China/Taiwan Update

February was a difficult month for China and Taiwan electronics manufacturers. A combination of normal seasonality, Chinese New Year shutdowns and weak orders for Apple iPhone suppliers combined to cause the February downturn.

Based upon February revenues of Taiwan-listed companies, many of which manufacture in China:

  • Electronic equipment shipments were down 2% compared to February 2015 and down sequentially 13% from January 2016 (Chart 1).
  • ODM revenues showed a similar sharp February decline (Chart 2).
  • Based on the February China/Taiwan results we have updated our country-specific monthly electronic equipment shipment model (Chart 3).
  • Semiconductor shipments to Asia have mirrored the electronic equipment downturn on a 3/12 growth basis (Chart 4).
  • Wafer foundry sales dropped in February (Chart 5). They are a leading indicator of global semiconductor shipments (Chart 6).
  • Packaging and test revenues plunged (Chart 7), memory sales weakened (Chart 8) and passive component shipments dropped (Chart 9).
  • Solar/photovoltaic suppliers’ revenues also declined in February (Chart 10).
  • Printed circuit board revenues also dropped sharply (Chart 11) and February rigid (CCL) laminate shipments mirrored rigid PCB sales (Chart 12).
  • Custer Consulting Group’s Asia Pacific leading indicator points to the continued deterioration in PCB sales versus the same months in 2015 (Chart 13).

Source: Company financials analyzed by Custer Consulting Group

Updated Global PCB Shipment Forecast

We have updated our monthly PCB shipment model by region reflecting the recent, sharp recent downturn in China/Taiwan (Chart 14). On a consolidated basis, world PCB shipments dropped 1.3% in 2015 versus 2014 and will likely increase 1% in 2016 (Chart 15). We update these charts monthly.

Thanks to our colleague Dr. Hayao Nakahara Chart 16 shows his recently updated PCB forecast by major country for 2011 to 2017. Naka’s methodology is different than ours (he personally visits MANY PCB producers) but his results are consistent with our world PCB model in Charts 14 & 15.

Sources: N.T. Information Ltd. & Custer Consulting Group

Custer Consulting Group at IPC Expo/APEX, Las Vegas, March 15-17, Booth 515

Please stop by Custer Consulting Group’s Booth #515 at the Las Vegas Convention Center and say hello to Nancy, Jon and Walt.

Custer will be speaking during these sessions:

EMS Management Council
Market Outlook for Global Electronics Industry with emphasis on EMS Market
Monday, March 14, 10:30 AM
Renaissance Las Vegas Hotel:
Renaissance II Meeting Room

IPC Buzz session
Market Outlook for the Global Electronics Supply Chain
Speaker: Walter Custer, President, Custer Consulting Group
Speaker: Sharon Starr, Director, Market Research, IPC
Thursday, March 17, 9:00 am - 10:00 am
Location: S224

PC Market Stabilization Remains Elusive Goal despite Pockets of Growth (Chart 17)

The outlook for PC shipments continues to call for eventual stabilization as competition from other devices eases, upgrades to new models and Windows 10 boost demand, and economic conditions around the world stabilize or improve. However, the decline in PC volume since early 2012 is still expected to linger through 2016 with later years struggling to boost volumes as economic issues and competing products continue to present headwinds, according to the International Data Corporation.

Expectations for the fourth quarter of 2015 and early 2016 were already fairly low as PCs have struggled with competition from tablets and phones as well as weak economic conditions for several years now. However, the impact of falling commodity prices and foreign currencies has further depressed demand, and the ability to upgrade older hardware to Windows 10 has provided an option to further stretch the life of older PCs. Inventory clearing, which had been a challenge for much of 2015, also continues to depress demand from channels – particularly as the market shifted out of the seasonally high-volume fourth quarter into much lower volume first quarter. These factors have reduced the outlook for 2016 by a couple percent to a decline of 5.4% for the year. The outlook for later years has been reduced by about a percent – still technically touching positive growth in 2018 and effectively "stabilizing" volume, although not avoiding small declines in particular quarters and years.

Although competition from tablets in general has diminished, with volume falling 10% in 2015, the detachable tablet market was invigorated with new large-screen models targeting PC replacements. The volume of these products more than doubled in 2015, though that was still under 6% of PC volume. Combining detachable tablets with PCs, the market would still decline about a percent in 2016, and volume would remain well below peak PC shipments from 2011, but the market would return to low-single-digit growth beyond 2016.

"PCs remain an indispensable part of the tech landscape," said Loren Loverde, Vice President, Worldwide Tracker Forecasting and PC research. "However, replacements continue to be postponed, and future shipments increasingly depend on replacing older PCs. Detachable tablets and phablets will remain formidable competitors to traditional PCs throughout the forecast."

Despite the constraints on overall growth, ultraslim and convertible notebooks are expected to grow substantially by 2020, with convertibles more than doubling and ultraslim increasing by over 70% while all-in-one desktop volume will increase by more than a third over the same time. In addition, volume of notebooks with screens smaller than 14 inches will continue to grow, as will lower-priced PCs. The largest PC vendors are still well positioned to consolidate share – and can grow if they leverage these product trends.

"In addition to specific devices, the SMB and education segments are expected to do better than the overall market," said Jay Chou, Research Manager, Worldwide PC Tracker, "There have been indications of faster commercial adoption of Windows 10 than of past operating systems, and that should support some growth in the medium term. Similarly, IT access for students remains a priority, and will drive projects across regions – even though constrained government spending may limit some projects."


World Server Revenue Grew 8.2% in 4Q’15, Shipments Increased 9.2% (Charts 18-21)

In the fourth quarter of 2015, worldwide server revenue increased 8.2% year-over-year, while shipments grew 9.2% from the fourth quarter of 2014, according to Gartner, Inc. In all of 2015, worldwide server shipments grew 9.9%, and server revenue increased 10.1%.

