May U.S. Electronics Shipments and Orders

The U.S. Durable Goods report for May was just released. It shows little growth for domestic electronic equipment orders and shipments:

  • Electronic equipment 3-month average book/bill ratio dropped below 1.0 (Chart 1).
  • The 3/12 growth rate of electronic equipment orders declined to near “zero growth” (Chart 2).
  • Electronic equipment orders and shipments were little changed from April to May (Chart 3).
  • Defense capital goods orders recovered from April to May (Chart 4).
  • Aircraft & parts shipments increased thanks to stronger non-defense sales (Chart 5).
  • Aircraft and parts orders weakened from April (Chart 6).
  • Communication (Chart 7) and computer (Chart 8) orders were flat.


N American PCB Shipments down 3.1% y/y & Bookings decreased 7.3% y/y in May 2017 (Charts 9-11)

North American PCB Business Weakens but Book-to-Bill Ratio Remains Positive IPC Releases PCB Industry Results for May 2017

IPC — Association Connecting Electronics Industries® announced the May 2017 findings from its monthly North American Printed Circuit Board (PCB) Statistical Program. PCB sales and orders were both down compared to last year. Weaker orders caused the PCB book-to-bill ratio to retreat but it remained positive at 1.05.

Total North American PCB shipments in May 2017 were down 3.1% compared to the same month last year. This year to date, shipments are 4.3% below the same period last year. Compared to the preceding month, May shipments decreased 26.7%.

PCB bookings in May decreased 7.3% year-on-year, pushing year-to-date order growth back into negative territory at 1.3% below the same period last year. Bookings in May were down 33.6% compared to the previous month.

“May was a slow month for the North American PCB industry as both sales and orders were below last year’s levels,” said Sharon Starr, IPC’s director of market research. “Although weak orders pulled the book-to-bill ratio down from April’s 20-month peak, the good news is that the ratio remains above parity (1.00) for the fourth consecutive month, which is a positive indicator for strengthening sales in the second half of the year,” she added.


Custer Comments:

  • Both the domestic electronic equipment and PCB book/bill ratios are weakening (Chart 12) as their 3/12 growth rates are at or near no-growth territory (Chart 13).
  • Weak demand across the U.S. electronic equipment end markets has negatively impacted N. American PCB orders.
  • The North American PCB leading indicator is weakening suggesting the domestic PCB shipment growth will not recover short term (Chart 15).

DRAM ASPs to Rise 5% Sequentially in 3Q’17 as Supply Remains Tight

DRAMeXchange, a division of TrendForce, reports that DRAM suppliers are now negotiating with their clients over the third-quarter contracts during this latter half of June. As there is no easing of undersupply in the DRAM market, prices continue to climb. DRAMeXchange estimates that the overall ASP of DRAM products will rise by about 5% this third quarter compared with the second quarter. Suppliers can therefore expect further increases in their profits.

“Although the end demand, particularly from the smartphone market, has not been strong this year, the general pace of manufacturing technology migration has been slow and is contributing to the tightening of supply,” said Avril Wu, research director of DRAMeXchange. “This situation is anticipated to last to 2018 since suppliers will not take on significant additional production capacity in the short term. Meanwhile, ASPs of various DRAM products will remain high.”

Diversification of end products adds complexity to DRAM production Compared with previous cycles, the major difference for this cycle is the impact of new types of application demand has on the DRAM production. In the past, DRAM products were fewer in types and had similar specifications because they were mainly for PCs and smartphones, which were the two dominant applications. This also meant that fluctuations in end market demand and changes in the macroeconomic environment could cause large swings in DRAM prices.

Now, other applications for DRAM have emerged, such as graphic processing, cloud computing, automotive electronics and hardware acceleration for machine learning. Product solutions in these markets are generally at the early stages of their lifecycles, so there is a high level of customization for related components, including memory. For DRAM suppliers, offering customized products introduces complexity to the allocation of their existing production capacity. Furthermore, DRAM products for the emerging applications do not experience large price swings because of their lifecycles and smaller supply volumes. On the whole, application-specific DRAM products have helped stabilize the general price trend.

In the third quarter, shipments of smartphones and PCs are not expected to be especially robust. However, demand related to the building of data centers and the year-end busy season for consumer electronic vendors will propel the DRAM market and drive up prices. The stock market, which is the usual leading market indicator, has shown price rally since last week. In the contract market, prices of server DRAM modules have spiked up. DRAMeXchange expects server DRAM modules to experience the most noticeable sequential price increase in the third quarter by around 3% to 5% on average. On account of these trends, the overall ASP of DRAM products are projected to go up by at least 5% in the third quarter compared with the second quarter.


