market for 2014 was US$8.8 billion. This amount represented a 21% increase over the 2013 gross sales of US$7.3 billion. This dramatic growth was attributed to the stabilization of prices for PC DRAM and the rise of contract transactions relative to spot trades. The top five module manufacturers remained dominant, accounting for 81% of the 2014 gross sales. Moreover, the top ten companies made up 92% of the market revenue for that year. Kingston firmly established itself as the industry leader with an annual revenue growth of 44%. Ramaxel and ADATA took the second and third place with impressive performances as well.

DRAMeXchange’s research shows 2014 was a very profitable year for the DRAM industry as the market consolidated into an oligopoly that brought the supply-demand situation under control. With the right product mix strategies, manufacturers also benefitted from the brisk sales of smartphones and the steadily growing server market.

DRAMeXchange moreover finds that with the DRAM spot market shrinking this year, module manufacturers must look to new markets to sustain their revenue growth. Kingston offers the best case scenario as it has effectively made inroads into the contract market. While smaller manufacturers may have difficulty emulate Kingston’s success, there are alternatives to the contract market. The industrial and gaming applications, for examples, are important markets that demand high-margin products. Capitalizing on these opportunities and increasing the proportions of flash and other strategic products in the product mix are some of the ways manufacturers can survive in the changing business market environment.

Source: www.DRAMeXchange.com

Viet Nam's Electronics Exports Reached US$35 billion in 2014

Viet Nam's electronics sector is becoming a force in Asia. While electronics exports from Asia rose by 17% between 2010 and 2014, Viet Nam's contribution ballooned by about 10 times, according to Singapore-based DBS group research.

The country has leapfrogged the Philippines and Thailand and will likely overtake Singapore to become the fifth largest electronics exporter in the region over the next two years.

Viet Nam’s electronics cluster has grown rapidly in recent years. Electronics exports have expanded 78% per year for the past four years, reaching US$35 billion in 2014. Electronics accounted for 23% of all exports in 2014, up from a mere 5% in 2010. Electronics are now a key driver of the economy, accounting for 23.4% of GDP last year, up from just 5.2% in 2010.

Source: www.vietnamnews.vn/

Vietnam's PCB Production will very soon exceed $1 billion

Flexcom, a major FPC maker of S. Korea has two FPC plants in Bac Ninh that primarily supplies Samsung Electronics. S. Korean FPC makers, SI Flex, BH Flex and Daeduck GDS, also have plants in the Bac Ninh area. Samsung Electro-Mechanics will soon be producing Rigid Flex and HDI products at Samsung Electronics' new campus located north of Bac Ninh. There also may be more S. Korean PCB makers coming to Vietnam.

Meiko Vietnam's main customer for HDI products is Samsung Electronics.

Vietnam's PCB production will very soon exceed $1 billion. Meiko has two HDI plants in Hanoi. Sumitomo Denko is beefing up its FPC operations in Hanoi. Down in the south, Japanese makers, Fujitsu Vietnam, Nitto Denko and Fujikura are operating in and around the vicinity of Ho Chi Minh City. There are several other small makers in the south.

H. Nakahara 
N.T. Information Ltd

Worldwide Combined Shipments of Devices (PCs, tablets, ultramobiles and mobile phones) Expected to Grow 1.5% y/y to 2.5 billion units in 2015 (Charts 10 & 11)

Worldwide combined shipments of devices (PCs, tablets, ultramobiles and mobile phones) are expected to reach 2.5 billion units in 2015, a 1.5% increase from 2014 and down from the previous quarter's forecast of 2.8% growth, according to Gartner, Inc.

End-user spending on devices will total $606 billion in 2015 and will show, for the first time since 2010, a 5.7% decline in current U.S. dollars.

"Our forecast for unit shipment growth for all devices in 2015 has dropped by 1.3 percentage points from last quarter's estimate," said Ranjit Atwal, research director at Gartner. "This was partly due to a continued slowdown in PC purchases in Western Europe, Russia and Japan in particular, largely due to price increases resulting from local currency devaluation against the dollar."

The only market that continues to show growth is the mobile phone market where, in contrast, prices continue to fall. The emerging markets are driving the smartphone market upward, with China leading the way.

Source: www.gartner.com

Phablet Sales to increase 66% y/y to 252 Million Units in 2015 while Tablet Unit Sales will grow 2% to 238 Million Units (Chart 12)

Updated forecast shows large-screen smartphone shipments climbing 66% this year to 252 million units while the lack of replacement purchases stymies tablets.

Large-screen smartphones, with displays of five inches or greater and often called "phablets" (for phone/tablet hybrids), are on track to surpass worldwide shipments of tablet computers this year, according to IC Insights. The updated forecast shows the popularity of extra-large smartphones continuing to gain momentum in the first half of 2015 with unit shipments now expected to reach 252 million this year, which is a 66% increase from 152 million sold in 2014. Strong growth in large smartphones is having a major impact on tablet unit sales, which are forecast to increase just 2% in 2015 to 238 million units.

The phablet segment is expected to account for 17% of total smartphone shipments in 2015, which are forecast to be about 1.5 billion handsets. The update report shows phablets representing 21% of the 1.7 billion smartphones that are forecast to be shipped in 2016. Phablet sales are projected to reach 30% of the nearly two billion total smartphones shipped in 2018.

Tablet unit sales have nearly stalled out because incremental improvements in new models have not been enough to convince owners of existing systems to buy replacements. More consumers are opting to buy new large-screen phablets instead using both a smartphone and tablet. Large smartphones have gained traction because more handsets are being used for video applications (including streaming of TV programs and movies) in addition to Internet web browsing, video gaming, GPS navigation, and looking at digital photos.

Source: www.ICInsights.com

Worldwide PC Shipments Declined 9.5% in 2Q'15 (Charts 13-16)

PC Industry Faces Slowdown as Industry Anticipates the Launch of Windows 10

Worldwide PC shipments totaled 68.4 million units in the second quarter of 2015, a 9.5% decline from the second quarter of 2014, according to preliminary results by Gartner, Inc. This was the steepest PC shipment decline since the third quarter of 2013. PC shipments are projected to decline 4.4% in 2015.

There were many contributors to the decline of PC shipments in the second quarter of 2015, and Gartner analysts highlighted three of the major reasons for the drop in shipments. Analysts emphasized that these inhibitors are temporary events, and they are not changing the PC market's structure. Therefore, while the PC industry is going through a decline, the market is expected to go back to slow and steady growth in 2016.

"The price hike of PCs became more apparent in some regions due to a sharp appreciation of the U.S. dollar against local currencies," Mikako Kitagawa, principal analyst at Gartner. "The price hike could hinder PC demand in these regions. Secondly, the worldwide PC market experienced unusually positive desk-based growth last year due to the end of Windows XP support. After the XP impact was phased out, there have not been any major growth drivers to stimulate a PC refresh. Lastly, the Windows 10 launch scheduled for 3Q’15 has created self-regulated inventory control. PC vendors and the channels tried clearing inventory as much as possible before the Windows 10 launch."

Lenovo maintained the top position in worldwide PC shipments in the second quarter of 2015 (see Table 1), but the company suffered a year-on-year shipment decline for the first time since the second quarter of 2013. EMEA, Latin America and Japan were tough regions for Lenovo, as the company experienced double-digit shipment declines. HP also experienced a shipment decline after five consecutive quarters of PC shipment growth. HP showed a steep decline in EMEA, which was potentially due to the currency impact. The company was also impacted by tight inventory controls in the consumer market before the Windows 10 launch.