"The real growth driver for the quarter in terms of absolute value was the Other Vendors category," said Jeffrey Hewitt, research vice president at Gartner. "This collection of unspecified vendors that includes original design manufacturers (ODMs), like Quanta and Wistron, contributed over $750 million in revenue and over 170,000 server unit shipments for the period.

This demonstrates that the growth of hyperscale data centers, like those of Facebook, Google and Microsoft, continues to be the leading contributor to physical server increases globally."

In the fourth quarter of 2015, the regions with the highest growth rates in terms of unit shipments were Asia/Pacific (20.1%), North America (8.5%) and Western Europe (4.3%). All regions except Asia/Pacific, North America and Western Europe declined in vendor revenue, with those particular geographies exhibiting growth of 19.7%, 9.7% and 8.0%, respectively.

Even as its revenue declined 2.2% in the fourth quarter of 2015, Hewlett Packard Enterprise (HPE) led the worldwide server market based on revenue with 25.2% of the market. Of the top five global vendors, all but HPE showed growth for the quarter. The primary decline in HPE's server shipments can be attributed to a global weakness in Windows-based x86 servers, while the decline in revenue was driven mostly by a drop in RISC/Itanium Unix server sales for the period.


Collaborative Robot Market Expected to Increase Tenfold between 2015 and 2020, Reaching over $1 billion from $95 million in 2014 (Charts 22 & 23)

See link below for detailed discussion.

World Enterprise Storage Systems Factory Revenue declined 2.2% y/y to $10.4 billion during 4Q’15 (Charts 24-27)

Total worldwide enterprise storage systems factory revenue declined 2.2% year-over-year to $10.4 billion during the fourth quarter of 2015 (4Q’15), according to the International Data Corporation. Total capacity shipments were up 10.7% (year-over-year) to 35.5 exabytes during the quarter. Revenue growth declined within the group of original design manufacturers (ODMs) that sell directly to hyperscale datacenters. This portion of the market was down 14.4% year over year to $1.2 billion. Sales of server-based storage were up 6.1% during the quarter and accounted for $2.2 billion in revenue. External storage systems remained the largest market segment, but the $7.0 billion in sales represented a 2.3% year-over-year decline.

"The enterprise storage market closed out 2015 on a slight downturn, as spending on traditional external arrays continues to decline," said Liz Conner, Research Manager, Storage Systems. "Over the past year, end user focus has shifted toward server-based storage, software-defined storage, and cloud-based storage. As a result, traditional enterprise storage vendors are forced to revamp and update their product portfolios to meet these shifting demands."

4Q’15 Total Enterprise Storage Systems Market Results

Flash-Based Storage Systems Highlights
The total All Flash Array (AFA) market generated $955.4 million in revenue during the quarter, up 71.9% year-over-year. The Hybrid Flash Array (HFA) segment of the market continues to be a significant part of the overall market with $2.9 billion in revenue and 28.0% market share.


Enterprise WLAN market grew 5.9% y/y in 4Q’15, and 3.7% for the full year 2015 (Chart 28)

Worldwide WLAN Market Sees Best Growth of Lukewarm Year in the Fourth Quarter of 2015, According to IDC

The combined consumer and enterprise worldwide wireless local area network (WLAN) market increased 1.4% year-over-year in the fourth quarter of 2015 (4Q’15), while declining -0.3% for the full year 2015. According to the results published in the International Data Corporation (IDC) Worldwide Quarterly WLAN Tracker, the enterprise segment grew 5.9% year-over-year in 4Q’15, experiencing its best growth quarter of the year, an improvement from the sub-5% growth of the previous three quarters. While 4Q’15 represented an improvement, the market grew at a tepid 3.7% for the full year, less than half of what the market experienced in 2014. The current deceleration of the annual growth rate, as compared to previous years, is largely due to the confluence of two factors: a hold on new WLAN projects due to the uncertain short-term trajectory of the global economy and market anticipation of the full availability of Wave 2 802.11ac products.

"While weaker compared to what was seen prior to 2015, the growth experienced in 4Q’15 was higher than that of the previous three quarters," said Nolan Greene, Research Analyst, Network Infrastructure at IDC. "Expected fourth quarter refresh cycles were certainly at play here across the world, with organizations preparing for greater digital transformation initiatives in 2016."


World Ethernet Switch and Enterprise and Service Provider Router Markets Post Positive Results for 4Q’15 and Full Year 2015 (Charts 29)

The worldwide Ethernet switch market (Layer 2/3) exceeded $6.4 billion in revenue in the fourth quarter of 2015 (4Q’15), an increase of 3.2% year-over-year and a healthy increase of 5.1% quarter over quarter. For the full year 2015, the market increased 1.9% over 2014. Meanwhile, the worldwide total enterprise and service provider (SP) router market also improved in 4Q’15, growing 4.0% on a year-over-year basis and was up 9.9% quarter-over-quarter. For the full year 2015, the router market was up 5.6% over 2014. These growth rates are according to results published in the International Data Corporation (IDC) Worldwide Quarterly Ethernet Switch Tracker and Worldwide Quarterly Router Tracker.

"The seasonal fourth quarter spike was alive and well in 2015, helping the market to achieve respectable growth," said Rohit Mehra, Vice President, Network Infrastructure, at IDC. "At the same time, price erosion continues to obscure the rapidly increasing demand for switching infrastructure to meet the explosive needs of cloud and mobility across service provider and enterprise segments. We expect the market to remain competitive as vendors look to new strategies to offset lower average selling prices."


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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