European Update

Europe had a relatively good month in January:

  • Industrial production rose in a number of key countries (Chart 1).
  • Electronic equipment production reached its highest level since early 2008 (Chart 2).
  • Motor vehicle reached an all-time high (Chart 3) as did aircraft and aerospace equipment output (Chart 4).
  • Instruments and appliances for measuring, testing and navigation production also had a record high in January (Chart 5) and medical electronics rebounded (Chart 6).
  • Loaded electronic board (Chart 7) and wiring device (Chart 8) production improved.

Chart 9 summarizes the annualized (12/12) and 3-month (3/12) growth of the European electronic supply chain in January.

Source: Sources: Eurostat and SIA

Despite the strong January there are warning signs of a European slowdown:

  • The February Eurozone PMI leading indicator declined to its lowest level since early 2015 (Chart 10). It is still in expansion territory but the rate of growth has slowed.
  • The PMI leading indicator predicts weaker Eurozone PCB production y/y growth by midyear (Chart 11).
  • The business cycles for European electronic equipment production, semiconductor shipments (in euros) to Europe, SEMI capital equipment purchases and the European component distribution market are all at or near cyclical lows (Chart 12).

Source: Markit Economics, SEMI and Custer Consulting Group

Global SEMI Equipment Sales Fell 3% y/y to $36.5 Billion in 2015 (Chart 13)

SEMI reported that worldwide sales of semiconductor manufacturing equipment totaled $36.53 billion in 2015, representing a year-over-year decrease of 3%. 2015 total equipment bookings were 5% lower than in 2014. The data are available in the Worldwide Semiconductor Equipment Market Statistics (WWSEMS) Report, now available from SEMI.

Compiled from data submitted by members of SEMI and the Semiconductor Equipment Association of Japan (SEAJ), the Worldwide SEMS Report is a summary of the monthly billings and bookings figures for the global semiconductor equipment industry. The report, which includes data for seven major semiconductor producing regions and 24 product categories, shows worldwide billings totaled $36.53 billion in 2015, compared to $37.50 billion in sales posted in 2015. Categories cover wafer processing, assembly and packaging, test, and other front-end equipment. Other front-end includes mask/reticle manufacturing, wafer manufacturing, and fab facilities equipment.

Spending rates increased for Taiwan, Korea, Japan, and China, while the new equipment markets in North America, Rest of World, and Europe contracted. Taiwan remained the largest market for new semiconductor equipment for the fourth year in a row with $9.64 billion in equipment sales. The expanding markets in South Korea and Japan surpassed the North American market, to claim the second and third largest markets, respectively, while North America fell to fourth place at $5.12 billion. The China market remained larger than the Rest of World and European markets.

The global other front end segment increased 16%; the wafer processing equipment market segment decreased 2%; total test equipment sales decreased 6%; and the assembly and packaging segment decreased 18%.


Custer Comment: Notice how the business cycle for SEMI equipment is much more volatile than semiconductor device shipments (Chart 14).

North American Semiconductor Equipment Industry Posts February 2016 Book/Bill of 1.05 (Charts 15 & 16)

North America-based manufacturers of semiconductor equipment posted $1.26 billion in orders worldwide in February 2016 (3-month average basis) and a book-to-bill ratio of 1.05, according to SEMI.

SEMI reports that the 3-month average of worldwide bookings in February 2016 was $1.26 billion, 3.7% lower than the January 2016 and 3.9% lower than February 2015. The 3-month average of worldwide billings in February 2016 was $1.20 billion, 1.3% lower than January 2016 and 5.9% lower than February 2015.

"The book-to-bill ratio has remained at or above parity for three months in a row," said Denny McGuirk, president and CEO of SEMI. "The data indicate an improved spending trend in the second half of the year, driven by 3D NAND and 10nm investments."


Worldwide Wearable Device Shipments Expected to Grow 38.2% y/y to 110 Million Year end 2016 (Chart 17)

IDC Forecasts Worldwide Shipments of Wearables to Surpass 200 Million in 2019, Driven by Strong Smartwatch Growth and the Emergence of Smarter Watches

Worldwide shipments of wearable devices are expected to reach 110 million by the end of 2016 with 38.2% growth over the previous year. According to International Data Corporation (IDC) an expanding lineup of vendors combined with fast-growing consumer awareness and demand will generate double-digit growth throughout the 2015-2020 forecast period, culminating in shipments of 237 million wearable devices in 2020.

The market will also be driven forward by the proliferation of new and different wearable products. Watch and wristband shipments will reach a combined total of 100 million shipments in 2016, up from 72.2 million in 2015. Other form factors, such as clothing, eyewear, and hearables, are expected to reach 9.8 million units in 2016 and will more than double their share by 2020. This will open the door for new experiences, use cases, and applications going forward. Still, the primary focus of the wearables market will be on smartwatches.

"Although smartwatches like the Apple Watch or Android Wear devices capture the spotlight, they will only account for a quarter of all wearables in 2016 and will grow to about a third by 2020," said Jitesh Ubrani, Senior Research Analyst for IDC Mobile Device Trackers. "It's time to start thinking about smarter watches, traditional watches with some sort of fitness or sleep tracking but are unable to run apps—built by classic watch makers. These devices have the potential of making the technology invisible while still integrating themselves within day-to-day activities.

