Weekly Global Update for March 15, 2017

Worldwide Semiconductors Sales up 13.9% in January 2017

Year-to-year growth is market's largest since November 2010; month-to-month sales decrease slightly

The Semiconductor Industry Association (SIA) announced worldwide sales of semiconductors reached $30.6 billion for the month of January 2017, an increase of 13.9% compared to the January 2016 total of $26.9 billion. Global sales in January were 1.2% lower than the December 2016 total of $31.0 billion, reflecting normal seasonal market trends. January marked the global market's largest year-to-year growth since November 2010. All monthly sales numbers are compiled by the World Semiconductor Trade Statistics (WSTS) organization and represent a three-month moving average.

"The global semiconductor industry is off to a strong and encouraging start to 2017, posting its highest-ever January sales and largest year-to-year sales increase in more than six years," said John Neuffer, president and CEO, Semiconductor Industry Association. "Sales into the China market increased by more than 20% year-to-year, and most other regional markets posted double-digit growth. Following the industry's highest-ever revenue in 2016, the global market is well-positioned for a strong start to 2017."

Custer Comments:

• Total global shipments were up 13.9% in January 2017 vs. January 2016 on a 3-month average basis with all regions showing shipment increases (Chart 1).
• Although shipments were up compared to last January they declined sequentially from December (Chart 2).
• Our CCG semiconductor leading indicator continues to point to further growth ahead although the rate of this growth will likely moderate (Chart 3).
• Viewing the shipments on a 1-month basis the January decline is most obvious in Asia/Pacific and North America (Chart 4).
• Disturbingly semiconductor shipment growth to North America is again well in excess of end market growth suggesting that another downward chip correction must occur soon (Chart 5)
• Globally China plus the balance Asia/Pacific consumed over 61% of total semiconductor shipments in January with Europe and Japan taking an ever declining percentage (Chart 6).
   

Source: www.semiconductors.org
www.wsts.org

Taiwan/China Update

February sales were just released by Taiwan-listed companies, many of which manufacture in China:

• Electronic equipment revenues in February 2017 were up 7% versus February 2016 but down 10% sequentially from January 2016 (Chart 7). Normal seasonality was obvious.
• ODM sales showed similar seasonality with February 2017 up 9.7% versus February 2016 but down 10% sequentially from January 2016 (Chart 8).
• Wafer foundry sales have declined since December (Chart 9). They are a leading indicator for global semiconductor shipments (Chart 10) and even much more so for SEMI equipment (Chart 11).
• Package and test revenues also dropped sharply (Chart 12) and to a lesser extent memory (Chart 13).
• Passive component revenues also fell in February (Chart 14).
• Solar/photovoltaic sales have been shrinking for almost a year (Chart 15).
• Printed circuit revenues have declined since December (Chart 16).
• Rigid laminate sales have held relatively stable compared to PCB revenues (Chart 17). Possibly a laminate price increase (due to copper foil shortages) has offset weaker volume demand?
   

Source: Company financial reports analyzed by Custer Consulting Group

Global Fab Equipment Spending expected to reach industry all-time record, to more than US$46 billion in 2017 and US$50 billion in 2018 (Charts 18 & 19)

• Buckle Up for Record Spending in 2017 and 2018
• Unprecedented spending for fab equipment expected
   

Fab equipment spending is expected to reach an industry all-time record, to more than US$46 billion in 2017, according to the latest version of the SEMI (www.semi.org) World Fab Forecast. The record is expected to be broken again in 2018, nearing the US$50 billion mark.

These record-busting years are part of three consecutive years of growth (2016, 2017 and 2018), which has not occurred since the mid-1990s.

SEMI published its update of the World Fab Forecast report at the end of February 2017. This report provides updates to 282 facilities and lines equipping in 2017, 11 of which are expected to spend over $1 billion each in 2017. In 2018, SEMI’s data reflect 270 fabs to equip, with 12 facilities spending over $1 billion each.

The spending is mainly directed towards memory (3D NAND and DRAM), Foundry and MPU. Other strong product segments are Discretes (with LED and Power), Logic, MEMS (with MEMS/RF), and Analog/Mixed Signal.

China in third place for spending in 2017 an second in 2018

China is forecasted to run third for regional spending in 2017, although China’s annual growth is minimal in 2017 (about 1%), as many of the new fab projects are in the construction phase. China is busy constructing 14 new fabs in 2017 and these new fabs will be equipping in 2018. China’s annual spending growth rate in 2018 will be over 55% (more than $10 billion), and ranking in second place for worldwide spending in 2018.

In total for 2017, China is equipping 48 fabs, with equipment spending of $6.7 billion; looking ahead to 2018, SEMI predicts 49 fabs to be equipped, with spending of about $10 billion.

Other regions also show solid growth rates. Europe/Mideast and Korea are expected to make the largest leaps in terms of growth rates this year with 47% growth and 45% growth, respectively, year-over-year (YoY). Japan will increase spending by 28%, followed by the Americas with 21% YoY growth.

Source: www.semi.org

China Smartphone Vendors Conservative about placing component orders

Competition in China's smartphone market is getting keener, forcing some players including Huawei, Xiaomi, Vivo and LeEco to turn more conservative about placing orders with upstream component suppliers, according to sources from Taiwan's handset supply chain.

Due to high inventory levels at the channels, which were left over from the fourth quarter of 2016, some vendors have even delayed their launch of new models from the first to second quarters, the sources noted.

Although Huawei shipped 139 million smartphones in 2016, profits yielded from the handset business unit in the year were lower than expected, indicated the sources, adding that Huawei is likely to consolidate it handset team in order to reduce the operating costs.