Worldwide Cloud IT Infrastructure Revenues Grew 14.9% to $8 Billion in 1Q’17 (Charts 16 & 17)

According to the International Data Corporation, vendor revenue from sales of infrastructure products (server, storage, and Ethernet switch) for cloud IT, including public and private cloud, grew 14.9% year over year in the first quarter of 2017, reaching $8 billion.

Cloud IT infrastructure sales as a share of overall worldwide IT spending climbed to 39% in 1Q’17, a significant increase from 33.9% a year ago. Revenue from infrastructure sales to private cloud grew by 6.0% to $3.1 billion and to public cloud by 21.7% to $4.8 billion. In comparison, revenue in the traditional (non-cloud) IT infrastructure segment decreased 8.0% year over year in the first quarter of the year. Private cloud infrastructure growth was led by Ethernet switch at 15.5% year-over-year growth, followed by storage (excluding double counting with servers) at 10.0% and server at 2.1%. Public cloud growth was led by storage, which after heavy declines in 1Q’16 grew 49.5% year over year in 1Q’17, followed by Ethernet switch at 22.7% and server at 8.7%. In traditional IT deployments, server declined the most (9.3% Year-over-year), with Ethernet switch and servers declining 4.4% and 6.1%, respectively.

"After a weak performance during 2016, storage purchases for cloud IT environments had a strong rebound in the first quarter, driving the overall growth in this segment," said Natalya Yezhkova, research director for Enterprise Storage at IDC. "Overall, the first quarter set a strong beginning of the year for the cloud IT infrastructure market. With positive dynamics in purchasing activity by hyperscalers across all technology segments we expect a strong year ahead for the fastest growing public cloud segment. And as end users continue to embrace the benefits of private cloud infrastructures, spending in this segment will also expand." From a regional perspective, vendor revenue from cloud IT infrastructure sales grew fastest in Canada at 59.1% year-over-year in 1Q’17 off a small base (overall cloud IT infrastructure market in Canada was just under $100 million in 1Q’17), followed by Asia/Pacific (excluding Japan) at 18.7%, Japan at 15.3%, the United States at 15.1%, Middle East and Africa at 13.2%, Western Europe at 8.9%, Latin America at 7.8%, and the Central and Eastern Europe at 7.2%.

Due to the existing joint venture between HPE and the New H3C Group, IDC will be reporting external market share on a global level for HPE as "HPE/New H3C Group" starting from Q2 2016 and going forward.


World CMOS Image Sensor Sales Expected to Increase 8.7% CAGR from $11.5 billion in 2017 to $15.9 billion in 2021 (Chart 18)

Nonstop CMOS Image Sensor Sales Records Seen Through 2021

Embedded imaging applications in cars, security, machine vision, medical, virtual reality, wearable systems, and other new uses will offset slow growth in camera phones, according to the report.

CMOS image sensor sales are on pace to reach a seventh straight record high this year and nothing ahead should stop this semiconductor product category from breaking more annual records through 2021 (Figure 1), according to IC Insights’ 2017 O-S-D Report—A Market Analysis and Forecast for Optoelectronics, Sensors/Actuators, and Discretes.

After rising 9% in 2017 to about $11.5 billion, worldwide CMOS image sensors sales are expected to increase by a compound annual growth rate (CAGR) of 8.7% to $15.9 billion in 2021 from the current record high of $10.5 billion set in 2016, based on the five-year forecast in the 360-page O-S-D Report, which covers more than 40 different product categories across optoelectronics, sensors and actuators, and discrete semiconductors.

After strong growth from the first wave of digital cameras and camera-equipped cellphones, image sensor sales leveled off in the second half of the last decade. However, another round of strong growth has begun in CMOS image sensors for new embedded cameras and digital imaging applications in automotive, medical, machine vision, security, wearable systems, virtual and augmented reality applications, and user-recognition interfaces.

Competition among CMOS image sensor suppliers is heating up for new three-dimensional sensing capability using time-of-flight (ToF) technology and other techniques for 3D imaging and distance measurements. ToF determines and senses the distance of faces, hand gestures, and other things by measuring the time it takes for light to bounce back to sensors from emitted light (often an infrared laser or LED). CMOS technology has progressed to the point of supporting integration of ToF functions into small chip modules and potentially down to a single die. Sony, Samsung, OmniVision, ON Semiconductor, STMicroelectronics, and others have rolled out and developed 3D image sensors. Infineon has also jumped into the image sensor arena with a 3D offering that is built in ToF-optimized CMOS technology.

