China/Taiwan Update

January sales of Taiwan-listed companies, many of which that manufacture in China, were released a bit late this month due to Chinese New Year.

  • China/Taiwan electronic equipment sales plunged in January (normal seasonality, weak global demand and Apple iPhone order cutbacks) and will likely continue to drop in February (Chinese New Year shutdowns and continued weak demand). January 2016 was down 15% versus January 2015 (Chart 1).
  • ODM revenues declined similarly (Chart 2) also falling 15% in January 2016 versus January 2015 and down sequentially 21% from December. These ODM companies as a group had a 0.2% revenue increase in 2015 but the results varied significantly by company (Chart 3).
  • Display shipments also declined (Chart 4).
  • Semiconductor shipments to Asia remain “in sync” with electronic equipment shipments on a 3/12 growth basis although both are clearly trending downwards (Chart 5).
  • Wafer foundry sales rebounded in January (Chart 6), Package and Test declined slightly (Chart 7), but memory (Chart 8) and passive components (Chart 9) increased.
  • Printed circuit shipments increased slightly in January (Chart 10). They were down 1.9% in 2015 versus 2014 in local currency and down 6.3% when converted to strong U.S. dollars.
  • CCL (PCB laminate) shipments remained “in sync” with rigid PCB shipments (Chart 11) as our Asian PCB leading indicator points to a continued PCB decline versus the same months in 2015 for the near term (Chart 12).

Source: Company financials analyzed by Custer Consulting Group

Japan Update

JEITA and JPCA just released December and total 2015 domestic Japanese production data:

  • Electronic equipment production declined 1.8% in 4Q’15 versus 4Q’14 in local currency and dropped 7.4% when converted to U.S. dollars at fluctuating exchange (Chart 13).
  • Monthly electronic equipment production increased seasonally in December (Chart 14).
  • 2015 domestic Japanese electronic equipment production totaled 4.27 trillion yen. Chart 15 details this by equipment production by type.
  • Electronic component and device production in Japan totaled 7.5 trillion yen categorized by type in Chart 16.
  • Both electronic component and device production growth has been declining in recent months (Chart 17) with device growth negative in December and components up 6.3% but weakening.
  • Semiconductor shipments to Japan are “in sync” with electronic equipment production on a 3/12 growth basis (Chart 18).
  • IC and discrete semiconductor production have both been declining in recent months (Chart 19)
  • Passive component production plunged in November and December (Chart 20).
  • Printed circuit shipments also declined in December. It was up 6.1% in yen in total 2015 vs. 2014 (Chart 21) however growth dropped to zero in December on a 3/12 basis (Chart 22).
  • Domestic Japanese production by PCB type in 2015 is given in Chart 23. Based on the PMI leading indicator printed circuit production looks to be stable month/month in 2016 versus 2015 (Chart 24).

European Semiconductor Distribution Sales up 11.3% y/y in 4Q’15; Strongest Christmas quarter ever (Charts 25 & 26)

European Semiconductor Distribution Market (DMASS) Closes 2015 with double-digit Growth

  • Healthy market conditions for semiconductor mass market despite economic uncertainties in Europe
  • Exchange effects dominate growth pattern
  • Eastern Europe remains growth motor

Components distribution in europe confounded the overall economic mood and enjoyed a rather healthy 2015. According to DMASS (Distributors' and Manufacturers' Association of Semiconductor Specialists), semiconductor distribution sales in Q4/CY15 grew by 11.3% to 1.75 billion euro compared to Q4/CY14 and became the strongest Christmas quarter ever. 2015 ended with sales of 7.3 billion euro, an impressive 14.6% gain over 2014.

The exchange rate effects between U.S. dollar and euro diminished compared to previous quarters, but on an annual basis, the influence of the stronger dollar and its side effects (price increases, dollar factoring) on the growth was significant ­­– DMASS estimates that 60% of the increase in 2015 was due to the exchange rate swing, in other words, the organic growth lay between 6 and 7%. (As a perspective, DMASS sales, converted to U.S. dollars, dropped 4.4% compared to 2014.)

