March Flash PMI Leading Indicators

March preliminary (flash) Purchasing Managers Indices were just released by Markit Economics for select countries. The results were mixed (Chart 1).

  • Eurozone manufacturing growth continued strong as its PMI reach a 6-year high (Chart 2).
  • USA (Chart 3) and Japan (Chart 4) registered slower manufacturing growth although both remained well in expansion territory (PMI>50).


Japan Update

JEITA released January production for the Japanese electronic supply chain:

  • January 2017 electronic equipment production was 5% below January 2016 and almost 14% December 2016 (Charts 5 & 6).
  • The 3/12 growth of electronic equipment, although still contracting (3/12>1), is improving from its low in early 2016. Timewise it is trailing the 3/12 growth of semiconductor shipments to Japan (Chart 7).
  • IC production plunged from its December spike (Chart 8).
  • Printed circuit production continued weak (Chart 9) although its rate of contraction is diminishing (improving 3/12 per Chart 10).
  • Component and device 3/12 growth has returned to “break even” versus the same 3-month period a year ago (Chart 11).


U.S. February Electronic Supply Chain Shipments and Orders

The U.S. Department of Commerce just released its February Durable Goods report:

  • The U.S. electronic equipment book/bill climbed to 1.04 on a 3-month average basis, its highest level since May 2016 (Chart 12).
  • Both electronic equipment order and shipment growth improved on a 3/12 basis (Chart 13) as January orders remained well above shipment (Chart 14).
  • Defense capital goods orders continued to drop (Chart 15) as their 3-month average book/bill fell to 0.87 (Chart 16).
  • Aircraft and parts shipments held steady (Chart 17) but non-defense aircraft orders rebounded (Chart 18).
  • Communication equipment orders weakened slightly (Chart 19) but computer orders and shipments improved marginally (Chart 20).
  • While semiconductor shipment growth to N. America is in excess of end market growth, electronic equipment growth is improving (Chart 21).


PC vendors to hike prices in 3Q’17 to reflect continual hikes in component costs, including display panels, DRAM, SSDs, Li batteries

PC vendors, in order to reflect continual hikes in component costs, including display panels, DRAM, SSDs, Li batteries, plan to raise retail prices when new models equipped with revised Kaby Lake processors are launched in the third quarter of 2017, according to sources from the upstream supply chain.

Intel is planning to release upgraded Kaby Lake processors in the third quarter and PC vendors are expected to release new products with increased prices to target back-to-school demand.

Lenovo COO Gianfranco Lanci, at an analyst conference in February, said that PC component shortages have not improved and the company will raise its PC prices in order to reflect some of the increased costs.

Asustek Computer CEO Jerry Shen also recently noted that the company's biggest challenges in 2017 are exchange rate fluctuations and component price hikes. To minimize the impact from the component pricing, Asustek is also planning to increase the prices for its new products.

The component shortages are also expected to create more pressure on small PC vendors, as big vendors placing bigger amounts of component orders will be given priority by their suppliers.


Notebook vendors to hike prices 5-15% in 2Q’17 due to increase in component costs

To cope with increasing demand from smartphone vendors, component makers have been shifting their capacity to manufacture smartphone-use products. This has impacted the makers' supply volumes for notebook components, causing quotes to rise. In response, most notebook vendors are planning to hike their retail prices by 5-15% in the second quarter of 2017, according to sources from the upstream supply chain.

Smartphone vendors having been aggressively pushing their smartphone shipments for 2017, and the sources believe component supply will only grow tighter.

PC vendors have already seen solid state drive (SSD) quotes for March increase 30%. Panel prices, after seeing an 8-9% increase in the fourth quarter of 2016, are currently stable since panel makers still have some inventory, but as stockpiles deplete, panel prices are expected to start rising in the second half.

Because of the impact, notebook shipments' annual shipments are estimated to reach only 140-150 million units in 2017. The rising product prices are expected to cause related vendors to see difficulties achieving further growth.


