November Flash PMI Leading Indicators
Markit Economics released preliminary November purchasing managers’ indices for a few key countries:
- Chart 1 compares the October to “flash” November PMIs. All countries reported are experiencing expanding manufacturing activity (PMI>50).
- Manufacturing activity in the USA (Chart 2) and the Eurozone (Chart 3) accelerated while Japan (Chart 4) saw slightly slower growth.
JEITA released September electronic production data for Japan:
- Almost all sectors of the Japanese electronic supply chain saw sharply decreased domestic production in 3Q’16 vs. 3Q’15 (Chart 5).
- Domestic electronics production in general has been dropping since its peak in year 2000 (Chart 6).
- Semiconductor shipments to Japan have been contracting at a faster rate than domestic electronic equipment production. However the 3/12 growth rates appear to have bottomed for both series (Chart 7). That is, both series are still contracting but at slower rates.
- Domestic Integrated circuit & discrete component production improved in September (Chart 8) however component and device production (Chart 9) is still contracting compare to this time in 2015 (3/12 <1).
- Passive component production has been increasing from its recent May low point (Chart 10).
- PCB production has also grown from its May 2016 low (Chart 11) but on a 3/12 basis it is still contracting versus the same 3-month period in 2015 (Chart 12).
- Japan’s PMI leading indicator points to continued PCB contraction but at a slower contraction rate in the near term (Chart 13).
Copper Prices Increasing Sharply due to Anticipated Stronger Global Demand (Chart 14)
Copper metal prices are rising due to anticipated stronger demand in China and other industrialized countries. In addition the battery market has become a more profitable copper foil outlet versus PCBs.
Prices for copper foil used in printed circuit board manufacturing are rising due to both increased copper prices and competing end uses. According to our colleague Michel Gasch suppliers of copper foil in Asia have already rededicated about 20% of their foil capacity for battery purposes. Gasch reported that the political aim of China is pushing e-transport (buses, cars, scooters, bicycles) by stipulating the requirement of a growing percentage of electric vehicles from 2018 onwards. This may lead to shortages and price increases. Gasch noted that in fact, PCB laminate prices in Asia are rising already and validity of prices is short.
Laminate price increases due to copper foil costs were a common topic of conversation at Electronica, Munich in mid-November.
Source: M Gasch of Data4PCB and http://futures.tradingcharts.com/chart/CP/B9
N America-based SEMI Equipment Manufacturers October 2016 Book/Bill=0.91 (Charts 15 & 16)
SEMI reported that the 3-month average of worldwide SEMI equipment bookings in October 2016 was $1.49 billion, 5.1% lower than September 2016 and is 12.2% higher than the October 2015.
The 3-month average of worldwide billings in October 2016 was $1.63 billion, 9.0% higher than September 2016 and 19.8% higher than the October 2015.
"Total equipment billings increased 9 % in October over September, while bookings contracted 5%,” said Denny McGuirk, president and CEO of SEMI. “As the result, the book-to bill ratio for October dropped below parity for the first time in 11 months, even though bookings and billings activity remains at elevated levels relative to last year.”
World 3Q’16 Electronic Supply Chain Sector Growth
With most companies in our sector composites having now reported their 3Q’16 financials here are the still preliminary but almost complete results by global electronics sector:
- Electronic equipment revenues increased 1.3% in 3Q’16 vs 3Q’15 (Charts 17 & 18)
- Automotive equipment revenues were up a strong 15.5% (Chart 19).
- Military equipment sales declined 3.4% (Chart 20).
- Instrument & control equipment sales dropped 4.1% (Chart 21) but medical equipment rose 8.3% (Chart 22).
- Communication equipment revenues saw little growth (Chart 23). It should be noted that mobile phone revenue growth is difficult measure due to the increasing share of smaller China-based smartphone producers. There are some data on unit volumes available but limited or no sales or average prices publicly available for many Chinese phone suppliers.
- Computer gear sales declined 2.2% (Chart 24).
- Datacom revenues shrank 1.6% and data storage equipment sales were off 4.2% (Chart 25).
- Semiconductor fab, test & measurement equipment 3Q’16 vs. 3Q’15 sales rose 15% (Chart 27). This is historically a very volatile sector.
- Based upon very preliminary results solar/photovoltaic revenues declined 3% in 3Q’16 (Chart 28).
Be cautioned that although the 3Q’16 financial data are mostly complete these charts are still estimates of third quarter electronic supply chain performance. However they should be close.
Source: Company financial reports compiled and analyzed by Custer Consulting Group
Global Mobile DRAM Revenue Rose 16.8% Sequentially in 3Q’16 (Charts 29-31
DRAMeXchange, a division of TrendForce, reported that sales of mobile DRAM surged in the third quarter as the smartphone industry was in its traditional inventory buildup season and the global DRAM market enjoyed an across-the-broad price increase. Consequently, the mobile DRAM revenue for the quarter rose by about 16.8% sequentially to around US$4.59 billion.
