07/13/2016 //
The U.S. Department of Commerce released its “Factory Orders” report for May. This is a more detailed version of its Durable Goods report released a week earlier. It contains monthly shipments, orders and inventories of domestically manufactured goods including many related to the electronic supply chain.
Chart 14 summarizes the annualized (12/12) and 3-month (3/12) growth of the domestic supply chain.
Source: www.census.gov/indicator/www/m3/
Global Semiconductor Sales Up Slightly in May
The Semiconductor Industry Association (SIA) announced worldwide sales of semiconductors reached $26.0 billion for the month of May 2016, an increase of 0.4% compared to the previous month’s total of $25.9 billion, but a decrease of 7.7% compared to the May 2015 total of $28.1 billion. Month-to-month sales into all regional markets held relatively steady, with China leading the way with 3.1% market growth. All monthly sales numbers represent a three-month moving average.
“The small uptick in global semiconductor sales in May marked the market’s largest month-to-month growth in six months, but the overall landscape remains somewhat stagnant due to soft demand and unfavorable macroeconomic conditions,” said John Neuffer, president and CEO, Semiconductor Industry Association. “Most regional markets have struggled to gain traction in 2016, with the Americas falling well behind sales posted through the same point last year. Sales of analog products were a bright spot in May, notching both month-to-month and year-to-year increases.”
Source: www.semiconductors.org
Custer Comments:
Weak global economy and poor DRAM market to drag down growth this year.
The health of the semiconductor industry is increasingly tied to the health of the worldwide economy. Rarely can there be strong semiconductor market growth without at least “good” worldwide economic growth to support it. Consequently, IC Insights expects annual global semiconductor market growth rates to continue to closely track the performance of worldwide GDP growth. In its upcoming Mid-Year Update to The McClean Report 2016 (to be released at the end of July), IC Insights forecasts 2016 global GDP growth of only 2.3%, which is below the 2.5% level that is considered to be the global recession threshold.
In many areas of the world, local economies have slowed. China, which is the leading market for personal computers, digital TVs, smartphones, new commercial aircraft, and automobiles, is forecast to continue to lose economic momentum in 2016. Its GDP is forecast to increase 6.6% this year, which continues a slide in that country’s annual GDP growth rate that started in 2010 when growth rates exceeded 10%.
IC Insights believes that the worldwide economy will be negatively impacted, at least over the next year or two, by the Brexit vote this past June. At this point, since the U.K. is unlikely to officially be able to leave the European Union (EU) for a couple of years, the biggest negative effect on economic growth is the uncertainty of the entire situation. Some of the uncertainty created by the vote includes:
The other major “culprit” dragging down semiconductor industry growth this year is the very weak DRAM market. At $45.0 billion, the DRAM market was the largest single product category in the semiconductor industry in 2015. IC Insights forecasts that the DRAM market will register a 19% drop of $8.5 billion this year to $36.5 billion. The DRAM market alone is forecast to shave three percentage points off of total semiconductor market growth this year. Semiconductor market growth excluding DRAM is forecast to be +2%.
Most of the DRAM market decline expected for this year is due to a rapid decline in DRAM pricing over the past 18 months. For 2016, the average price for a DRAM device is forecast to drop to $2.55, a steep 16% decline as compared to 2015’s DRAM ASP of $3.03.
Source: www.icinsights.com
Worldwide IT spending is forecast to be flat in 2016, totaling $3.41 trillion, according to Gartner, Inc. This is up from last quarter's forecast of - 0.5% growth. The change in the forecast is mainly due to currency fluctuations.
“The current Gartner Worldwide IT Spending Forecast assumes that the U.K. would not exit the European Union. With the U.K.'s exit, there will likely be an erosion in business confidence and price increases which will impact U.K., Western Europe and worldwide IT spending,” said John-David Lovelock, research vice president at Gartner.
While the U.K. has embarked on a process to change, that change is yet to be defined. The “leave” vote will quickly affect IT spending in the U.K. and in Europe while other changes will take longer. Staff may be the largest immediate issue. The long-term uncertainty in work status will make the U.K. less attractive to new foreign workers. Retaining current non-U.K. staff and having less access to qualified new hires from abroad will impair U.K. IT Departments.
“2016 marked the start of an amazing dichotomy. The pace of change in IT will never again be as slow as it is now, but global IT spending growth is best described as lackluster,” said Lovelock. “2016 is the year that business focus turns to digital business, the Internet of Things and even algorithmic business. To fund these new initiatives, many businesses are turning to cost optimization efforts centering around the new digital alternatives (for example, SaaS instead of software licenses, voice over LTE [VoLTE] instead of cellular and digital personal assistants instead of people) to save money, simplify operations and speed time to value. It is precisely this new breadth of alternatives to traditional IT that will fundamentally reshape what is bought, who buys it and how much will be spent.”
Data center systems' spending is projected to reach $174 billion in 2016, a 2% increase from 2015. The market is driven by strong growth in the server markets in Greater China and Western Europe, and a strong refresh cycle in the North American enterprise network equipment market.
Global enterprise software spending is on pace to total $332 billion, a 5.8% increase from 2015. North America is the dominant regional driving force behind the growth. It is responsible for $11.6 billion of the $24 billion dollar increase in 2016. At a segment level, the fastest-growing market continues to be customer relationship management software.
Devices spending is projected to total $627 billion by the end of 2016. The lackluster economic issues surrounding Russia, Japan and Brazil will hold back demand and worldwide PC recovery in 2016. Additionally, Windows 10 upgrades have further led to PC buying being delayed — consumers are willing to use older PCs longer, once they are upgraded to Windows 10. Spending in the IT services market is expected to increase 3.7%, totaling $898 billion. Japan is the fastest-growing region for IT services spending with 8.9% growth. With an increase in digital business projects, Japanese companies are starting to better understand that they need consulting support to transform their business and advice around new technologies from consultancy companies. Critically, they now see real value in those services and consequently are willing to pay for the services.
Communications services spending is projected to total $1.38 trillion in 2016, down 1.4% from 2015. Japan leads the growth in communications services, with 8.3% growth, while Greater China adds the most dollars to spend with just more than $8.3 billion. Eastern Europe, Western Europe and North America all are forecast to decrease as price wars and declining usage affect virtually all communications services markets.
Source: www.gartner.com
Global shipments of motherboards in the second quarter of 2016 are estimated at decrease by over 20% or even 30% on quarter, according to Taiwan-based component makers, adding that some Taiwan- and China-based second-tier makers will withdraw from the market.
Source: www.digitimes.com
Digital still camera shipments dropped to their lowest level covered in the Camera and Imaging Products monthly statistics. The consumer preference for picture taking via smartphones was the big culprit but an earthquake damaged sensor factory limited more recent camera shipments.
Source: www.cipa.jp/
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.