Motherboard players see shipments drop in 1Q’17 despite new processors from AMD, Intel

Despite Intel and AMD having both launched new processors for the first quarter, motherboard players continued to suffer decreased shipments in the quarter and demand is also unlikely to pick up in the second, according to sources from the upstream supply chain.


Pre-5G commercial operations to kick off earlier than expected

At Mobile World Congress 2017, three trends of wireless networking/communication development were revealed: Commercial operation of pre-5G networks will begin ahead of the original schedule; mobile telecom carriers are driven to change their roles to cope with fast IoT growth; 5G networks will be extensive through daily life, according to Digitimes Research.

Pre-5G prototype devices were showcased at MWC 2016, and end-to-end solutions based on pre-5G technology were exhibited at MWC 2017, meaning that pre-5G technology is out of the laboratory, Digitimes Research indicated.

Pre-5G communication technologies, including millimeter wave, MIMO/MU-MIMO, beam tracking, are expected to enter small-scale commercial operations in 2018.

In addition to developing network slicing architecture, mobile telecom carriers have begun to develop LPWAN (low-power wide area network) services on unlicensed frequency bands for IoT.


Worldwide converged systems market revenues decreased 1.4% y/y to $3.09 billion and market consumed 1.6 exabytes of new storage capacity in 4Q’16

According to International Data Corporation (IDC) worldwide converged systems market revenues decreased 1.4% year over year to $3.09 billion during the fourth quarter of 2016 (4Q’16). The market consumed 1.6 exabytes of new storage capacity during the quarter, which was up a moderate 4.0% compared to the same period a year ago. For the full year 2016, worldwide converged systems market revenues increased 5.8% to $11.3 billion when compared to 2015.

"The converged systems market is going through a period of change," said Eric Sheppard, research director, Enterprise Storage & Converged Systems. "We are seeing strong growth from products with new architectures, increased levels of automation, and heavy use of software-defined technologies. This growth has been offset by reduced spending on traditional converged systems and a conscious decision by some vendors to terminate some parts of their product portfolio."

IDC defines converged and hyperconverged systems as pre-integrated, vendor-certified systems containing server hardware, disk storage systems, networking equipment, and basic element/systems management software. Systems not sold with all four of these components are not counted within this tracker. Specific to management software, IDC includes embedded or integrated management and control software optimized for the auto discovery, provisioning and pooling of physical and virtual compute, storage and networking resources shipped as part of the core, standard integrated system.


Nintendo expects to ship 20 million Switch devices in first year

Nintendo estimates shipments of the Switch in its first year at 20 million units, according to Taiwan-based supply chain makers, adding that they have a conservative estimate of shipping at least 10 million units in the first year.


Fabless IC suppliers sold $90.4 billion of chips in 2016 or 30% of the world's IC sales; Europe's share of the global market for fabless chips halved to 1%

Europe's share of the global market for fabless chips has halved to 1% in a year and the continent is left with just one company in the global top 50 of fabless chip suppliers, according to IC Insights.

Fabless IC suppliers sold $90.4 billion of chips in 2016 or 30% of the world's IC sales (up from only 18% ten years earlier in 2006).

Europe's collapse from 2% of the market in 2015 and 4% in 2010 is due to the sell-off of various European companies and business units. UK-based CSR, the second largest European fabless IC supplier was acquired by U.S.-based Qualcomm in 1Q’15 and Germany-based Lantiq, the third largest European fabless IC supplier, went to U.S.-based Intel in 2Q’15.

Dialog Semiconductors plc with $1.2 billion in sales in 2016 is now the only Europe-headquartered fabless IC supplier in the fabless top 50-company ranking. Norway-based Nordic Semiconductor just missed making the top 50 ranking with 2016 sales of $198 million.

However, the US also lost significant market share – from 62% in 2015 to 53% in 2016. This was due to the acquisition of US-based Broadcom by Singapore-based Avago, which then changed its name to Broadcom. Although the newly named Broadcom 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 is only one significant Japanese fabless chip company – Megachips – which saw its sales increase by 20% in 2016; one major South Korean fabless IC company (Silicon Works), and one major Singapore-based (Broadcom Ltd.) fabless supplier.

