Europe Update

Eurostat just released January 2017 European electronic supply chain production by product.

  • The European manufacturing expansion as the Eurozone PMI leading indicator is at its highest level in six years (Chart 1).
  • The euro remains at its weakest point versus the U.S. dollar since 2003 (Chart 2).
  • Total Eurozone industrial production increased in January led by Germany’s strong performance (Chart 3).
  • Computer, Electronic and Optical Products Production rose sharply (Chart 4).
  • Motor vehicle production rebounded (Chart 5) but aircraft and aerospace output weakened slightly (Chart 6).
  • Instrument and control equipment production reached an all-time high (Chart 7) and medical electronics production rebounded (Chart 8).
  • Semiconductor shipments to Europe are in balance with electronic equipment production on a 3/12 growth basis (Chart 9).
  • Wiring device production dropped sharply in January (Chat 10) however the PMI leading indicator points to continued growth ahead (Chart 11).
  • Loaded board production (electronic assembly) was near its all-time high (Chart 12).

Source: Eurostat and Markit Economics with Custer Consulting Group analysis

World SEMI manufacturing equipment sales rose 13% to $41.24 billion in 2016

SEMI reported that worldwide sales of semiconductor manufacturing equipment totaled $41.24 billion in 2016, representing a year-over-year increase of 13%. 2016 total equipment bookings were 24% higher than in 2015. 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 $41.24 billion in 2016, compared to $36.53 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 Rest of World (primarily Southeast Asia), China, Taiwan, Europe and South Korea while the new equipment markets in North America and Japan contracted. Taiwan claimed the largest market for new semiconductor equipment for the fifth year in a row with $12.23 billion in equipment sales. South Korea remained the second largest market for the second year in a row. The market in China increased 32%, surpassing both Japan and North America to become the third largest market. The 2016 equipment markets in Japan and North America fell to fourth and fifth place, respectively. The global other front-end segment decreased 5%; the wafer processing equipment market segment increased 14%; total test equipment sales increased 11%; and the assembly and packaging segment increased 20%.


Taiwan-based IC Design Houses expect IC demand from PC sector not to pick up until August

Taiwan-based IC design houses have said that chip orders from notebook and other PC makers have been flat in March, and a major rebound of chip orders from the PC industry may not come until August.

Most PC clients have generally held back their IC orders after the Lunar New Year holidays even though Intel and AMD reportedly have continued to ramp up shipments of their new platforms, said the sources.

Some IC design houses, including Realtek Semiconductor, ASMedia Technology, Parade Technologies, Cmedia, Elan Microelectronics, ENE Technology and Global Mixed-mode Technology (GMT), have become more conservative about their business outlook for the second quarter compared to an upbeat mood they had a quarter earlier, said the sources.


Pegatron expects 1Q’17 notebook shipments to decrease 20-25% on quarter and motherboards and desktops to slip 15-20%

ODM Pegatron expects first-quarter 2017 shipments of notebooks to decrease 20-25% on quarter, motherboards and desktops to slip 15-20% and revenues from non-IT product lines for the quarter to drop 35-40%, according to the company.


Worldwide Augmented and Virtual Reality headset shipments to grow at 58% CAGR from 10.1 million units to 99.4 million units in 2021 (Charts 13 & 14)

New device launches, an expanding array of content for both consumer and enterprise users, and lower price points will propel the worldwide augmented and virtual reality headset device market at a breakneck pace. According to data from the International Data Corporation (IDC) Worldwide Quarterly Augmented and Virtual Reality Headset Tracker, total headset device shipments will reach 99.4 million units in 2021, up nearly 10-fold from the 10.1 million units shipped in 2016. This results in a compound annual growth rate (CAGR) of 58% across the five-year forecast period.

"2016 marked an important step for the AR and VR headset market with product finally arriving in end users' hands and on their heads," noted Ramon Llamas, research manager with IDC's Augmented and Virtual Reality team. "While there was clear demand coming primarily from technology enthusiasts, what became readily apparent were the use cases for enterprise users across multiple verticals and for consumers with gaming and content consumption. This sets the stage for the multiple aspects of the market that device makers, platforms and content providers, and developers will be addressing in the months and years to come."

For enterprise users, AR and VR is expected to raise productivity, allowing workers to see and interact with data, like a building blueprint or human organs, instead of viewing a static image on a screen. Changes and procedures can be mapped out ahead of time before moving on to the actual work, saving companies two precious resources: time and cost. Vertical markets, such as manufacturing and design, health care, transportation, and retail stand to benefit the most.

Meanwhile, for consumers, AR and VR will provide immersive experiences to consume content. Already, content providers are developing solutions to bring "as-if-you-were-there" experiences, like attending a concert or sports event from the comfort of one's couch. Additionally, gaming on AR and VR will transport players into outer space or the battlefield, several steps beyond what they currently experience on a PC or television screen. Layer on top of this the social element that users will have sharing experiences and it becomes clear how AR and VR will appeal to consumers.

Although AR remains as the minority portion of the market in terms of shipments, these headsets are expected to bring in significantly more revenue over the course of the forecast as the value of AR headsets grows from $209 million in 2016 to $48.7 billion in 2021. Meanwhile, VR headsets grow from $2.1 billion in 2016 to $18.6 billion in 2021. "With all the technological enhancements, there will be a wide range of products and price points," said Jitesh Ubrani senior research analyst for IDC's Mobile Device Trackers. "VR setups already range from sub-$100 to more than $1000 and though it's too early to tell, the low-cost experiences may prove to be inhibitors rather than promoters of the technology as they can potentially disappoint first time VR users.

"On the other hand, due to the sophistication of the hardware, most AR headsets are expected to cost well over $1000," continued Ubrani. "This makes the technology far less accessible to consumers initially, though that's probably for the best as the AR ecosystem and wide social acceptance are still a few years away."