Xiaomi and LeEco were forced to raise the prices for some of their models recently, but the price hikes have resulted in decreased sales for their smartphones, forcing them to become even more conservative on placing orders for components, the sources added.

Second-tier smartphone vendors are likely to be marginalized, affected by rising component prices and dwindling demand, noted the sources.

Shipments of smartphones in the China market are expected to fall below 100 million units in the first quarter of 2017, down from 130 million of a quarter earlier, the sources estimated.

Source: www.digitimes.com

NAND Flash Revenue grew 17.8% sequentially in 4Q’16 as Supply Shortage reached Its Most Severe Phase (Charts 20 & 21)

In the fourth quarter of 2016, the NAND Flash market was at its most severe phase of shortage for the year while shipments in the end device markets were robust. Consequently, average sales prices (ASPs) of NAND Flash products rose significantly, and the fourth-quarter global NAND Flash revenue registered a large sequential increase of 17.8% even with the strong third-quarter result as the base. NAND Flash suppliers made a strong finish to 2016 as their profits also peaked in the final quarter.

“Contract prices of NAND Flash products in the first quarter of 2017 will continue to climb due to the undersupply situation caused by the industry-wide migration to 3D-NAND architecture,” said Sean Yang, research director of DRAMeXchange, a division of TrendForce. “End demand has fallen compared with the fourth quarter of last year because of seasonality, so the growth in NAND Flash revenue will be moderate. On the whole, suppliers can expect sequential revenue increase for every quarter in 2017 as the market supply is expected to remain tight through the year.”

Source: www.trendforce.com

Worldwide Ethernet switch (Layer 2/3) Market grew 2.4% y/y to $24.4 billion in 2016 while the Global Router Market grew 1.3% y/y to $14.58 billion (Charts 22 & 23)

• Quarterly Ethernet Switch and Router Trackers Show Slight Yet Continuous Growth for 4Q2016 and Full-Year 2016
• Worldwide Ethernet Switch Market Increased 3.5% Year-over-Year in Fourth
• Quarter of 2016; Router Market Up 1.5%
   

The worldwide Ethernet switch market (Layer 2/3) recorded $6.7 billion in revenue in the fourth quarter of 2016 (4Q16), an increase of 3.5% year over year. For the full year 2016, the market recorded $24.4 billion in revenue, for a full year growth rate of 2.4%. Meanwhile, the worldwide total enterprise and service provider (SP) router market recorded $3.87 billion in revenue in 4Q16, increasing 1.5% on a year-over-year basis. For the full year 2016, this market finished at $14.58 billion, an increase of 1.3% over 2015. These growth rates are according to International Data Corporation (IDC)

"As the Ethernet switching market reaches a greater level of maturity from 1GbE to 10GbE, it is increasingly characterized by customers moving more quickly to higher speeds at lower port costs, especially in the datacenter," said Rohit Mehra, vice president, Network Infrastructure at IDC. "While overall port shipments continue to grow, it is the revenues from the fastest speeds that continue to buoy the market."

Source: www.idc.com

Worldwide Large Format Printer shipments grew 4.5% y/y to $3.87 billion in 2016 (Chart 24)

The Worldwide Quarterly Large Format Printer Tracker from International Data Corporation (IDC) found that large format printer (LFP) shipments and revenue grew by more than 4% Year- over-year in 2016.

"The mix of printers continues to change as the technology and the needs of end users evolve," said Tim Greene, research director, Hardcopy Solutions at IDC. "The need to invest in the latest technology, to expand their business, to improve their bottom line, and even just to remain competitive is one of the defining characteristics of the large format digital printing market."

Comments

• Eco-solvent inkjet printer shipments grew 8.5% year over year in 2016. The resilience of eco-solvent printers is largely driven by the growth of Chinese suppliers in that segment and primarily in the domestic Chinese market.
• UV-curable inkjet printers are another bright spot, with UV-curable inkjet printer shipments up 15% year over year in 2016.
   

Source: www.idc.com

China will continue to dominate the 4K TV market, with 42% of all TVs in 2017 expected to ship with 4K panels (Chart 25)

Japanese set makers aggressively switch to 4K product ranges

China will continue to dominate the 4K TV market, with 42% of all TVs in 2017 expected to ship with 4K panels, according to a white paper released by IHS Markit (Nasdaq: INFO), a world leader in critical information, analytics and solutions, ahead of Cable Congress 2017.

In 2016, more than 25 million 4K TVs shipped in China. By 2020, that number is expected to almost double to 44 million, the same as the next two regions (Western Europe and North America) combined. In Western Europe, more than 8 million 4K TVs shipped in 2016, forecast to increase to 19 million in 2020. North American shipments are forecast to more than double, from 11.7 million in 2016 to 25.9 million in 2020.

“China is on a different trajectory to the rest of the world when it comes to 4K TVs,” said Paul Gray, principal analyst, IHS Markit. “It is getting hard to buy a large screen TV in China without 4K. Japanese set makers also aggressively switched to 4K product ranges, especially in their domestic market, but shipments in Japan remain constrained by consumer preferences for screen sizes too small to support 4K.”

8K pixel race
“Aggressive competition in the LCD display industry is fueling a pixel race,” Gray said. “Panel makers have added 8K resolutions to their road maps and product plans, a process that will accelerate as new Chinese LCD fabs start production.”

However, the IHS Markit white paper highlights a few challenges for 8K. The high pixel density demands that either a very large screen or short viewing distance is necessary.

China will dominate 8K shipments as its early-adopting consumers are likely to be eager for new features. 65-inch will be the dominant 8K size, driven by affordable pricing in China. While Japan is planning 8K broadcasts from 2020, for most regions 8K video content will remain scarce for the foreseeable future.

Source: www.ihs.com