Chinese market share rose with the market in 2016 so that its fabless chip vendors still represent 10% of the market, as they did in 2015. 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%, IC Insights said.

But it is notable that as recently as 2009 China had one company in the top-50 fabless IC supplier ranking as compared to 11 in 2016.


Global self-driving sensing systems market value will rise to US$2.34 billion in 2025, 3.2 times that in 2015

Along with the fast development of self-driving technology, there will be increased demand for driver sensing systems used to monitor drivers for determining whether they are able to take over driving when self-driving breaks down, with the global market value for such sensing systems used in level 2 (partial self-driving combined with autonomous functions) and above self-driving to rise to US$2.34 billion in 2025, 3.2 times that in 2015, according to Digitimes Research.

Driver sensing systems mainly consist of image monitoring, biometric and alcohol detecting devices, with image monitoring devices being the most important because it is easy and quick to detect abnormal conditions about drivers from images, Digitimes Research indicated.

Image monitoring devices mainly consist of infrared (IR) LED sensors and camera modules. For example, Osram Opto Semiconductors adopts IR LED chips, with wavelength of 940nm for IR LED sensors, which can monitor details of drivers' facial expression even in the dark.

Since drivers' behavior and conditions face a large variation, driver sensing systems are expected to be integrated with artificial intelligence and deep learning to enhance precision of judgment.


Worldwide wearable device shipments will grow at 18.3% CAGR from 102.4 million in 2016 to 237.5 million in 2021

The overall wearables market is expected to return to strong growth after a brief slowdown in 2016 that resulted from delayed launches of major platforms and notable vendors struggling to maintain pace. Looking ahead, new vendors, emerging form factors, and an expanded number of retail outlets will drive worldwide wearable device shipments from 102.4 million in 2016 to 237.5 million in 2021, a five-year compound annual growth rate (CAGR) of 18.3%, according to new data from the International Data Corporation (IDC) Worldwide Quarterly Wearable Device Tracker.

"With the shift toward watches and clothing, the need of a fashionable design will take center stage," said Jitesh Ubrani senior research analyst for IDC Mobile Device Trackers. "Tech companies will be forced to step up their game and offer a wider selection of sizes, materials, and designs in order to appeal to a broader audience. We also expect more tech vendors to partner with fashion brands for their creativity, and equally important, their distribution network. In doing so, wearables will be made available to a previously unaware audience – one that frequents fashion outlets over tech outlets."

Earworn devices are also poised for growth as new startups bring their innovative technology to the table and traditional headphone companies incorporate additional capabilities beyond audio. Though growth is expected, volumes will remain somewhat modest as the primary features of health and fitness tracking "hearables" overlap with the more popular wrist worn devices.

In addition to the growth opportunity for these products, it is important to note the diversity of options within each category. "Watches struggled as mass market devices due to limited and unclear value proposition to a broad base of potential users," noted Ramon T. Llamas, research manager for IDC's Wearables team. "Most potential customers saw watches performing multiple functions, but none of them worked exceptionally well to accomplish a myriad of tasks. Going forward, we instead expect watches to hyper-segment into specific niches, including connected kids' watches, athletic watches, luxury and fashion watches, and lifestyle watches that better address different segment needs, whether they be communication, health and fitness, or as smart luxury and fashion timepieces. Not all of them will have the same features, but they will have enough – and the right ones – to do the job."

The same approach can be applied to emerging products. Llamas added, "Clothing, for example, can be designed to track athletic performance or to track vital information and communicate with workers – like first responders heading into dangerous situations. Similarly, companies are augmenting earwear with fitness tracking and smart coaching, while others are focusing on enhancing audio or providing real-time language translation. In both cases, the wearable is not taking a one-size fits all approach, and instead concentrates on specific solutions for specific use cases."


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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