China's Industrial Internet of Things growing to 450 billion RMB (about $65 billion) by 2020 - roughly 1/4 of China's whole IoT market (Charts 15 & 16)

China is betting big on the Industrial Internet of Things (IIoT).

The Chinese government projects the country’s Industrial Internet of Things to grow to 450 billion RMB (about $65 billion) by 2020 – occupying roughly one quarter of China’s whole IoT market. The IIoT segment in China has maintained a growth rate of more than 25%.

At present, Chinese enterprises whose status can be described as Industrial 3.0 know they need a lot of improvements, especially in cost control, production efficiency and process management.

Nevertheless, the Chinese government is pushing hard the development of IIoT in China.

In the context of encouraging energy conservation and green environmental protection, China has fostered a process of manufacturing upgrades in recent years. Based on the IoT "Sensing China" proposition in 2009, China’s Ministry of Industry and Information issued in 2012 the "Internet of things 12th Five-Year Development Plan.” China’s Premier Li Keqiang signed the China version of "Industry 4.0" in 2015, with a goal to extend it to "Made in China 2025.”

The proposal of "Made in China 2025" integrates the digitization of information technology and manufacturing technology into the process and combines them with intelligent manufacturing, laying groundwork for future development. In the next 10 years, the goal is to transform China from “a manufacturing big house” to “a manufacturing super house.”

China's IIoT industrial chain consists mainly of component suppliers (such as sensors, RFID, chips, etc.), system integrators, internet operators (data transmission) and service platform providers.

Efforts to lay out China's IIoT are still embryonic. Still, thanks to the IIoT application environment and a concentrated demand for apps, China’s IIoT sector is growing faster than that of consumer IoT applications. For the moment, the big winners from this trend are component manufacturers and system integrators. As the industry grows, demand for services will increase and network operators and service platform providers will look for bigger profits, potentially turning them into a major power behind the IIoT market.

One of the clear indicators of IIoT in China can be illustrated in the growth of manufacturing equipment for numerical controls (NC). Such equipment is more widely used by large-scale enterprises. The NC market for manufacturing equipment is expected to increase 3.3% annually during China’s "13th Five-Years."

IIoT comes in various forms in China, including intelligent production processes, massive customization, cloud manufacturing platforms, collaborative manufacturing and collaborative innovation platforms, B2B industry e-commerce and intelligent product development tools.

Industrial enterprises use internet technology and connectivity actively to reform production processes and product forms to improve quality and efficiency. They also leverage enterprise services offered by the internet service industry. The expectation is that China’s internet services and industrial applications will grow hand in hand, feeding off each other and creating diversified applications.

For example, Haier uses an interconnected factory business model. The consumer electronics giant integrates users’ diversified needs and demands, interacts with users and invites them to participate in the design and manufacture of the process.

The idea is that "consumers" become “creators.” The company's Shenyang refrigerator interconnected factory has developed a flexible mass customization/manufacturing process, supporting nine platforms and more than 500 models.

This interconnected factory has three components. First, customization integrates users’ varied needs while transforming the process from inventory production to user creation.

Second, interconnection with users in real time ranges from product research to product manufacturing, suppliers and logistics providers. It covers the whole process and integrates the whole supply chain.

Third, by visualizing the whole process, users get to experience the product creation process in real time.


U.S. Companies Still Hold Largest Share of Fabless Company IC Sales (Chart 17)

Largest fabless IC market share increase has come from Chinese suppliers, who now hold a 10% share.

IC Insights’ McClean Report shows that fabless IC suppliers represented 30% of the world’s IC sales in 2016 (up from only 18% ten years earlier in 2006). As the name implies, fabless IC companies do not have an IC fabrication facility of their own.

Chart 17 depicts the 2016 fabless company share of IC sales by company headquarters location. As shown, at 53%, the U.S. companies held the dominant share of fabless IC sales last year, although this share was down from 69% in 2010 (due in part to the acquisition of U.S.-based Broadcom by Singapore-based Avago). Although Avago, now called Broadcom Limited after its merger with fabless IC supplier Broadcom became official on February 1, 2016, has fabrication facilities that produce III-V discrete devices, it does not possess its own IC fabrication facilities and is considered by IC Insights to be a fabless IC supplier.

There was only one Chinese company in the top-50 fabless IC supplier ranking as compared to 11 in 2016. Moreover, since 2010, the largest fabless IC market share increase has come from the Chinese suppliers, which held a 10% share last year as compared to only 5% in 2010. However, when excluding the internal transfers of HiSilicon (over 90% of its sales go to its parent company Huawei), ZTE, and Datang, the Chinese share of the fabless market drops to about 6%.

European companies held only 1% of the fabless IC company market share in 2016 as compared to 4% in 2010. The reason for this loss of share was the acquisition of U.K.-based CSR, the second largest European fabless IC supplier, by U.S.-based Qualcomm in 1Q’15 and the purchase of Germany-based Lantiq, the third largest European fabless IC supplier, by U.S.-based Intel in 2Q’15. These acquisitions left U.K.-based Dialog ($1.2 billion in sales in 2016) as the only Europe-headquartered fabless IC supplier in the fabless top 50-company ranking last year (Norway-based Nordic Semiconductor just missed making the top 50 ranking with 2016 sales of $198 million).

There is also only one major fabless Japanese firm—Megachips, which saw its sales increase by 20% in 2016 (8% using a constant 2015 exchange rate), one major South Korean fabless IC company (Silicon Works), and one major Singapore-based (Broadcom Ltd.) fabless supplier.


U.S. Industrial Production rose in February

U.S. industrial production was up slightly versus February 2016 (Chart 18). Globally most key countries are seeing industrial production increases (Chart 19).

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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