Georg Steinberger, chairman of DMASS: "As predicted, we enjoyed record business in distribution in 2015, at least from a sales perspective. What is different to previous years is the fact that no shortages accompanied this double-digit growth, product availability was never an issue. A big part of the success story is a purely technical effect that will disappear in 2016, unless the exchange rates run riot again. All signs – currency effects, economy, and Chinese downturn - would lead to conclude that we will encounter a far more solemn business environment in 2016."

From a regional vantage point, the watershed between over- and under-proportional growth rates ran along the "Euro-Divide": countries that traditionally deal more in Dollars or in stronger currencies other than euro (Eastern europe, Sweden, Switzerland) grew faster. The exception is the UK, which grew – despite a strong GBP – below average. Another effect: Production transfers to Eastern Europe or Asia dragged smaller markets like Norway, Finland, the Baltic States and Belgium down. Russia still suffers from the sanctions and ended as the only country in the DMASS Region with a decline. On an annual basis, Germany grew 9.5% to 2.2 billion euro, Italy 12.3% to 667 million euro, the UK by 12.8% to 605 million euro and France by
12.3% to 561 million euro. In contrast, Eastern Europe grew by 30.4% to 958 million euro, while Nordic increased sales by 19.5% to 713 million euro, almost entirely driven by the Swedish market.

Georg Steinberger: "The major success stories throughout 2015 were without doubt almost all in Eastern Europe, mainly driven by exchange rate effects and production transfer. It remains to be seen if a normalization of the accounting basis (euro/dollar balance) also leads to a normalization of regional strengths. If 2015 and 2016 are comparable from an exchange rate perspective, it would be interesting to see how positive (IoT) and negative effects (China) play out."

At the product level, all major product groups except Power (6.6%), Standard Logic (9.3%), MOS Micro (13.5%) and Programmable Logic (14.5%) grew over-proportionally. In 2015, Analog remained the strongest product group (15.8% increase to 2.13 billion euro), followed by MOS Micro (13.5% to 1.51 billion euro), Opto (15.4% to 750 million euro) and power (6.6% to 684 million euro).

Georg Steinberger: "Very few standard products really made a mark in 2015 in terms of sales growth, the difference mostly came from design products like complex logic, Analog or high-end microcontrollers. For example, for the first time ever, 32-Bit MCUs beat 8-Bit-MCUs at the annual level. This trend will continue with the advent of Internet of Things and Industry 4.0."


Chip Suppliers of Apple's Next Generation iPhones have Started to Book Production Capacity at Foundry and Backend Partners

Chip suppliers of Apple's next generation iPhone-series have started to book production capacity at their foundry and backend partners, according to industry sources.

Chip suppliers including Cirrus Logic and Analog Devices (ADI) have recently requested their foundry and backend service providers reserve a significant portion of their production capacities in the second and third quarters, said the sources.

Cirrus Logic and ADI are both among the major IC providers of Apple, and reportedly will play a key role in the brand new design for upcoming iPhone 7 series which will be slimmer than existing iPhone models without a 3.5mm headphone jack. ADI will offer driver components for a dual-lens design for the model, the sources noted.

In addition, TSMC is expected to grab most of or probably all orders for Apple's A10 processors which will be featured in the iPhone 7 series, the sources indicated. The foundry has been aggressively expanding its 16nm FinFET process production capacity, and is set to move its integrated fan-out (InFO) wafer-level packaging technology to volume production in the second quarter of 2016.


Worldwide Smartphone Sales Grew 9.7% y/y in 4Q’15 (Charts 27-29)

Global Smartphone Sales Exhibited Slowest Growth Since 2008; iPhone Sales Declined for the First Time

Global sales of smartphones to end users totaled 403 million units in the fourth quarter of 2015, a 9.7% increase over the same period in 2014, according to Gartner, Inc. However, this was their slowest growth rate since 2008. In 2015 as a whole, smartphone sales reached 1.4 billion units, an increase of 14.4% from 2014.