Automotive systems are forecast to be the fastest growing application for CMOS image sensors, rising by a CAGR of 48% to $2.3 billion in 2021 or 14% of the market’s total sales that year, according to the 2017 O-S-D Report. CMOS image sensor sales for cameras in cellphones are forecast to grow by a CAGR of just 2% to $7.6 billion in 2021, or about 47% of the market total versus 67% in 2016 ($7.0 billion). Smartphone applications are getting a lift from dual-camera systems that enable a new depth-of-field effect (known as “bokeh”), which focuses on close-in subjects while blurring backgrounds—similar to the capabilities of high-quality single-lens reflex cameras.


Worldwide Wearables Market to Nearly Double by 2021 (Charts 19 & 20)

Global smart wearable devices shipments will increase 20.4% y/y to 125.5 million units in 2017 As the wearables market transforms, total shipment volumes are expected to maintain their forward momentum. According to data from the International Data Corporation (IDC) Worldwide Quarterly Wearable Device Tracker, vendors will ship a total of 125.5 million wearable devices this year, marking a 20.4% increase from the 104.3 million units shipped in 2016. From there, the wearables market will nearly double before reaching a total of 240.1 million units shipped in 2021, resulting in a five-year CAGR of 18.2%.

“The wearables market is entering a new phase,” points out Ramon T. Llamas, research manager for IDC’s Wearables team. “Since the market’s inception, it’s been a matter of getting product out there to generate awareness and interest. Now it’s about getting the experience right – from the way the hardware looks and feels to how software collects, analyzes, and presents insightful data. What this means for users is that in the years ahead, they will be treated to second- and third-generation devices that will make today’s devices seem quaint.

Expect digital assistants, cellular connectivity, and connections to larger systems, both at home and at work. At the same time, expect to see a proliferation in the diversity of devices brought to market, and a decline in prices that will make these more affordable to a larger crowd.” “It’s not just the end users who will benefit from these advanced devices,” said Jitesh Ubrani senior research analyst for IDC Mobile Device Trackers. “Opportunities also exist for developers and channel partners to provide the apps, services, and distribution that will support the growing abundance of wearables. From a deployment perspective, the commercial segment also stands to benefit as wearables enable productivity, lower costs, and increase ROI in the long term.

Top Products

  • Watches: We anticipate that watches will account for the majority of all wearable devices shipped during the forecast period. However, a closer look shows that basic watches (devices that do not run third party applications, including hybrid watches, fitness/GPS watches, and most kid watches) will continue out-shipping smart watches (devices capable of running third party applications, like Apple Watch, Samsung Gear, and all Android Wear devices), as numerous traditional watch makers shift more resources to building hybrid watches, creating a greater TAM each year. Smart watches, however, will see a boost in volumes in 2019 as cellular connectivity becomes more prevalent on the market.
  • Wrist Bands: Once the overall leaders of the wearables market, wristbands will see slowing growth in the years ahead. The sudden softness in the wristband market witnessed at the end of 2016 will carry into subsequent quarters and year, but the market will be propped up with low-cost devices with good enough features for the mass market. In addition, users will transition to watches for additional utility and multi-purpose use.
  • Earwear: We are not counting Bluetooth headsets whose only task is to bring voice calls to the user. Instead, we are counting those devices that bring additional functionality, and sends information back and forth to a smartphone application. Examples include Bragi’s Dash and Samsung Gear Icon X. In most cases, the additional feature centers on collecting fitness data about the user, but can also include real-time audio filtering or language translation.
  • Clothing: The smart clothing market took a strong step forward, thanks to numerous vendors in China providing shirts, belts, shoes, socks, and other connected apparel. While consumers have yet to fully embrace connected clothing, professional athletes and organizations have warmed to their usage to improve player performance. The upcoming release of Google and Levi’s Project Jacquared-enabled jacket stands to change that this year.
  • Others: We include lesser known products like clip-on devices, non-AR/VR eyewear, and others into this category. While we do not expect an immense amount of growth in this segment, it will nonetheless bear watching as numerous vendors cater to niche audiences with creative new devices and uses.


China “Official” Manufacturing PMI was 51.7 in June (Chart 21)

The manufacturing sector in China continued to expand in June, and at a faster pace, the latest survey from the National Bureau of Statistics showed with a manufacturing PMI score of 51.7.

That beat forecasts for 51.0, and it's up from 51.2 in May.

It also moves farther above the boom-or-bust line of 50 that separates expansion from contraction.

The bureau also said that its non-manufacturing PMI came in with a score of 54.9, up from 54.5 in the previous month.

Source: China National Bureau of Statistics

Custer comment: This “official” China manufacturing PMI is different from the one published by Markit Economics and obtained from Caixin. See Chart 21 for comparison.

Metal Prices

Prices for copper (Chart 22), tin (Chart 23), silver (Chart 24) and gold (Chart 25) were little changed from May to June).

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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