“The market releases of Apple’s iPhone 7 and Samsung’s Galaxy Note 7 generated a large wave of stock-up demand in the global mobile DRAM market during the third quarter,” said Avril Wu, research director of DRAMeXchange. “Even though Samsung later had to discontinue the production of Note 7 in the fourth quarter, the launch of the flagship device already contributed significantly to the third-quarter mobile DRAM sales.”
The conversion of suppliers’ third-quarter mobile DRAM revenues into market shares reveals that Samsung grew its market share to 64.5%, while SK Hynix and Micron respectively held on to 22.8% and 10.6%. Collectively, the top three DRAM suppliers represented about 97.9% of mobile DRAM market worldwide. The fourth-largest mobile DRAM supplier in the third quarter was Nanya and its global market share was only 1.3%.
“Mobile DRAM also accounted for 43.5% of the total DRAM revenue worldwide in the third quarter,” Wu pointed out. “Going forward, Samsung’s competitors in the smartphone market will try to expand their device production and shipments to capture the market share that Samsung lost due to the Note 7 incident. At the same time, prices of mobile DRAM will still be going up.
Thus, sales of mobile DRAM are expected to make up a greater share of industry’s revenue in the fourth quarter.”
Global Smartphone Production Volume to Grow Just 4.5% Annually in 2017
Global market research firm TrendForce has lowered the projected annual growth rate of smartphone production worldwide for 2016 to 2.5%. Though shipments from Chinese smartphone brands have been fairly strong, other international brands have suffered significant shipment declines, thus constraining the growth in the overall production.
Looking ahead to 2017, global smartphone production volume is forecast to reach nearly 1.4 billion units, an increase of around 4.5% compared with the prior year. Double-digit growth that took place in the past years will not return as the smartphone market faces challenges in terms of developing new and innovative applications for devices.
Chinese brands may see slowing shipments next year; their respective growth results will be based on their overseas expansion efforts
“Owing to large shipment growths from OPPO and Vivo, about 45% of smartphones produced worldwide this year – around 600 million units – belong to Chinese brands,” said TrendForce analyst Avril Wu. “However, growth in OPPO’s and Vivo’s smartphone production volumes could be reaching a plateau this year. Since both brands focus mainly on their domestic market and lack visibility in foreign markets, they will have difficulty in maintaining strong growth momentum in 2017.”
For 2017, TrendForce forecasts that combined smartphone production volume of Chinese brands will total around 634 million units, representing 45.6% of the annual global production volume. Collectively, Chinese brands are expected to register flat growth in annual production next year. Performances of individual companies, on the other hand, will depend on their overseas expansion efforts. To establish a presence in foreign markets, Chinese brands will need to obtain the necessary IPs as well as support from local telecom companies. Failing to do these things will confine them in their home market, where market share growth is difficult to achieve and margins are being squeezed by the fierce price competition.
Samsung to face challenges in growing shipments next year while Apple is expected to gain market share with the next iPhone
Samsung has focused on promoting its Galaxy S7 devices as a way to keep up its smartphone production during this fourth quarter. This move is also a response to the massive loss of confidence in the brand following the discontinuation of the fire-prone Galaxy Note 7. Samsung’s main challenges in the smartphone market next year will be to regain consumers’ trust in the large-size segment and continue to make advancements in the hardware of their devices.
Apple is projected to post an annual decline of 11.5% in its iPhone production volume for 2016. Though iPhone sales remain sluggish this year, Wu pointed out that the smartphone supply chain and consumers are looking forward to the next iPhone that will be released in 2017.
“Upgrades for the next iPhone may include an AMOLED display, all-glass casing, more DRAM, a narrow bezel, the removal of home button and so on,” noted Wu. “Consumers’ interests in the next iPhone will provide an opportunity for Apple to gain grounds in the smartphone market in 2017. TrendForce’s latest analysis indicates that Apple’s iPhone production volume for 2017 will increase by around 8.9% compared with the prior year.”
AMOLED will be the focus of hardware upgrade next year with Samsung and Apple widely adopting the technology
Wu pointed out that sales of iPhone have fallen below expectations mainly because Apple did not make a significant upgrade to the display of iPhone 7. “Consumers are now anticipating major advances for the 2017 release. There are reports that the large-size model of the next iPhone will have an AMOLED display as well as an all-glass casing, thus making its design radically different from the previous generations.”
Besides Apple, Samsung is expected to significantly increase the number of devices equipped with AMOLED displays within its smartphone offerings as well. Samsung, which has the advantage of obtaining AMOLED panels in house, will continue to feature the technology for its upcoming flagship Galaxy S8, as well as for other mid-range and high-end models.
Chinese smartphone brands are also jumping on the AMOLED bandwagon. However, the penetration of this technology in their offerings will be limited because of Samsung’s monopoly over the supply of small-size AMOLED panels. TrendForce forecasts that the penetration rate of AMOLED displays in the global smartphone market will reach around 28% in 2017 and rise to 40% or above in 2018, when LG Display will also begin to supply small-size AMOLED panels.