“Low-cost smartphones in emerging markets, and strong demand for premium smartphones, continued to be the driving factors,” said Anshul Gupta, research director at Gartner. “An aggressive pricing from local and Chinese brands in the midrange and entry-level segments of emerging markets led to consumers upgrading more quickly to affordable smartphones.” Gupta said that 85% of users in the emerging Asia/Pacific market are replacing their current midrange phone with the same category of phone. In addition, currency devaluations against the U.S. dollar in many emerging markets are putting further margin pressure on many vendors that import devices. Current market conditions are prompting some vendors to consider setting up manufacturing operations in India and Indonesia to avoid being hit by future unfavorable currency devaluations and high import taxes.

In the fourth quarter of 2015, Samsung and Huawei were the only two top-five smartphone vendors to increase their sales to end users. Apple suffered its first decline in sales of smartphones — iPhone sales were down 4.4%.


Global DRAM Revenue Fell 9.1% in 4Q’15 versus 4Q’14 (Charts 30-32)

The global DRAM industry posted US$10.27 billion in revenue for the fourth quarter of 2015, a 9.1% drop from the prior quarter, according to DRAMeXchange, a division of TrendForce. The revenue decline was attributed to the falling DRAM average selling prices and the persistent market oversupply.

DRAMeXchange Research Director Avril Wu said: “In the fourth quarter, notebook shipments were stronger than expected and Apple’s iPhone 6s shipments continued to sustain the market demand. At the same time, however, the DRAM suppliers were also in the midst of migrating their process technology. SK Hynix had just begun manufacturing on the 21nm process and Micron ramped up its 20nm production. Thus, DRAM price decline was unavoidable.”

Samsung remained as the No. 1 DRAM supplier by revenue while SK Hynix widened its lead over Micron.


Global Tablet Shipments Decreased 13.8% y/y to 65.34 Million Units in 4Q’15

Global tablet shipments grow over 20% in 4Q’15 mainly due to US-based vendors

Due to better-than-expected demand and channel retailers strengthening their promotions, some US-based tablet vendors achieved strong shipments, helping global tablet shipments grow 23.9% sequentially to reach 65.34 million units in the fourth quarter of 2015. But compared to the same quarter a year ago, the volume still decreased 13.8%.

Although iPad Pro shipment performance was the main focus for market watchers, the iPad Air 2 was the major contributor of Apple's tablet shipments of 16.1 million units in the fourth quarter of 2015 thanks to channel retailers' aggressive promotions, according to Digitimes Research's latest report about global tablet shipments.

White-box players' tablet shipments in the fourth quarter of 2015 were only 20.3 million units, down nearly 5% sequentially because of competition from first-tier brand vendors' low-cost models in Europe and North America, Intel canceling its subsidies, and the fact that white-box players have turned to supply large-size Windows-based tablets with higher prices and better profits.

Non-Apple brand vendors performed the best in the fourth quarter of 2015, shipping 28.94 million units, up 6.4% on year. Among the vendors, Samsung mainly focused on its inexpensive 7-inch tablet with phone functionality and a 9.6-inch model; however, their shipments only had limited growth.

Amazon mass shipped its low-price Fire 7 tablet in the fourth quarter of 2015 and by taking demand away from white-box players' models, the U.S.-based vendor's tablet shipments grew significantly on year in the quarter.

With a complete product lineup and strong shipments both in China and overseas markets, Huawei's tablet shipments surpassed those of Asustek Computer for the first time in the fourth quarter of 2015.

Because of Apple and Amazon's better-than-expected shipments, Taiwan ODMs had strong tablet shipments in the fourth quarter of 2015, shipping 23.32 million units altogether. Thanks to the iPad Air and the iPad Pro, Foxconn Electronics (Hon Hai Precision Industry) contributed almost 60% of the volume. Compal mainly benefited from the iPad mini 2 and Amazon's Fire 7.

Foxconn and Compal together accounted for over 80% of Taiwan's tablet shipments in the quarter.


U.S. Industrial Production up 0.9% in January after Three Months of Declines (Chart 33)

U.S. industrial production rose in January after three straight months of declines, helped by a strong utilities index and a growing manufacturing sector.


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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