"By creating smarter watches, vendors also stand to side-step some of the typical challenges that smartwatch platforms face," added Ubrani. "There's no need to create a developer or app ecosystem for one thing, and there's plenty of room for simpler devices that appeal to the average user while smartwatches continue catering to the technophiles."

Meanwhile, smartwatches with an app ecosystem – like Apple's watchOS and Google's Android Wear – are expected to gain further salience in the market as both products and experiences evolve. "With few exceptions, this part of the smartwatch market is still in its initial stages," said Ramon Llamas, Research Manager for IDC's Wearables team. "We expect to see major changes, with smartwatches that actually look like watches, user interfaces that are easier than swipes and gestures, applications that rival those on our smartphones, and connections to networks, systems, and other devices. This puts pressure on smartwatch platforms to develop further from where they are today."


PC, Handset Component Suppliers Worry about Mounting Inventories

Suppliers in the PC and handset supply chains have begun to worry about piling up inventories of parts and components as current demand for PC and handset products has been falling short of market expectations, according to industry sources.

Although orders from some PC vendors have rebounded slightly, it is still difficult to say whether demand from the end-market has picked up, or the increased orders are part of PC vendors' tactics to ship as many as possible products to the sales channels, said the sources.

With regard to the handset market, while most brands are expected to release new models for 2016 starting the second quarter, demand in China and other emerging markets still remain uncertain, noted the sources.

Since the honeymoon periods for new phones have been shortened, any possible over-bookings of parts and components by vendors could lead to inventory pile-up, said the sources.

Additionally, the maturing smartphone market in China could also impede shipment momentum globally, added the sources.


DRAM Pricing may drop up to 40% in 2H’16, says Nanya

Increased DRAM capacity coming from advanced processing nodes from Samsung Electronics, SK Hynix and Micron Technology may result in some pricing uncertainty in the market in the second half of 2016, according to Taiwan DRAM maker Nanya Technology president Pei Ing Lee.

Lee stated that there will be price pressure in the second quarter of this year in the commodity DRAM market and Nanya expects the pressure to extend to other memory markets such for mobile devices, servers and consumer market applications. However, the company believes the amplitude of the drop will not be as extreme as was in the first quarter.

For the second half of the year, Lee expects demand for DRAM chips to be stronger than it was in the first half but market conditions are much less clear, with the key to pricing being how quickly Samsung, Hynix and Micron ramp up new capacity.

A price drop of 20-30% is possible, but if new capacity is ramped up quickly prices have the potential to drop 25-40%, Lee stated. Lee added that prices dropped 20-30% in 2015.


Front-end Fab Equipment Spending Forecast (Chart 18)

  • Slow but Positive 2016 Followed by Double Digits in 2017
  • 3D NAND, 10nm, and DRAM are Driving Forces

Front-end fab equipment spending (including new, used, and in-house) is projected to increase 3.7% in 2016 (to US$ 37.2 billion) and another 13% in 2017 (to $42.1 billion) according to most recent edition of the SEMI World Fab Forecast. Fab equipment spending for 2015 ended almost flat ($35.9 billion), with a slight decrease of -0.4% year-over-year.

SEMI’s World Fab Forecast report presents details of fab-related spending through the industry and extends the outlook through the end of 2017. Fab equipment spending is expected to pick up slowly in the first half of 2016, and accelerate into the second half when momentum starts to build for 2017, with a return to double-digit growth rates (see figure 1).

The biggest contributors to the growth are foundries, 3D NAND fabs, and companies beginning to equip and prepare for the 10nm ramp-up in 2017. Dedicated foundries continue to represent the largest spending segment. Spending for 2015 dropped slightly from $10.7 billion to $9.8 billion (-8% YoY), but is expected to increase by 5% in 2016 and almost 10% in 2017.

DRAM spending ranks second place after foundries. After a strong 2015, DRAM spending is expected to slow in 2016 (-23%) and increase again in 2017 by 10%.

In terms of spending growth rates, the big momentum comes from 3D NAND (including 3D XPoint). Spending doubled from about $1.8 billion in 2014 to $3.6 billion in 2015, 101% growth. In 2016, it will again rise to more than $5.6 billion (50% growth).

The increase in equipment spending is also supported by six companies, which are among the top 10 spenders globally. The six have announced plans to increase their respective capital expenditures in 2016, while the assumption for the largest spender, Samsung, is that capital expenditure will be less than in 2015.

Equipment spending growth for 2017 is also buoyed by new 24 facilities (excluding R&D) which began construction in 2015 or will begin construction this year. These projects are located around the world, including eight planned in China alone.

The industry has recently set records for mergers and acquisitions, and more are expected in 2016. The combined flat growth for semiconductor equipment spending in 2015 and slow growth in 2016 confirm a more mature industry. New technologies — new nodes and newer memory devices will drive the increase in spending currently forecasted for 2017.


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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